Imagine the following situation: You have just completed the installation of dozens of methane collection wells and a state-of-the-art gas collection and processing system on your landfill, and are now ready to sell landfill gas. Then you receive a “cease-and-desist” letter from an oil and gas company claiming to have an oil and gas lease on the property. The oil and gas company asserts that the oil and gas lease has granted it title to all of the gas in, on or under the landfill, and that which may be produced from wells on the landfill property. The company alleges it is entitled to all of the landfill gas produced from the landfill. This mineral lessee demands either a hefty royalty on all landfill gas produced or, worse yet, that it takes over operations of the collection wells pursuant to its right to operate under the oil and gas lease.

It may surprise many that there is very little legal authority addressing the issue of who actually owns the methane gas produced from landfills. The purpose of this article is to discuss the scant authority on the topic and to address analogous situations that lead to the only logical conclusion on the issue: the owner/operator of the landfill, not the mineral owner or its lessee, has title to and the right to produce the landfill gas. Because Texas is the top-producing state of both oil and gas and a large number of landfills identified by the U.S. EPA’s Landfill Methane Outreach Program are located in Texas, this article refers mainly to Texas legal principles, but many of these principles are equally applicable to a number of states that recognize the “split estate” concept of the separate ownership of the surface estate and mineral estate.

A number of factors militate in favor of the conclusion that the landfill owner is the owner of the landfill gas. First, while the mineral estate includes the “oil, gas and minerals in, on and under, or that may be produced from” the land, it should not be considered to include gases that were never part of a geological reservoir associated with the land, but instead are the byproduct of a commercial use of the surface. Second, by way of analogy to cases determining the ownership of re-injected gases, the landfill gas is an “extraneous” rather than “native” gas, and thus its extraction should not be considered a diminution of the mineral estate. Finally, from an economic incentive viewpoint, the policy concerns stated in certain legislation that encourage the capture and use of landfill gas can realistically only be realized by recognizing the owner of the landfill as the owner of the landfill gas.

Defining Landfill Gas
When organic-rich solid wastes are deposited in a landfill and left to decompose outside of the presence of oxygen, the matter will be partially transformed by microorganisms into a mixture of gases. One of which, methane, is also the chief component of natural gas. The organic material is segregated from the lower layers of the soil by a liner, which helps prevent the migration of various contaminants. The gas, which would otherwise likely be vented or flared for safety reasons, is generally collected by a series of wells drilled into the landfill. It is then compressed, dried and filtered and either used in a low-Btu gas turbine electric generator or further processed and sold to third-party industrial users and used to fuel furnaces and boilers.

Surface Estate Versus Mineral Estate
For the purposes of this article, we assume the landfill owner/operator is either the owner or lessee of the surface of the land on which the site is located, but not the owner of the minerals of such land. Purchasing or gaining control of the mineral estate would eliminate the problem, but this is not always an option for the operator of a landfill. Leaving aside for the moment who owns the landfill gas, the owner of the minerals does have certain rights to access the surface in order to extract its minerals, which is another reason the landfill owner should seek to control the mineral estate as well as the surface. An in-depth discussion of the “dominance” of the mineral estate is beyond the scope of this article.

Many states recognize the mineral estate of a particular tract of land may be owned by someone other than the owner of the surface. In states such as Texas, the mineral estate is a corporeal, or possessory, interest in real property. Because a mineral estate is a corporeal interest in the real property of the minerals “in place” on the land, it should not include gases or any other minerals that are created as a byproduct of some use of the surface estate at some point after the severance of the estate. In the context of a bankruptcy case, one federal court in Illinois opined that is was “very unlikely” that a contract for the extraction of landfill gas from a landfill would be viewed as a mineral lease under Illinois law, in part because the gas was “a hazardous byproduct of a commercial activity,” unlike the oil and natural gas contained in the land that is normally the subject of a lease.

	1   2   3	Next Page -->
View Entire Article