Municipal Regulation of Oil and Gas Drilling Activity? Not So Much

Rebecca Sherwood

By Rebecca Sherwood

Friday, September 18, 2015

We find that many real estate investors and lenders, especially those from out of state, request the ALTA 35 series endorsements which provide coverage for enforced removal or alteration of improvements resulting from the extraction and/or development of minerals or other subsurface substances. 

In a Bulletin dated November 27, 1984, then Oklahoma Insurance Commissioner Gerald Grimes opined that insuring against loss or damage sustained by reason of the exercise of any right to use the surface of the land falls within Oklahoma’s statutory definition of “property insurance” (36 O.S. 704), as opposed to “title insurance” (36 O.S. 5004) and therefore such coverage may not be issued via title insurance in Oklahoma.  Based on that 1984 Bulletin, title insurers have uniformly taken the position that so-called “minerals” coverage, such as that contained within the ALTA 35 series, is unavailable in Oklahoma. 

Absent the ability to offer the ALTA 35-type coverage, we have in some cases issued a “non drilling ordinance” endorsement which insures that, as of the policy effective date, the local municipality has an ordinance in place which requires various checks and balances before minerals exploration can be accomplished within their boundaries.  Owners and lenders have taken solace in the fact that municipalities retained ultimate say-so as to oil and gas operations in their own backyards and would be hard-pressed to allow drilling activity to the detriment of a commercially viable real estate development.  A recent Oklahoma law to some extent preempts the ability of municipalities to regulate minerals exploration and therefore impacts our ability to offer the “non drilling ordinance” type coverage.

Effective August 21, 2015, the Legislature passed 52 O.S. 137.1, which provides that the Oklahoma Corporation Commission has exclusive jurisdiction to regulate oil and gas drilling activity statewide, except that municipalities and other political subdivisions may enact “reasonable” regulations concerning noise, odors and certain other matters enumerated in the statute so long as such regulations are not inconsistent with regulations established by Title 52 of the Oklahoma Statutes or by the Oklahoma Corporation Commission.  Absent any guidance from the Legislature as to what constitutes “reasonable” regulation by a municipality, and given the difficulty of discerning whether any such regulation would be considered inconsistent with other regulations in place, the effect of this statute on existing municipal “non-drilling” ordinances remains to be seen.   Meanwhile, our challenge will be to satisfy the concerns of customers who are looking for some assurance that oil and gas activity isn’t going to adversely impact the title to commercial real estate.  While we wait for clarification from the Oklahoma Legislature or the courts, we think it’s probably time to become more conversant about the Oklahoma Surface Damages Act, 52 O.S. 318.2, et seq….  We will provide further details on this important topic as information becomes available.