Frédéric Gilles Sourgens, James McCulloch Chair in Energy Law & Faculty Director, Tulane Energy Law & Policy Center
The next generation of geothermal power generation is a promising new energy technology. What makes it so unique is that it uses heat from the Earth’s core. In principle, if you drill deep enough, you will find significant geothermal heat anywhere. If you know local geology, it is possible to predict where the most accessible ‘hot spots’ are and how to access them. One can then drill to access the heat and place a closed water loop ‘through’ this geothermal zone. Conceptually, we can feed water into this loop at the surface. This water turns to steam once it has gone through the geothermal zone. The steam then powers a turbine at the surface. When the water cools at the surface, it is recycled back down the loop to the ‘hot spot’ to be boiled again.
This technology differs from an earlier, ‘first generation’ geothermal application. In this first-generation application, a producer would drill to access hot brine. The heat from the brine, in turn, powered turbines. What distinguishes first generation from next generation geothermal power technology is that first generation geothermal process is still inherently extractive – it extracts and uses a substance from the subsurface to generate energy. Next generation geothermal is not extractive. It does not rely on a subsurface substance as a medium to access geothermal heat. Instead, it accesses the heat directly by feeding externally sourced water through geothermally active (that is ‘hot’) geological strata.
This difference poses legal questions that are worth pondering. As it turns out, we need to know who owns geothermal heat to develop it. That question may turn out to be more complicated than it first appears. In the U.S. property system, property rights are often split between the ‘surface estate’ and the ‘mineral estate’ or ownership of land and a distinct right to use and produce minerals. As geological surveys locate active geothermal zones for next generation geothermal technology applications, it helps to begin in specific places for which these surveys have already been performed. Practically, that means places in which oil and gas activity has been ongoing and may continue to this day. In these places, it is highly likely that the person with the right to use and produce the minerals (i.e., oil and gas) is different from the owner of the surface. The oil and gas producer has a property interest in minerals due to a specific legal process – a conveyance – that splits mineral rights from surface rights. Typically, that conveyance is a so-called oil and gas lease. In addition, in the American West, landowners may have acquired their ownership under a statutory regime associated with the Stock Raising Homestead Act of 1916. Under this regime, the landowner purchased a surface interest from the United States government and the United States reserved an interest in the minerals. That is, the United States owns the minerals even as it passed ownership in the surface to the landowners.
First Generation Geothermal Caselaw
The ownership question of who owns geothermal resources already arose in disputes relating to the ‘first generation’ of geothermal technology. These disputes occurred in the American West – i.e., the place where the Stock Raising Homestead Act of 1916 applied. Both the U.S. Courts of the Appeals for the Ninth and Tenth Circuit have canonically answered the ownership question in U.S. v. Union Oil Co. of California, 549 F.2d 1271 (9th Cir. 1977) and Rosette Inc. v. U.S., 277 F.3d 1222 (10th Cir. 2002). Neither of these federal appellate cases had any difficulty concluding that in the context of first-generation geothermal energy projects, the ‘geothermal resources’ at issue constituted ‘minerals’ for purposes of the reservation made pursuant to the Stock Raising Homestead Act of 1916 and related statutes.
The extractive technology associated with first generation geothermal posed some challenges for the courts in these early cases. For example, ‘geothermal resources’ were found in water (i.e., a brine). While water rights are typically not treated as mineral rights under common law, there are minerals in solution in brine associated with geothermal generation. This means that the following analysis led these courts to the conclusion that ‘geothermal resources’ are – legally - mor like minerals than like water: the thing that provides the heat is hot rock. This hot rock interacts with water. When it does so, it forms brine. Thus, one would not likely find fresh water in places that use first generation geothermal technology. In the words of the 9th Circuit in Union Oil Co. of California, brine reservoirs “are depletable subsurface reservoirs of energy” – when there is no more brine, there is no more geothermal fuel. The hot rock that makes the brine is the ‘secret ingredient’ that makes this process work. So, what drives the process is the mineral content of the water, not the water itself. Cases like Union Oil Co. of California therefore can logically conclude that geothermal resources are a subsurface fuel source that counts as a ‘mineral’ for purposes of the U.S. reservation of rights under the law under which surface owners took ownership of their lands.
The problem is that courts have gone significantly further than that in their reasoning. For example, the 10th Circuit in Rosette Inc. “conclude[d] that the geothermal process as a whole […] may be classified as generally mineral in character.” This reasoning is sufficiently broad to reach not just first-generation geothermal projects, but also next generation geothermal: as Rosette Inc. explains, the geothermal process is “a process in which magma heats water contained in porous rock strata, and that, at a general level, all of the elements in the process, including water itself, could properly be classified as a mineral.” This language more than suggests that even if a developer were to provide water externally to be heated in the porous rock strata, that person would be using the mineral right as opposed to the surface right.
Following this case law would mean that if a person wants to develop next generation geothermal projects, that person must go to the mineral owner to buy the development rights. In the context of the Stock Raising Homestead Act of 1916 that is the U.S. government. When minerals are in private ownership, that would frequently be the oil company producing oil and gas from the property. The surface owner would be left – pardon the pun – out in the cold.
The Texas Challenge
However, this is not the only way to think about geothermal rights. Currently, the Texas Supreme Court is continuing to develop its own jurisprudence on subsurface ownership and use rights to respond to technological change in that state’s massive oil and gas producing regions. This began with the celebrated (or notorious) Coastal Oil & Gas Corp v. Garza Energy Trust, 268 S.W.3d 1 (Tex. 2008) and Lightning Oil Co. v. Anadarko E&P Onshore, LLC f/k/a Anadarko E&P Company, LP, 520 S.W.3d 39 (Tex. 2017) cases. It culminated in Myers Woodward LLC v Underground Services Marham LLC. In this line of cases, the Texas Supreme Court held that the pore space (in which hot rock is found), and the right to traverse the pore space (Lightning) or to store substances in the pore space (Myers Woodward LLC) belongs to the surface owner and not the mineral owner. (In addition, Texas law also typically gives the surface owner rather than the mineral owner the water rights associated with a property unless changed by conveyance. Consequently, as far as Texas law is concerned, water is decidedly not a mineral.) This leads to a fundamentally different approach to geothermal technologies under Texas real property law.
This difference may not be as vast as it might at first appear. It is possible to reconcile Texas property law and the U.S. 9th and 10th circuit jurisprudence by limiting the early federal cases to first generation geothermal technology. The logic that geothermal resources are inherently due to the minerals and not due to the water because the minerals heat the water might well convince a Texas court to treat a brine differently from water. In fact, Texas treats wastewater from oil production (also arguably a brine) as belonging to the mineral rights owner under the Texas Supreme Court’s recent decision in Cactus Water Services v. COG Operating, LLC. (I note that the Cactus Water Services decision did not turn on the mineral content of the brine and left the issue of ownership of the minerals in solution to be solved later – still, it might be a tip of the hat in a certain direction.). This reading allows us to reconcile the federal law and Texas law approaches. Still, this reconciliation would hold only for first generation geothermal projects.
Regarding second generation geothermal resources, it is far more difficult to say that the geothermal process ‘belongs’ to the mineral owner. The point of this technology is that water must traverse the pore space. Traversing the pore space is precisely not something that the mineral owner owns. This implies, of course, that second generation geothermal technology in Texas would look to the surface owner rather than the mineral owner as the appropriate contracting counterparty.
This leaves the question whether ‘heat’ should, in its own right, be a mineral under Texas law. The question will differ from conveyance to conveyance as the words used will decide the outcome. Holding everything equal, and following the typical language of the commonly used language in a Producers Form 88 Lease of ‘mining for and producing oil, gas, and other minerals’ it would be somewhat unlikely that the right would be classified as a mineral at least for mineral interests created after June 8, 1983, pursuant to Moser v. United States Steel Corp., 676 S.Wd 99 (Tex. 1984). Here, ordinary meaning governs. It would be rather a stretch to say that ‘heat’ without more is a mineral. It is true that ‘heat’ uses a mineral. But then again so doesdoes subjacent support of the surface. The argument that geothermal heat is a mineral in Texas therefore would be challenging.
The issue, however, is important. If geothermal heat belongs to the surface owner, then there is a potential for clashes between geothermal project developments and oil and gas developments as each development looks to a different original owner. That means that different parties can come into conflict with each other, and this conflict would need to be resolved somehow. Texas law leaves open different potential approaches such as the traditional accommodation doctrine for surface use developed in cases like Merriman v. XTO Energy Inc., 407 S.W.3d 244 (Tex. 2013) or the accommodation doctrine as modified for subsurface use in Lightning Oil (this is beyond the scope of the present post). This conflict of course would on whole be avoided if the same owner (i.e., the mineral owner) owned both oil and gas and geothermal resources even in the next generation geothermal context.
The Louisiana Puzzle
The same problem arises in the Louisiana context. Here, there are no separate estates in property in oil, gas and other minerals. Rather, a person obtaining a right to produce oil, gas, and minerals does so by obtaining a servitude – broadly, a use right – from the owner of real estate. There is thus a question whether heat is covered by a mineral servitude or not.
The question is tricky because the relevant Louisiana codes do not provide a workable definition of ‘minerals’ to which such a minerals servitude might apply. Rather, the Minerals Code simply provides that it applies “to all forms of minerals, including oil and gas.” It continues that it is “also applicable to rights to explore for or mine or remove from the land the soil itself, gravel, shells, subterranean water including brine, or other substances occurring naturally in or as part of the soil or geological formations on or underlying the land.” The problem is the inclusive word “also.” That is – the definition in the “also” includes first generation geothermal because brine is specifically mentioned. It does not include heat as heat is neither a substance, nor is it meaningfully removed. Yet, this does not answer whether heat is covered by the first part of the sentence.
The answer to this question is facially no. Whatever else is true about minerals, they are a substance. Heat is not a substance. It is an attribute of a substance. As such, heat alone is not a mineral.
The matter still is a close-run affair. To have heat, one must have the medium for heat. That medium, of course, is a mineral. A person thus uses a mineral for the purpose of obtaining heat even if that person does not remove it. This means that it is plausible to argue that heat is a mineral resource even if it is not a mineral and that this mineral resource can only be used to the extent one has a right to use it. An appropriately worded mineral servitude could create just such a right.
The matter is further complicated by Louisiana Revised Statutes 30:801 and following. Here, the Statutes define ‘geothermal resources.’ The definition clearly includes next generation geothermal resources in§ 801(1)(c). Yet, it does not make a direct link to a definition of minerals in the Minerals Code. Still, in context, it is possible to imply such a link from the statutory structure, but that just leaves you as confused as you were before.
Louisiana civil law in other words appears stuck in much the same position as the common law on this point. To learn more on this topic, you can further read Jonathan Rose’s insightful ‘What is a Mineral in the Green Energy Age?’. That said, a logical and linguistic web remains tangled, and a solution will need time to work out.
What’s Next?
There are three possible solutions to our conundrum. The first is that property law simply splinters regarding the question whether heat is a mineral – or whether its use is transferred by a mineral lease or mineral servitude. The answer may be yes under federal law, no under Texas law, and maybe under Louisiana law! Other states will likely fall into one of these rubrics as a matter of their own interpretation of applicable state law. This would not be so bad – after all, that is the point of a federal common law system. Each sovereign gets to make up its own mind. It does make it particularly important to hire the right lawyer to advise on title questions as one cannot assume they will be nationally uniform. But that is it has always been in the oil and gas world.
The second solution may be to say that Texas in the end has the better of the property argument. The pore space rationale is cogent. Passing water through the pore space to take advantage of the specific characteristics of that space is no different than storing substances in pore space or drilling through a neighboring subsurface to reach one’s own minerals. One could then apply a strong version of correlative rights as already developed in the modified accommodation doctrine deriving from Lightning to work through property conflicts. Importantly, this argument does not require a court to overrule or ignore existing precedent in the 9th and 10th circuit. It simply is to say that next generation geothermal is sufficiently different from first generation geothermal as to distinguish the resources at issue in each case.
The third solution may be to conclude that heat is a mineral. Storage is inert. Drilling through subsurface strata to reach adjacent oil and gas rights is inert. A producer or developer does not use minerals in place to do either. One simply inhabits negative space. This is not the case in the context even of next generation geothermal. Here, the specific geology is used to generate heat. This specific geology – the magma of Rosette’s analysis – is clearly a mineral. If I use the mineral – even if I do not remove the mineral – is to make use of a mineral right and not a surface right.
To determine which conclusion is indeed correct will require additional analysis. So, there will be much more discussion to come on these topics,. Still, having laid out the issues is itself a necessary part for any future evaluation.
