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Carbon capture, utilization and sequestration (CCUS) involves capturing CO2 emissions from industrial processes and storing them underground in pore spaces. CCUS projects require navigating numerous regulatory and contractual considerations, and stakeholders involved in these projects must be cognizant of the developing related state and federal regulations and evolving transaction structures. Current laws regarding CCUS projects may be viewed as in flux, and contractual arrangements in general have not settled into standard industry-wide forms.
Lack of settled state law and regulations
Texas law is generally unsettled over the ownership of pore space and the rights associated therewith. The majority of U.S. jurisdictions have adopted the “American Rule” with regard to pore space ownership rights, attributing the ownership of the pore space to the surface estate. While there is a long line of court decisions in Texas indicating that Texas also follows the American Rule, there is at least one conflicting case in Texas (Mapco, Inc. v. Carter, 808 S.W.2d 262 (Tex. App.), rev’d on other grounds, 817 S.W.2d 686 (Tex. 1991)) that has called into question the adoption of the American Rule in the Lone Star State.
One of the primary concerns with CCUS is the need to use depleted reservoirs, which could create coordination issues between estates. If a reservoir contains residual minerals, the consent of the dominant mineral owner is required before injection can occur. Consent is also required for existing gas storage rights. Further, matters concerning the coordination of estates, including surface use, drill-through rights, subsurface trespass, and easements, remain unaddressed. Assuming that the American Rule is followed, if pore space owned by the surface owner can only be accessed by drilling through minerals owned by the mineral owner, then it is unclear in many jurisdictions whether the mineral owner must at common law provide the surface owner with reasonable use of the mineral estate to access the pore space.
Another important aspect of the unsettled regulation of CCUS is the establishment of a fund to backstop long-term closure obligations for CCUS projects. Many states recognize that closure monitoring obligations for CCUS projects are significantly more expensive and expansive than they are for other types of projects. Some states, including Louisiana, Montana, Wyoming and North Dakota, have implemented a stewardship fund that would be financed through fees assessed on CCUS projects and used to ensure that the necessary monitoring and remediation can be carried out even if the responsible party is no longer able to do so. Texas is among a number of states considering similar frameworks.
- While some ambiguity persists around pore space ownership in Texas, most jurisdictions attribute ownership to the surface owner
- States are still developing laws and regulations concerning CCUS, with many legislatures considering the establishment of funds to backstop long-term closure obligations and storage liabilities
- Standard contractual obligations for pore space utilization have not yet been established, but many key features resemble those related to oil and gas development