Min(e)d the Gaps

There was an interesting post on WaterWired that referenced a recent article in the Santa Fe paper, discussing the issue of ownership of underground pore spaces from which oil and gas had been extracted. Just so you know - I am a big fan of interesting and novel property rights issues and this is a gem.

Some quick background:
All sedimentary deposits are composed of mineral grains of various sizes intermingled with pore spaces that are typically filled with air or water, but sometimes contain recoverable quantities of oil or gas. This is true of unconsolidated deposits (loose sand, gravel, silts and clays) and consolidated materials (i.e. sandstone or shale), however the native porosity of hardened materials is often less than unconsolidated materials because some of the pore space will be filled in by mineralization (with hardrock the dominant porosity is often what is called secondary porosity, resulting from joints and fractures in the rock).

Under the common law of property the person who owns real property (land) owns everything within their property boundaries including the sky above and the earth below. This concept has been modified over time such that landowners cannot prevent airplanes or satellites from passing over their property and the subsurface estate can be split from the surface estate, so that a landowner may own the surface of their property but someone else owns what lies below or at least the right to extract any valuable minerals lurking underground. Much of oil and gas law is based on this split-estate concept.

The issue they are addressing in New Mexico (and also Wyoming, Montana, and perhaps Utah) is who owns the empty pore spaces remaining underground after the minerals have been extracted. This issue is coming to the fore right now because utilities and regulators are looking at old oil and gas reservoirs as possible places to store captured carbon dioxide as part of climate change mitigation measures. I find this interesting because of how it relates to the practice of using depleted aquifers to store water through aquifer storage and recovery (ASR) programs. With ASR there typically is no issue over pore space ownership because (by statute) the entity recharging water into the aquifer owns the water placed there (regardless of pore space ownership), although it usually requires ownership of some overlying surface land in order to put the water in the aquifer. There are probably some state-to-state differences because of differing rules regarding water rights, but I'm not going to get into that here.

With a split estate, the party owning rights to extract oil and gas, would typically only own the hydrocarbons within the pore spaces, not the actual pore spaces. The oil and gas industry is arguing to the contrary but most political support appears to reside with the surface estate owners who believe that once the oil and gas have been removed nothing remains for the extracting party to own. I suspect this is not an issue that has arisen in case law or been addressed by state statute, which is why legislators are addressing it now. But the oil and gas industry must be interpreting some law to make their case and probably have a plausible argument somewhere.

Another issue likely to have a significant role in resolution of pore space ownership questions will be liability for carbon dioxide storage projects. The power industry has been pushing Congress to limit or remove their liability in the event that a storage facility fails to contain the CO2. If a landowner owns the space in which the CO2 is stored they will want similar protection from liability. This would probably be resolved through contracting for use of the space once the ownership is worked out.

Finally, despite what the coal industry has been pushing about the viability of CO2 capture and storage (probably their only hope for survival in a post-carbon society) this is a largely untested technology with a lot of uncertainty associated with it. For more on that issue, check out this recent article in The Economist.