A Primer for Easements on Gas Pipelines
There is a unique legal device that empowers the government or private entities to run pipelines across someone’s property, deep beneath the surface. These devices are known as gas pipeline easements.
Landowners are often shocked when they receive a certified letter documenting a third party’s intent to put a pipeline across their property. These letters often contain: various documents that will give the third party the unrestricted ability to decide, without landowner input, the type and place of construction on the property; the assessed value of the property during different stages of a gas pipeline project; and the amount of money the third party is willing to pay as compensation for the adverse impacts. These pipeline easements rarely take into account the landowner’s opinion as to how the pipeline should be constructed, or where it should be placed. Moreover, the sums of compensation that are typically offered are extraordinarily low compared with what the pipeline will actually do to the landowner’s property, and these amounts are often reduced further by the costs of maintenance for items such as road wear, damage to crops, livestock or livestock facilities, future land depreciation, and more. Once that first letter arrives, the very little control the landowner had over their property suddenly vanishes. All that the landowner has left is the right to deny access to their property, until the third party can establish a right to proceed under state law. This screenlock scheme is accomplished in two ways. First, the third party typically agrees to immediately deposit funds with the Court to pay compensation, to ensure that the landowner does not suffer is esvially; then the Court orders a company to pay. Then , the third party must convince the court that they need the right to build a pipeline regardless of the landowner’s wishes. The first step in that process takes place at a temporary order hearing. There, the pipeline operator has the burden to establish that the taking is necessary. In other words, the court will not authorize the taking unless it is necessary. The second step occurs at the rarely employed "Final Order Hearing". In all likelihood, the company will be able to establish that the taking is necessary. Once the pipeline operator has established necessity, the pipeline operator can enter the property and build the pipeline. Neither environmental nor trespass concerns are sufficient to prevent a temporary order from being granted. The very implicit reasoning behind the easement law is the assumption that the deference to private property rights must yield to the will of a private business that wants to use a small part of the larger property for their own purposes. If the Court denies that idea, then the company is usually unsuccessful at any stage of the proceeding. Usually, the pipeline operator can maintain access to the property while the lawsuit is pending, which can sometimes take 10 years or longer.
This template is replicated in every state in the U.S. and its territories. That is because Article B of the U.S. Constiution, popularly known as the "Takings Clause," makes this power lawful. It does so by permitting the government to condemn private property for both public use and paying just compensation. This seems to set the standards that apply to these easements. However, there differences between them. For example, some states set out very specific definitions for temporary taking, while others only allow them with very broad definitions. All states require just compensation, however they are all find that the "fair market value", has a different meaning in each state.
Legal Basis for Pipeline Easements
Gas pipeline easements are primarily governed by federal and state laws, as well as regulations issued by the federal government. Federal law provides the federal government with the power to regulate the transportation and sale of natural gas for resale. This means that federal legislation, such as the Natural Gas Act ("NGA"), plays a significant role in the regulation of many aspects of the gas pipeline easement process.
Federal law governing the NGA and the Federal Energy Regulatory Commission ("FERC") applies broadly to the entire process of securing an easement. The NGA outlines the permitting requirements of a gas company. The General Rules and Regulations promulgated by FERC under the NGA outline the environmental review process the applicant must undertake, the alternative routes the applicant must consider, and the standard for granting permission to build the pipeline. In order to obtain a certificate of public convenience and necessity, which is required in order to use eminent domain power, the applicant must show that it is both a public utility and that the purpose and the location of the proposed pipeline project will serve the public convenience and necessity. Then, for a certificate of public convenience and necessity to be granted, the certificate application must also meet the requirements set forth in 15 U.S.C. § 717f. Requirements set forth in 18 C.F.R. § 157 are particularly noteworthy. Under the Emergency Natural Gas Act of 1977, the U.S. Secretary of Energy must ensure that the pipeline chosen to fulfill the customer’s emergency needs is undertaken. The federal government has policies in place to ensure that there are no waste or diminution to the national gas reserves. Thus, federal law seeks to prevent the loss of gas due to the inadequate maintenance of distribution systems. There are also acts in place to prevent "any one or more producers, gathers, pipe lines or marketers" from monopolizing the natural gas market. For example, under the Public Utility Regulatory Policies Act of 1978 ("PURPA"), which amended Sections 4 and 5 of the NGA, Congress sought to "encourage competition in the wholesale sales of [natural] energy and bulk power," and to replace electricity sales from local electric utilities with wholesale sales. Under PURPA, the FERC is directed to encourage "conservation and efficient use of national gas," as well as the development of cogeneration and small power production initiatives. The American Recovery and Reinvestment Act ("ARRA"), passed in response to the oil shock of 1973-74, is also significant. ARRA provided the federal government with the authority to designate national gas supply areas, which would allow supplies of natural gas to be serviced at reasonable prices.
Gas pipeline easements are also sensitive to state law and the decisions of state courts. The states traditionally possess the power to regulate the various types of property interests existing in the state. Moreover, the states have regulated real property interests through the uniformity of common law. Gas pipeline easement agreements may be invalidated if they are not subject to certain state laws, including laws pertaining to contract requirements, such as fraud, duress, consideration, illegal subject matter, and statute of frauds requirements.
Rights & Responsibilities of the Landowner
Landowners whose property contains an oil and gas pipeline easement (or any pipeline easement) have certain rights with respect to the easement and the rights and obligations of the pipeline company. The terms of the easement agreement (the terms may also be expressed in a separate contract with the pipeline company), including the purpose for which the property can be used, the size and location of the easement and access and use fees, will control how the easement can be used. However, notwithstanding the terms of the easement, under Louisiana law a surface owner is free to use its property for any activity not inconsistent with its use as a right of way. Utility companies generally have narrow corridors or strips of land and easement agreements only allow for use of the property as a right-of-way or easement for the purposes set forth therein. The terms typically provide that the utility has no interest in the land and no right to transfer the property but, rather, only a limited right to enter upon and use the property, in the manner described in the easement agreement, for the particular purposes of the easement. The easement agreement is typically registered in the Conveyance Records of the parish in which the property is located so that it is a matter of public record and the landowner and any subsequent purchasers are on notice of the limited rights of the pipeline company and their respective rights and obligations with respect to the pipeline easement. Not only do the landowners have rights with respect to the easement and the use of the servitude, but the landowners may also be entitled to compensation from the pipeline company, which terms are typically set forth in the easement agreement.
Duties of the Pipeline Company
Once a pipeline company acquires an easement, it becomes responsible for ongoing exercise of the easement rights as well as maintenance and safety matters.
The easement allows the pipeline company entry onto, across and under the land subject to the easement for the purposes of construction, operation, maintenance, repair, replacement, expansion, inspection, repair, repair, alteration, replacement and removal of the pipeline, valves, fittings, appurtenances, purification and compressor stations, tankage facilities, terminals, facilities, pipelines, water lines, liquid and liquid line, gas lines, and all accessory structures and equipment used or to be used in connection with the use of the easement. Easement provisions usually state that the company is responsible for repairs on completion of emergency response or work activities.
Easement provisions usually permit access to all easement areas for surveying, boring and other preliminary studies. Surveying or geotechnical work will be at the pipeline company’s own expense, without any obligation to acquire other rights of entry. Easement provisions may refer to approval under the local land use bylaw and/or the municipal authority may be the authority to grant an access license or similar permission.
Pipelines agreements typically require the pipeline company to develop a reclamation plan to remediate the easement area following construction, at the expense of the pipeline company.
Easements typically also contain prohibitions on the use of the easement area by a third party, for instance:
· placing, storing or permitting the placement or storage of any material or equipment on the easement area;
· excavating within the easement area or digging near the easement;
· draining water from adjacent lands or bodies of water onto the easement;
· constructing any levee, dyke, embankment, channel, drain, ditch, dam, drain or well on the easement; and
· engaging in activities in the easement area that may adversely affect the safe and efficient operation of the pipeline, including creating vibration, heat, electric interference or a fire hazard.
Pipeline companies are required to notify the landowner prior to maintenance and repair of the pipeline and are responsible for indemnifying loss caused by exercise of easement rights.
How to Negotiate an Easement Agreement
Most states allow a gas company to acquire the oil and gas interests for a tract through negotiated agreements even if the gas company cannot prove it meets a public service company use. If an agreement between a gas company and landowner is reached, the gas company shall file with the clerk of court within 30 days a written entry of the agreement, setting forth the terms and conditions, specifications, and compensation—providing that this is limited to the extent that the gas company is not a public service company. Consolidation is allowed when more than one surface owner requests the gas company to negotiate an agreement for a tract. The gas company may combine the negotiations into one notice and one offer for the aggregate mineral interests held by the landowners of the aggregation. In negotiating with the gas company, each landowner must make a separate and distinct agreement with the gas company.
Gas companies are under no obligation to enter into negotiations with a property owner or offer compensation. Only those landowners with an interest in the oil, gas and mineral rights to a tract of land may seek compensation. Each landowner may receive a separate offer of compensation that accounts for its unique situation including its percentage of ownership of subsurface tracts.
Landowners may attempt to negotiate the following provisions in a gas pipeline easement agreement: Landowners can keep these clauses in mind when negotiating such issues with a gas company. Landowners planning to negotiate with a gas company may consider asking their attorney to arrange a phone call or meeting with the gas company’s landman to discuss the terms. It is also advisable to consult an attorney about any issues addressed in the easement before signing it.
How Easement Disputes with Property Owners Are Resolved
Gas pipeline easements can be the subject of disputes. Even if an easement is written to contain protections for the landowner, a pipeline company may not follow the protections in all instances. For example, some easements contract out of liability for damages from subsurface damage. This means that every time subsurface damage occurs, the property owner and/or their contractor may be forced to sort through a number of legal principles to determine whether and who is liable for damages.
The good news is that a compromise is often reached prior to commencement of litigation. When that does not occur , a property owner can pursue a claim for breach of the easement or for negligence if the easement has been breached or if some negligent act has occurred. Alternatively, a federal court in your area may have a program to help resolve property owner and pipeline company disputes over pipeline easements with a call to be mediated by a magistrate judge. That is, the matter is often given over to a magistrate judge to mediate the dispute on behalf of your assigned district judge. In this way, the judge often helps bring the parties together for a compromise and prevention of costly litigation.
Recent Developments in Easement Law
Recent developments in the law can affect gas pipeline easement agreements. The following shifting legal principles currently affect the formation of easements and the exercise of pipeline rights:
First in Time, First in Right. A recordation scheme governs the relationships between pipeline companies and surface owners when an easement is formed. Under Texas law, the conveyance of an easement is governed by the doctrine of "first in time, first in right." The general rule is that the first window of opportunity to record an easement gives a party superior rights over others, and creates a duty by the latter to investigate the record to discover a prior recorded interest. However, many states have adopted a "bona fide purchaser" exception to this rule which provides that a subsequent purchaser of property for value, without notice, takes free from an earlier recorded interest. If a surface owner sells a pipeline easement to two different pipeline companies, the company who first records its easement will typically prevail. However, some courts have carved out an exception to this rule. In Conoco, Inc. v. Commercial Nat’l Bank, 949 F.2d 1288 (5th Cir.1992), despite the first pipeline company recordation, the Court held that the conveyance was void because the pipeline company lacked a certification that it had acquired the necessary permits. Therefore, the surface owners never created any rights in the pipeline company.
Permission to Survey. Courts have long held that pipeline companies generally must secure permission to survey property before offering compensation for a pipeline easement. Permission to survey is often granted in competitiveness acquisition bidding rounds. For instance, a recent Ninth Circuit case affirmed a judgment against a railroad company for trespass stemming from aerial surveys. Cal. Dep’t of Parks & Recreation v. U.S. Defense Logistics Agency, 33 F.4th 1091 (9th Cir.2022). The Court affirmed a jury verdict of $87,000 in actual damages and $100,000 in punitive damages for trespass for failure to acquire permission to survey. A key take-away of this case is: acquiring permission to survey may be best practice among pipeline companies to prevent costly trespass actions.
Scope of Grant. The scope of a pipeline easement is narrowly and strictly construed. The easement only conveys authority to do things that are expressly or implicitly supported by the easement agreement, and not those which are merely desirable. For example, in one recent case, the judge addressed the scope of the easement in the context of oil and gas operations. Valero Marketing & Supply Co. v. Tilley, 102 F.3d 146 (5th Cir.1996) The Fifth Circuit reversed the district court’s holding that the language of the easement authorized the oil and gas lessee’s placement of eight injection wells on the subject property. The Fifth Circuit instead held that the placement of injection wells is outside the scope of the easement because its purpose is limited to that of transporting oil through a pipeline. Similar holdings have been issued by courts in Oklahoma. See, e.g., Brookshire v. Cities Service Gas Co., 232 P.2d 469 (Okla. 1951); Dominion Oklahoma Texas Exploration & Production, Inc. v. Quaid, 64 P.3d 18 (Okla. Civ. App. 2003).
Easements in gross. Pipeline easements are generally classified as either an easement appurtenant or an easement in gross. An easement appurtenant is generally bestowed upon a dominant estate, and run with the dominant estate. Meanwhile, easements in gross typically run with the land, and are personal and nontransferable. In recent years, federal district courts have held that section 49.224(c) of the Texas Water Code now provides an easement in gross to pipeline companies. In re Kinder Morgan Crude & Condensate, L.L.C., 368 F. Supp. 3d 801 (W.D. Tex. 2019); see also, In re Lochridge, 415 S.W.3d 80 (Tex. App.—Austin 2013, no pet.). However, some courts do allow reservations for survived servitudes.
Effects on Land Value
Easement has a negative effect on the value of the property. It has also been generally accepted that a condemnation of property for an easement has a negative effect on its value. But, there are those who would argue that a condemnation leading to a pipeline easement will only reduce the value of the property by the cost of the easement compensation. The reality is something else. It is true that if a pipeline company pays $10,000 for a 10 foot wide easement on a portion of a property (and a number of other conditions are met), then the value of the property itself should be reduced by $10,000. However, in many cases the presence of a pipeline easement on property has hurt its value by much more than the cost of the easement compensation.
The True Cost of a Pipeline Easement When the existence of a pipeline easement is disclosed to a prospective purchaser of the property, she may not realize that the property is encumbered with a pipeline that may be exposed to leaks, accidents and environmental contamination. Without full and frank disclosure of these issues by the seller, the buyer may insist on subtracting from the purchase price the monetary value of those risks and uncertainties – risks and uncertainties that can be substantial. There are a number of reasons why a pipeline easement can impact the value of your property, over and above the amount of the easement compensation:
· The presence of a pipeline is a deterrent to development of the property. An increasing amount of development requires the installation of underground water storage tanks, which are prohibited or restricted by pipeline requirements.
· The development of the property may not be as high as originally anticipated due to the presence of the pipeline, which may require the relocation of basement areas, setback requirements or restrictions on the height of the building.
· The marketability of the property may be affected by the possible adverse possession of the property by the pipeline owner if the easement is not maintained.
· The existence of the easement may disqualify the property from certain tax incentives or other benefits.
All of these factors can detract from the value of the property, yet they are routinely overlooked in appraisals.
Conclusion and Going Forward
Like the construction of a physical pipeline through property, the granting of easements to energy companies for their use of that property also requires careful consideration. And just as the pipeline is critical to the pipeline operator, the easement often is the key to whether the operator receives the ability to build the necessary line . By understanding the complex law surrounding easements, landowners can better prepare themselves when they are asked to sign on the dotted line.
Going forward, owners faced with a request for a gas pipeline easement will be looking more favorable in the courts. With increased development and use of natural gas, lawmakers are adjusting the legal framework to meet the ever-revolving changes in our energy industry.
