Considerations with Renewable Energy Development and Severed Mineral Estates

Renewable energy developments include hundreds of millions of dollars of capital investment and rely on micro-siting of generation equipment to ensure optimal performance. Therefore, these developments are particularly sensitive to any possibility of surface use for mineral exploration and development that could require removal or relocation of the renewable generation equipment. New Mexico's recognition of the dominance of the mineral estate, its prevalence of severed mineral estates, and its title insurance regulations for surface damage from mineral development create challenges to assuring non-disturbance of the renewable energy development.

New Mexico law recognizes the dominance of the mineral estate over the surface estate, and the law does not require mineral interest owners to accommodate surface uses.  Instead, the mineral developer has the right to use so much of the surface as is reasonably necessary to explore and develop the minerals.  Except for the Surface Owner Protection Act, which requires oil and gas developers to offer a surface use agreement,  and regulations of the Bureau of Land Management, which require advance notification to owners of surface lands derived from the Stock Raising Homestead Act prior to entry to explore for valuable minerals and stake mining claims under the General Mining Law of 1872 on mineral estates reserved by the United States,1 there is no legal requirement for a mineral developer to notify or coordinate with the surface owner.  Of course, most mineral developers will do so, but such industry practice usually does not provide sufficient comfort to lenders and tax equity investors seeking to reduce risks for their investment.

It is common in New Mexico for the mineral estate to be severed from the ownership of the surface estate.  On many parcels, this severance occurred at the time the United States patent was issued. Ownership of the minerals varies from federal, state to private ownership.  In mineral-rich areas of the state, ownership of the severed minerals may be fractionalized into many undivided interests.  Therefore, obtaining surface waivers from all interest owners can be time-consuming and difficult.

Developers, tax equity investors and lenders often look to title insurance to insure the risk of surface damage from mineral development.  New Mexico's title insurance industry is highly regulated.  Only title endorsements allowed by regulation can be issued, and they can be issued only in accordance with the regulations.  The New Mexico regulations provide for an endorsement to both owners' and lenders' policies to insure surface damage from mineral development; however, the surface damage endorsement is available only in the case of a severed mineral estate where all of the mineral interest owners waive their rights to use the surface estate.  In the case of fractionalized mineral ownership, finding all of the mineral interest owners can be challenging. Then, obtaining the surface waivers from all of them adds an additional challenge. 

These challenges need to be considered at the time of siting the project in order to understand the likelihood of the existence of economically developable minerals, the ownership structure of those minerals, and the path to obtaining the necessary waivers in order to obtain title insurance, as desired or required.  Allowing time for obtaining title abstracts for the mineral ownership as well as seeking the waivers can avoid delays in financing and tax equity investment.

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1   See 43 CFR Part 3838

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