Seismic Operations Held Subject to Notice and Negotiation Requirements of Surface Owners Protection Act

In a July 28, 2015 opinionthe New Mexico Court of Appeals (Court of Appeals) determined that geophysical seismic operations constitute “oil and gas operations” under NMSA 1978, § 70-12-5(A) of the Surface Owners Protection Act (SOPA), thereby subjecting an operator to strict liability for damages caused by its operations under the SOPA.  The SOPA requires advance notice of oil and gas operations, negotiation of a surface use agreement, and payment of compensation for any damages sustained by the surface owner. The SOPA differentiates between “activities which do not disturb the surface,” which require 5 days advance notice of the activities and “oil and gas operations,” which are subject to 30 days’ notice as well as the negotiation of a surface use agreement.

The district court had ruled that the seismic operations at issue in the case, which involved surveying, laying of cables and seismic equipment, and use of a vibroseis truck, were a non-surface disturbing activity.  Accordingly, the district court found that the surface owner had no claim for damages under the SOPA.

On appeal, based on its review of surface owner protection statutes in other states and prior New Mexico case law considering oil and gas exploration, the Court of Appeals reversed the district court’s findings.  The Court of Appeals ruled that seismic operations are considered oil and gas exploration activities and therefore fall within the SOPA’s definition of “oil and gas operations.” That definition broadly includes “all activities affecting the surface owner’s land that are associated with exploration, drilling or production of oil or gas.”  NMSA 1978, §70-12-5(A) (emphasis added).   The Court of Appeals agreed with the operator’s contention that that the seismic operations were “activities that do not disturb the surface” under NMSA 1978 §70-12-5(A) and were therefore subject to the 5 days’ notice provision.  However, because the surface owner was claiming that the seismic operations had caused surface impacts, including the cutting of roads and damage to vegetation, the Court of Appeals held it was entitled to compensation for such damages under the SOPA.

Additionally, the Court of Appeals ruled that the surface owner was entitled to proceed to trial on claims for breach of contract based on language in a state oil and gas lease and the seismic permit granted by the State Land Office for the portion of the geological seismic survey conducted on the surface of the state oil and gas lease.  Although the surface estate was owned by the state, the plaintiff held a grazing lease for the lands and under State Land Office rule NMAC, which requires the grantee of a seismic permit to “settle with and compensate state land office surface lessees for actual damages to or loss of livestock, authorized improvements, range, crops, and other valid existing rights recognized by law.”

The result of the Court of Appeals’ interpretation of the SOPA is that operators can no longer assume that all casual use operations are exempt from the SOPA.  The Supreme Court of New Mexico has denied cert., meaning that the Court of Appeals decision stands, with no further opportunity for appeal.

POSTED IN: Articles