Editorial: Pore Space as a Property Right: What is It, Who Owns It and What Is It Worth?

Published December 6th, 2017 by Budd-Falen Law Offices, L.L.C.


MEMORANDUM

TO: INTERESTED PARTIES

FROM: BETHANY A. GROSS
BUDD-FALEN LAW OFFICES, LLC

RE: PRESS RELEASE/OPINION EDITORIAL

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PORE SPACE AS A PROPERTY RIGHT:
WHAT IS IT, WHO OWNS IT AND WHAT IS IT WORTH?

With the rising concern over global warming and climate change during the early 2000s, carbon capture and sequestration (“CCS”) and increased use of natural gas have received much more focus as viable options to reduce the amount of greenhouse gas emissions into the atmosphere. Consequently, energy industries have increasingly been looking to pore space to store CCS deposits and natural gas inventories. As more and more landowners are contacted by energy industry groups seeking to lease, negotiate a right-of-way, or—especially in the case of natural gas—to condemn the pore space underlying the land, many landowners have wondered what pore space is and what their rights to it are.

I. PORE SPACE AS PRIVATE PROPERTY

A. What is Pore Space?

Pore space is most simply understood as empty spaces underground. The spaces lack solid material but may not necessarily be empty, as some may be filled with liquids or gases. The empty spaces can be created by material that simply dissolved away, or could be created by depleted oil and gas reservoirs.

Several states, including Wyoming, Montana, North Dakota and Oklahoma have defined pore space as private property in their statutes. Wyoming has defined pore space as “subsurface space which can be used as storage space for carbon dioxide or other substances.” Rather than using the term “pore space,” Montana statutes simply refer to the concept as a “geologic storage reservoir.” North Dakota statutes define pore space as “a cavity or void, whether natural or artificially created, in a subsurface sedimentary stratum.” In Oklahoma, pore space is defined as “any interstitial space not occupied by soil or rock, within the solid material of the earth, and any cavity, hole, hollow or void space within the solid material of the earth.”

B. Who owns pore space?

In situations where the minerals have not been split from the surface, the obvious answer is that the fee simple landowner owns the pore space. When the minerals have been split, most states consider that pore space is part of the surface estate, thereby belonging to the landowner rather than the mineral owner. This would be the case unless the pore space was specifically conveyed to someone else via contractual agreement. Cases in Arkansas, New Mexico, and Pennsylvania indicate that those states would likely follow this majority rule. A minority of states may lean the other direction; including Colorado (case law is split), Kansas (proposed laws and case law are split), Kentucky (case law is split), and Texas (case law is split), which may indicate that those states could reach the conclusion that the pore space belongs to the mineral owner.

The Wyoming statute vests ownership of the pore space with the owner of the surface, and states that any conveyance of the surface includes a conveyance of the pore space, unless ownership in the pore space has been split from the surface or is specifically excluded from the conveyance of the surface. The Wyoming statute goes on to provide that a conveyance of the pore space may be done in the same manner as a conveyance of the minerals, so long as the scope of any right to use the surface is specifically described. Further, any transfers of pore space rights made after July 1, 2008 are null and void at the surface owner’s option if the transfer does not contain a specific description of the location of the pore space, which may include a geologic survey or a metes and bounds description.

Montana’s Preservation of Property Rights statute provides that “if the ownership of the geologic storage reservoir cannot be determined from the deeds or severance documents related to the property by reviewing statutory or common law, it is presumed that the surface owner owns the geologic storage reservoir.”

The North Dakota statute provides that title to the pore space “in all strata underlying the surface of the lands and waters is vested in the owner of the overlying surface estate.” The statute also provides that a conveyance of the surface also conveys the title to the pore space. The statute goes even further by prohibiting any severances of the pore space from the surface, and states that any such attempt to split the two is void. However, leasing is not considered to be a severance of the pore space from the surface and is therefore a valid exercise according to the statute.

Lastly, Oklahoma’s statute considers the pore space to be real property and therefore is considered to be the property of the owners of the title to the surface, unless the title, rights, interests or “estates” in the pore space are separately transferred to someone else.

C. What is pore space worth?

There is very little, if any, consensus over what pore space is worth. The biggest problem being that there is considerable lack of comparable sales for an appraiser to adequately appraise the value of a pore space. Additionally, courts have been all over the map as far as valuing pore space and determining what the proper amount of damages should be in condemnation actions over pore space.

Montana has enacted the Surface Owner Damage and Disruption Compensation Act (“SODDCA”) which requires payment for lost agricultural production and income, lost land value, and lost value of improvements caused by surface operations or disturbances. In one Montana case, a Court awarded a pore space owner $5,500 in SODDCA damages based upon an appraiser’s opinion that the pore space owner suffered that amount in damages to his surface estate.

In a statute similar to SODDCA, North Dakota also provides for damages for lost land value. In order to recover damages for lost land value, North Dakota requires proof that the value of the land was diminished by an operator’s (e.g. oil and gas operator, natural gas storage facility operator, CCS storage operator, etc.) use of the land. Additionally, claimants in North Dakota may be able to recover damages if they prove that they lost use of and access to their land by the operator’s use of the pore space.

II. CONCLUSION

Considering the above, it behooves landowners to determine whether or not any pore space exists beneath their property. While it depends on what state the landowner lives in, generally a landowner will be the owner of the pore space. Therefore, it is important that a landowner who owns pore space to keep watch for any notices of condemnation, whether mailed to the landowner or published in the legal notices section of the newspaper. It may even also behoove a landowner to subscribe to notices in the Federal Register in the event that a natural gas company is only required to publish notices there pursuant to the Natural Gas Act. Lastly, a landowner will need to do some research on appraisers who are able to properly appraise the value of pore space so that the landowner is capable of producing sufficient evidence of the value of the pore space in the event that the landowner’s pore space is condemned.

Should you have any questions, please do not hesitate to contact me.

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