Geothermal Leasing
California geothermal projects involve a complicated intersection of real property law, mineral rights, energy law, and changing regulatory requirements. Before negotiating a geothermal lease, it is critical to determine exactly what rights exist beneath the property, who owns those rights, and whether the proposed project requires the consent of the surface owner, mineral owner, or both.
The answer cannot necessarily be determined from the current deed alone. California properties may have experienced multiple conveyances, reservations, mineral severances, leases, and other transfers over decades. The legal characterization of geothermal resources can also depend on the language of those instruments and the applicable California law. In Geothermal Kinetics, Inc. v. Union Oil Co., for example, the California Court of Appeal concluded that a general grant of minerals “in, on or under” property included geothermal resources. California law separately defines geothermal resources broadly to include natural heat, energy, and minerals in solution or other products obtained from naturally heated fluids, brines, associated gases, and steam.
That means geothermal development should begin with a careful examination of the chain of title, not with the assumption that a conventional oil and gas lease or a standard surface agreement will provide everything the project needs. At Reed Energy Law, PC, we help clients throughout California address the real property, leasing, land use, and transactional issues associated with energy development. Energy attorney Alyssa Reed has more than 20 years of experience working with energy companies, landowners, mineral owners, and project developers on complicated property and energy matters. Her background includes oil and gas, renewable energy, carbon sequestration, land use, title analysis, and emerging energy technologies. That experience provides an important foundation for understanding geothermal transactions, where the legal issues may cross traditional boundaries between surface ownership, mineral rights, pore space, water, and energy resources.
Chain-of-Title Analysis for Geothermal Projects
One of the first questions we address is how the relevant geothermal and subsurface rights were created and conveyed over time. We examine the chain of title to determine whether geothermal resources were retained with the surface estate, included in a mineral conveyance, separately reserved or conveyed, or otherwise affected by historical instruments. This analysis can require reviewing deeds, mineral reservations, leases, assignments, easements, prior geothermal agreements, and other recorded instruments.
The language of an old conveyance can have consequences for a modern geothermal project. A document that predates today’s geothermal technology might not expressly mention geothermal resources at all, yet its language may still determine whether those resources are part of the surface or mineral estate. California case law demonstrates why the precise language and purpose of the original conveyance matter.
Determining Which Estate Owns the Relevant Rights
Surface ownership and geothermal ownership are related but distinct questions. A surface owner may control the surface estate while another party holds the mineral or geothermal interest. Conversely, the relevant geothermal rights may remain with the surface estate depending on the property’s chain of title. We help clients determine how those interests were divided and whether the proposed geothermal activities implicate rights held by different parties. That analysis is especially important where drilling, extraction, reinjection, or other subsurface activities could affect a mineral estate or an existing mineral lease.
Mineral Interests and Geothermal Development
The existence and scope of a mineral interest must be evaluated in light of the actual geothermal project. A geothermal operation may require drilling into formations that are also subject to mineral rights, existing oil and gas leases, or other subsurface interests. The project may also involve extraction of commercially valuable minerals or other products from geothermal fluids. Those circumstances can create questions about who has the right to conduct the proposed activity, whether existing mineral rights are being affected, and what agreement or waiver is necessary to allow the project to proceed. We analyze these issues before the parties assume that a standard geothermal lease, oil and gas lease, or surface-use agreement is sufficient.
Project-Specific Waivers and Agreements
The appropriate agreement depends on what the title analysis reveals and what the project actually intends to do. In some circumstances, the project may need an agreement with the surface owner. In others, mineral-owner consent may be necessary. A project may require a lease, easement, license, waiver, consent, amendment, or another transaction document or combination of agreements. We help clients negotiate rights tailored to the actual project rather than relying on a broad form that may grant or waive more rights than necessary. This is particularly important where a mineral owner retains valuable rights that should not be unnecessarily extinguished simply because a geothermal project needs limited rights to use or access the property.
Geothermal Projects and Changing California Law
California’s geothermal regulatory framework continues to develop. CalGEM maintains current geothermal statutes and regulations and has separately addressed issues such as CEQA compliance and geothermal well operations. For that reason, geothermal title and leasing analysis cannot be separated from the regulatory framework applicable to the project. We consider the current legal and regulatory requirements together with the property’s title history and the project’s proposed activities.
Geothermal Resources and Valuable Byproducts
Some geothermal projects involve more than the production of heat or electricity. Geothermal fluids may contain commercially valuable minerals or other products. California’s definition of geothermal resources expressly includes minerals in solution and other products obtained from naturally heated fluids, brines, associated gases, and steam. When a project proposes to recover valuable minerals or other products, the ownership analysis becomes even more important. The parties need to understand whether the relevant rights were conveyed with the geothermal resource, retained by a mineral owner, or otherwise affected by prior conveyances and agreements.
Building the Right Geothermal Transaction
At Reed Energy Law, PC, we approach geothermal leasing as a title and rights-assembly exercise as much as a leasing exercise. We start by understanding the project, examining the chain of title, identifying the surface, mineral, geothermal, and other relevant interests, and then determining what rights and agreements are actually needed. This approach can help avoid a common problem in emerging energy projects: negotiating a sophisticated agreement only to discover that the wrong party was asked to grant the right or that an additional subsurface interest must be addressed.
California Geothermal Leasing Counsel
At Reed Energy Law, PC, we help geothermal developers, energy companies, landowners, mineral owners, and other participants navigate the property and transactional issues associated with geothermal development throughout California. Our work includes title analysis, legal opinions, negotiation of leases and project agreements, evaluation of mineral interests, project-specific waivers and consents, and assistance with permitting and entitlement strategies.
Attorney Alyssa Reed brings more than 20 years of experience working with California energy projects, including oil and gas, renewable energy, carbon solutions, real property, mineral interests, title analysis, and project permitting. That experience gives us a practical understanding of how subsurface rights can affect the development and operation of an energy project.
If you are developing a geothermal project or have been asked to grant, waive, lease, or otherwise address geothermal or subsurface rights, get in touch with Reed Energy Law, PC. Contact us to discuss the property’s chain of title and the rights your project actually requires.
