Oklahoma's Surface Damage Act

Oklahoma Oil and Gas Mineral Owners AND Surface Owners,

What is the Oklahoma Surface Damage Act? The Surface Damage Act requires oil companies to negotiate in good faith with landowners to determine and pay for the amount of damage that will occur to property as a result of oil and gas operations. The damages considered are listed below. If these negotiations are not successful, the Surface Damage Act provides a procedure for determining those damages by an appraisal and if necessary, by jury trial.

The Surface Damage Act applies to the operator and the surface owner (not lessee) of the property where oil and gas operations will occur. The Act does not apply to damages caused by the exploration for oil and gas using seismic instruments.  The amount of damages to be paid is the difference in the fair market value of the entire tract of property before the oil and gas operations on the property, and the fair market value of the entire tract of property after the oil and gas operations are completed. 

The Oklahoma Supreme Court has noted that the following items are some of the factors that may be considered in calculating the damages:

• The location or site of the drilling operations.  
• The quality and value of the land used or disturbed by said drilling operations.
• Incidental features resulting from said drilling operations which may affect convenient use and further enjoyment.
• Inconvenience suffered in actual use of the land by the operator.
• Whether the damages, if any, are temporary or permanent in nature.
• Changes in physical condition of the tract.
• Irregularity of shape and reduction, or denial of access.
• The destruction, if any, of native grasses, and/or growing crops, if any, caused by drilling operations.

Before an operator enters the property, it must provide notice to the surface owner of its intent to drill. This notice must be sent by certified mail. The letter must include (1) the proposed location of the well, and (2) the approximate date that drilling operations are scheduled to start. Once this notice has been delivered, the operator has five days to start “good faith” negotiations with the surface owner. If the parties can agree to the amount of surface damages and write a damages contract, then the operator can enter the site and start drilling. Once this amount is paid, the Surface Damages Act has been fulfilled.

If the operator and surface owner cannot reach an agreement, a new procedure begins. First, the operator must file a bond with the Oklahoma Secretary of State. This bond is meant to ensure the payment of whatever damages may be determined. Second, the operator must file a petition in the district court for the county in which the proposed well will be located. This petition asks the court to appoint appraisers to determine the surface damages to the property. If an operator properly completes these steps, it can enter the property even without the permission of the surface owner; however, the operator cannot enter the property until these steps are satisfied.

If the operator asks the district court for the appointment of appraisers, the surface owner must be given notice of the petition within ten days. Once the surface owner has received his or her notice, the parties have 20 days to choose their appraisers. One appraiser is chosen by the surface owner, and one chosen by the operator. These two appraisers choose another appraiser, for a total of three.

Once the appraisers have been appointed and sworn in by the court, they have 30 days to inspect the property, confer to estimate the amount of damages, and submit a written report to the district court, which is then forwarded by the court to the surface owner and the operator. Once the report is filed, the surface owner and operator have three options from which to choose. First, if the parties agree to the appraised amount of damages, the damages can be paid to the surface owner by the operator, and the matter is closed. Second, either party can, within 30 days of the filing of the report, file an exception with the court stating the party believes the appraisal is inaccurate. If either party chooses this option, the court will review the appraisal and either confirm it, reject it, modify it, or ask for a new appraisal. Third, either party can, within 60 days of the filing of the report, demand a jury trial to determine the amount of damages.

It should be noted here that the oil and gas operations at the site in question may continue even if an exception or demand for jury trial is made, so long as the operator posts an amount equal to the appraised damages with the court clerk. 

Any questions? More to follow.

BR