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H.B. 309





Chief Sponsor: John G. Mathis

Senate Sponsor: ____________

             7      LONG TITLE
             8      General Description:
             9          This bill enacts the Surface Owner Protection Act, which establishes procedures for an
             10      operator to follow when conducting an oil or gas operation.
             11      Highlighted Provisions:
             12          This bill:
             13          .    defines terms;
             14          .    requires an oil or gas operator to:
             15              .    give sufficient notice of the operation to the surface owner;
             16              .    disclose information about the operation to the surface owner;
             17              .    enter into a surface use agreement with the surface owner; and
             18              .    post a bond or other surety in certain circumstances;
             19          .    authorizes the Board of Oil, Gas and Mining to make rules; and
             20          .    provides a cause of action.
             21      Monies Appropriated in this Bill:
             22          None
             23      Other Special Clauses:
             24          None
             25      Utah Code Sections Affected:
             26      ENACTS:
             27          40-11-101, Utah Code Annotated 1953

             28          40-11-102, Utah Code Annotated 1953
             29          40-11-103, Utah Code Annotated 1953
             30          40-11-104, Utah Code Annotated 1953
             31          40-11-105, Utah Code Annotated 1953
             32          40-11-106, Utah Code Annotated 1953
             33          40-11-107, Utah Code Annotated 1953
             34          40-11-108, Utah Code Annotated 1953
             35          40-11-109, Utah Code Annotated 1953
             37      Be it enacted by the Legislature of the state of Utah:
             38          Section 1. Section 40-11-101 is enacted to read:

             40          40-11-101. Title.
             41          This chapter is known as the "Surface Owner Protection Act."
             42          Section 2. Section 40-11-102 is enacted to read:
             43          40-11-102. Definitions.
             44          As used in this chapter:
             45          (1) (a) "Oil or gas operation" means an activity affecting the surface that is associated
             46      with the exploration, drilling, production, or gathering of oil or gas, including the plugging,
             47      abandonment, and final reclamation of the affected surface.
             48          (b) "Oil or gas operation" includes the transportation and disposal of produced water
             49      and other wastes associated with oil or gas development.
             50          (2) (a) "Operator" means a person with the legal right to conduct an oil or gas operation
             51      on a property's surface.
             52          (b) "Operator" includes the agents, employees, and contractors of that person.
             53          (3) "Reclaim" means to restore the surface directly affected by an oil or gas operation
             54      as required by the Board of Oil, Gas and Mining.
             55          (4) (a) "Surface owner" means a person who holds:
             56          (i) legal title, as shown in the records of the county recorder; or
             57          (ii) a long-term lease to use the surface of the property on which an oil or gas operation
             58      is proposed.

             59          (b) "Surface owner" does not include:
             60          (i) the state;
             61          (ii) political subdivisions of the state;
             62          (iii) independent entities of the state, as defined in Section 63E-1-102 ;
             63          (iv) the federal government; or
             64          (v) an Indian tribe, band, or nation.
             65          (5) "Surface use agreement" means an agreement between the operator and surface
             66      owner specifying the rights of the surface owner and the obligations of the operator concerning
             67      an oil or gas operation.
             68          Section 3. Section 40-11-103 is enacted to read:
             69          40-11-103. Notice of operations -- Proposed surface use and compensation
             70      agreement -- Offer to negotiate.
             71          (1) An operator shall provide the surface owner at least five business days' notice
             72      before entering the surface property to conduct an oil or gas operation that does not disturb the
             73      surface, including:
             74          (a) an inspection;
             75          (b) staking;
             76          (c) a survey;
             77          (d) measurements;
             78          (e) exploration; or
             79          (f) the general evaluation of a proposed route or site for an oil or gas operation.
             80          (2) An operator shall provide the surface owner at least 40 days' notice before entering
             81      the surface property to conduct a surface disturbing oil or gas operation.
             82          (3) The notice required by Subsections (1) and (2) shall include:
             83          (a) sufficient disclosure of the planned oil or gas operation to enable the surface owner
             84      to evaluate the effect of the oil or gas operation on the property;
             85          (b) a copy of the Surface Owner Protection Act;
             86          (c) a copy of the legal documents describing the rights of the operator to conduct an oil
             87      or gas operation on the surface owner's land, including:
             88          (i) legal title to the mineral rights or a lease or other agreement with the mineral owner;
             89          (ii) any recorded easement; and

             90          (iii) a permit by the Division of Oil, Gas and Mining, including a copy of the
             91      reclamation plan;
             92          (d) the name, address, telephone number, and, if available, facsimile number and
             93      electronic mail address of the operator and the operator's authorized representative;
             94          (e) a proposed surface use agreement; and
             95          (f) an offer to discuss and negotiate in good faith:
             96          (i) changes to the proposed operations;
             97          (ii) the proposed surface use agreement;
             98          (iii) mitigation actions that the surface owner might request; and
             99          (iv) compensation for the use of, or any damage sustained to, the surface property.
             100          (4) The surface use agreement shall at a minimum address:
             101          (a) the design, construction, placement, specification, and maintenance of any
             102      equipment, well pad, pipeline, pit, or road;
             103          (b) the times and points of entry and exit of the surface property and a plan to preserve
             104      the safety and security of the surface owner;
             105          (c) the use and impoundment of water on the surface property and any change in the
             106      surface water drainage or irrigation;
             107          (d) the removal and restoration of plant life;
             108          (e) a plan to limit and effectively control precipitation runoff and erosion;
             109          (f) a plan to control and manage noise, weeds, dust, traffic, trespass, litter, and
             110      interference with the surface owner's use and peaceful enjoyment of the surface property;
             111          (g) interim and final reclamation required by the Board of Oil, Gas and Mining; and
             112          (h) operator responsibility, liability, and indemnification for injury, harm, and damage
             113      to the property or to the surface owner caused by the operator or other persons acting on the
             114      operator's behalf.
             115          (5) (a) An operator shall provide the notice required by this section by certified mail or
             116      hand delivery to the surface owner of record at the address shown by the records of the county
             117      recorder at the time that the notice is given.
             118          (b) If there is a recorded long-term lease of the surface property, an operator shall
             119      provide notice to both the legal title holder and to the long-term lease holder at the addresses
             120      shown by the records of the county recorder.

             121          (6) (a) Within 20 days of receiving notice, the surface owner shall:
             122          (i) accept the proposed surface use agreement; or
             123          (ii) reject the proposed surface use agreement and enter into negotiations with the
             124      operator, including, if the parties agree, binding arbitration or mediation.
             125          (b) Upon acceptance, the surface use agreement is a binding contract between the
             126      operator and the surface owner.
             127          (7) In the absence of an agreement between a person who holds legal title to the surface
             128      property and a person who holds a long-term lease to use the surface property regarding the
             129      division of any compensation paid by an operator, the long-term lease holder shall recover only
             130      that portion of the compensation attributable to the damage sustained by the long-term lease
             131      holder.
             132          Section 4. Section 40-11-104 is enacted to read:
             133          40-11-104. Entry without agreement -- Bond.
             134          (1) If the operator and surface owner have not entered into a surface use agreement
             135      within 40 days of the surface owner receiving notice, the operator may enter the surface
             136      owner's property and conduct an oil or gas operation after posting a bond or other surety with
             137      the Board of Oil, Gas and Mining in addition to the bond required by Subsection 40-6-5 (2)(f).
             138          (2) The bond or surety shall be:
             139          (a) for the benefit of the surface owner;
             140          (b) in an amount equal to the greater of:
             141          (i) the amount of damages the surface owner is likely to suffer, as estimated by the
             142      operator; or
             143          (ii) $25,000; and
             144          (c) in the form of cash, letter of credit, or such other form that will allow foreclosure in
             145      an action brought according to this chapter without the necessity of first alleging default by the
             146      operator followed by a separate foreclosure action on the bond or surety.
             147          (3) The Board of Oil, Gas and Mining may adopt rules to administer this section by
             148      following the procedures and requirements of Title 63G, Chapter 3, Utah Administrative
             149      Rulemaking Act.
             150          Section 5. Section 40-11-105 is enacted to read:
             151          40-11-105. Cause of action -- Entry without a surface use and compensation

             152      agreement -- Damages.
             153          (1) A surface owner may bring an action against an operator who:
             154          (a) conducts an oil or gas operation:
             155          (i) without a surface use agreement and fails to post the bond required by Section
             156      40-11-104 ; or
             157          (ii) outside the scope of an existing surface use agreement;
             158          (b) breaches a surface use agreement; or
             159          (c) fails to exercise good faith in estimating the damages required by Section
             160      40-11-104 .
             161          (2) Venue for an action brought under this chapter shall be in the district court for the
             162      county in which the oil or gas operation occurred.
             163          (3) In an action brought under this chapter, the court may award the surface owner
             164      attorney fees and punitive damages if the court finds that:
             165          (a) the operator conducted an oil or gas operation without providing notice as required
             166      by this chapter;
             167          (b) the operator conducted an oil or gas operation without:
             168          (i) a surface use agreement; or
             169          (ii) posting a bond or other surety as required by this chapter;
             170          (c) in posting a bond or other surety, the operator failed to exercise good faith in
             171      estimating the damages that would be owed to the surface owner; or
             172          (d) the operator conducted an oil or gas operation outside the scope of the surface use
             173      agreement and, when entering into the agreement, had reason to believe that the oil or gas
             174      operation would be conducted outside the scope of the agreement.
             175          (4) If necessary, an award for damages under this chapter may also include a court
             176      order to foreclose the bond or surety and transfer the proceeds from the foreclosure to the
             177      surface owner.
             178          (5) Damages awarded according to this chapter do not preclude the surface owner from
             179      collecting any additional damages owed because of the operator's subsequent actions.
             180          Section 6. Section 40-11-106 is enacted to read:
             181          40-11-106. Statute of limitations.
             182          A surface owner entitled to bring an action under this chapter shall bring the action

             183      within six years after the damage has been discovered, or should have been discovered through
             184      due diligence by the surface owner, provided that the limitation on bringing an action shall be
             185      tolled for a period of six months if a written demand for damages is timely submitted by the
             186      surface owner to the operator.
             187          Section 7. Section 40-11-107 is enacted to read:
             188          40-11-107. Remedies not exclusive.
             189          The remedies provided by this chapter are not exclusive and do not preclude a person
             190      from seeking other remedies allowed by law.
             191          Section 8. Section 40-11-108 is enacted to read:
             192          40-11-108. Interpretation.
             193          This chapter shall be interpreted to benefit the surface owner regardless of whether the
             194      mineral estate is separate from the surface estate and regardless of who executed the document
             195      that gave the operator the right to conduct an oil or gas operation on the surface.
             196          Section 9. Section 40-11-109 is enacted to read:
             197          40-11-109. Applicability.
             198          This chapter applies to all oil and gas operations commenced on or after May 11, 2010,
             199      except:
             200          (1) maintenance or ongoing production activities related to an oil or gas well producing
             201      or capable of producing oil or gas on May 11, 2010, for which the operator has a valid permit
             202      from the Division of Oil, Gas and Mining, provided that:
             203          (a) reentries, workovers, and other oil or gas operations requiring a drilling rig or
             204      additional waste pits conducted on such a well are subject to this chapter if the activities
             205      disturb additional surface; and
             206          (b) the duty to reclaim is applicable to such a well except that for activities related to
             207      the duty to reclaim, no notice, surface use agreement, or bond or other surety is required; and
             208          (2) oil or gas operations conducted within the scope of an agreement, entered into
             209      before May 11, 2010, between a surface owner and an operator that sets forth the rights and
             210      obligations of the parties in respect to surface activities conducted by the operator.

Legislative Review Note
    as of 2-5-10 4:09 PM

Office of Legislative Research and General Counsel

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