2025 Policy Development: Hydrogen Exploration (State)

In 2023, the United States Geological Survey (USGS) discovered large deposits of geologic hydrogen along the Mid-Continent Rift, spanning across the Midwest. This hydrogen can be used to locally manufacture anhydrous ammonia, or it can be used as a fuel source for power plants, industry or vehicles. If hydrogen is found, landowners have an opportunity for annual royalty payments after the well becomes operational. This new fuel resource has not been extracted previously in the United States although several exploratory wells have recently been drilled.

The discovery of naturally occurring hydrogen sparked the interest of natural resource exploration companies hoping to extract and develop hydrogen as a clean burning alternative to fossil fuels. One of these companies, Twin Rivers Exploration, has successfully drilled two exploration wells in Webster County finding hydrogen. USGS estimates a large reservoir of hydrogen in Iowa, stretching from Council Bluffs, Fort Dodge, and Mason City, highlighted by purple on the map below. 

Although hydrogen has always been a fuel alternative, hydrogen has historically been expensive to produce, and hard to manufacture. Prior to the discovery of geologic hydrogen in the Midwest, naturally occurring hydrogen extraction has never been a commercially viable production option in the United States. When burned as fuel, hydrogen only produces water vapor as a byproduct, emitting no carbon dioxide or greenhouse gases like fossil fuels, ultimately creating high demand for hydrogen as a clean burning fuel alternative.

Hydrogen Ownership

For most Iowa properties, landowners own the surface and everything below the surface of the ground. However, some landowners own land where the mineral rights were separated from the property decades ago, creating two separate ownership interests in a single property: the surface estate, and the mineral estate. Iowa currently defines “minerals” as all natural resources found beneath the ground, except for coal.

The owner of the surface estate owns the surface of the land and has the right to control everything on top of the land whereas the owner of the mineral estate has the right to control the mineral resources underground. This means that the surface owner has the right to grow crops, create improvements, and use the surface in whatever capacity they choose, and the mineral owner has the right to sell, lease, develop or extract the minerals below the ground. 

In Iowa, owning the surface estate even allows you to dig drinking water wells and use the ground below your property so long as it relates to the surface use of that property. However, when the mineral estate has been separated from the surface estate, the mineral owner also has the right to use the surface of the property. Because the minerals are worthless without the ability to access them from the surface, the mineral owner also has rights to use as much of the surface of the property to develop their minerals without consent from the surface owner. 

Given that Iowa has not had an extensive drilling industry, Iowa law is somewhat silent as to how much access the mineral owner has to the surface. A hydrogen well takes approximately 10 acres of the surface to drill the well with a smaller footprint once the well becomes operational. Nationally, the right to minerals carries with it the right to enter the surface of the property, to explore and extract minerals without the payment or consent of the surface owner.

Separated mineral rights were often separated from the surface ownership many decades ago and many landowners may not know whether they own the mineral rights under their property. Additionally, when the mineral rights are separated, it can be even harder to track down the current owners of those minerals. To solve these problems, many states have passed laws that require separated mineral rights, that are not being leased for oil or gas production, to terminate after a certain period of time and “merge” back into the current surface ownership. These Mineral Estate Termination Laws either automatically merge the separated and unused mineral estate into the surface estate or give the current landowner the ability to regain ownership of the unused mineral estate through a legal process. 

However, because extractable hydrogen is a new natural resource in the United States, it is unclear whether the rights to control the hydrogen will be given to the surface owner or the mineral estate owner when the property has been split into two separate estates. Although Iowa law treats all subsurface resources as “minerals”, other states have more detailed definitions of what “minerals” are, affecting who owns what below the surface. 

In many states, a natural resource discovered below a property that does not fall into the state’s definition of “mineral” belongs to the surface owner. For example, Texas Property Code § 75.001 defines minerals as oil, gas, uranium, sulfur, and coal, meaning that in theory if gold was discovered under a property where the mineral estate had been separated, the gold would belong to the surface owner because it is not included in the state’s definition of “mineral” and the mineral estate owner would have no claim to it. Applying the same logic to hydrogen in Iowa, it is unclear whether the hydrogen would belong to the owner of the surface, or the owner of the minerals in situations where the mineral rights have been separated from the surface ownership because Iowa’s definition of “minerals” is less descriptive. 

Landowner Protections

When the mineral estate has been separated from the surface ownership, the party holding the mineral rights has the right to enter the property and interfere with the surface to extract those resources. Current Iowa Law only requires the party holding the mineral rights to pay for the damage caused on the surface of the property that was caused by drilling exploration. Meaning that the party holding the mineral rights can drill, build, access and construct on that property without the landowner’s consent and without signing a lease agreement. Because mineral estate owners may use as much of the surface of the property as necessary to extract resources without the consent of the surface owner, many states have passed Surface Owner Protection Laws to protect the surface owner’s interest in a property from the mineral estate owner’s competing interests. 

These Surface Owner Protection Laws ensure that landowners are compensated regardless of whether they own the mineral estate. For example, the State of Oklahoma’s Surface Damages Act or Okla. Stat. tit. 52 § 318 (“OSDA”) requires adequate compensation for landowners and gives the landowners the ability to force the party holding the mineral rights into a written surface lease agreement. Oklahoma requires that before the mineral rights holder enters onto the surface to conduct mineral related activities, the mineral rights holder must negotiate with the surface owner for the payment of any damage that may be caused by the drilling operation as well as make a good faith attempt to sign a written surface use agreement. However, if the parties cannot reach an agreement or the landowner cannot be located, the mineral rights holder must petition the court to have the damages appraised before entering onto the property. The appraisers will determine future surface damages sustained on the property and ultimately determine the amount of compensation for surface use and damage to be paid from the operator to the landowner.

However, for states who require more payment to surface owners than a posted bond for damages, Oklahoma is somewhat unique in their surface owner compensation laws in that they require drilling companies to make an attempt to sign a surface use and lease agreement. Most other states only require drilling companies to pay for damages and loss of agricultural production or income.

Take North Dakota for example, where North Dakota Century Code § 38-11.1 dictates that drilling companies holding mineral rights must pay landowners a sum of money equal to the damages for loss of agricultural production, income, loss of use and access to land, and lost value of improvements caused by the drilling operations. Section 38-11.1 also requires these drilling companies to pay for damages to livestock or irrigation water supply to anyone that is impacted by drilling within a half mile of the drilling site.

States like North Dakota, South Dakota, Montana and Tennessee have equipped their landowners with this model of surface owner protection. Generally, these states require that the amount of damages are to be determined by any formula mutually agreed upon between the developer and surface owner. If the surface owner rejects the drilling company’s offer, these laws allow the surface owner to take the company to court. If the court determines that an award for more than the drilling company’s offer is appropriate, the drilling company is responsible for paying attorney’s fees, costs and interest. This model adopted by North Dakota and other states which focuses on agricultural value and holding companies responsible also provides for punitive damages to be awarded to the surface owner if the drilling company fails to provide notice of operating on that property.

Another major challenge landowners face in areas of oil and gas production is well closure and ensuring that after an oil or gas well is abandoned, it is properly plugged. Iowa Administrative Code 561-17.15 provides that “any wells drilled in connection with mineral exploration or production shall be properly plugged when the well is no longer used for the purpose for which it was drilled.” However, operators are often reluctant to complete closures in a timely manner as the process is expensive and requires involvement with the state’s regulatory commission. Oil and gas companies often contract to require landowners or mineral owners to pay for the closure, and landowners are often left in a worse position than before the well was dug.

Comparatively, Iowa’s well plugging law is vague, and lacks the enforcement needed to ensure that local landowners aren’t left with the cost and burden of plugging someone else’s abandoned well. Looking towards other states with more updated well plugging laws, Colorado’s well plugging regulatory scheme (Section 2 CCR 404-1-211) not only places the duty to plug the abandoned well affirmatively on the operator, but it also gives landowners an opportunity to force operators to plug abandon wells through filing an action in the Energy and Carbon Management Commission (ECMC) if the operator has not timely plugged the abandoned well. This regulatory scheme accelerates the remediation process and ensures that landowners are not bearing the burden of plugging abandoned wells or bearing those associated costs. 

Pooling Orders & Royalties

Hydrogen, like oil and gas, is a fluid-like resource that is found in large reservoirs spanning over many different properties deep underground. Because these reservoirs span over multiple properties, and because hydrogen moves freely in these reservoirs, one owner cannot extract hydrogen without inevitably taking hydrogen from another owner who owns mineral rights in the same reservoir. One hydrogen well can allow extraction for miles around the well site, allowing other landowners to benefit from royalty payments without disturbing their surface rights.

To illustrate, imagine you are sharing a milkshake with your sibling. You draw a line down the middle of the lid of the cup, and each of you can only drink out of the straw on your half of the cup. If you want to save some of the milkshake for later, nothing will stop your sibling from finishing the milkshake even though they never drank from your straw. In this event, you are left with nothing, and your sibling enjoyed both shares of the milkshake without breaking the rules. 

To solve this issue, most states pass Pooling and Spacing Laws in order to protect all the property owners’ interests in a shared reservoir and prevents one property owner from extracting more than their share of the resources in the reservoir. These laws limit how many gas wells may be drilled on a property by creating drilling (spacing) units, and are used to “pool” resources together, allocating each property owner their respective share of the resource in the reservoir. The incentives for forced pooling are illustrated in the figure below. 

Iowa Administrative Code § 561-17.16 dictates the spacing requirements for each oil and gas well in the State of Iowa. Generally, the rule states that there shall be no more than one well for every 640 acres and each well shall not be closer than 3,750 feet from the nearest well on an adjacent property, or closer than 1,320 feet from the boundary line. Most states have oil and gas well spacing requirements and vary depending on the underlying mineral reservoir’s depth, production history and environmental factors. However, Iowa Code section 458A.7 dictates that Iowa DNR may set spacing units when necessary to prevent additional wells or in the interest of efficiency. Specifically, the DNR has the ability to protect the rights of adjacent landowners or mineral interest holders, to establish zones and units for common pools, and to force unwilling landowners to pool.

Pooling is typically an agreement between adjacent landowners to “pool” their mineral interests together to maximize gas production in an area, or when the properties on a common pool are too small to meet the states’ spacing requirements. These contracts typically agree to royalty payments, ownership shares and cost allocation. Often, however, property owners sharing a common pool often disagree whether they want to drill for and extract natural resources. Because oil, natural gas, and hydrogen are fluid in the pool, one owner cannot extract these natural resources without inevitably taking from the other owners in the pool. Thus, one unwilling owner can prevent adjacent landowners in a common pool from having enough consolidated land to profitably produce oil or gas. This is where forced pooling laws or “compulsory pooling” laws significantly impact any landowner’s ability to successfully produce natural gas, as illustrated in the figure below. 

Compulsory pooling laws are state laws that allow state agencies to compel unwilling landowners or mineral interest holders in a common pool to accept gas exploration by compelling them to participate, typically for a minimum royalty payment of 1/8 (12.5%) of their share of minerals in the common pool. However, willing owners often negotiate with the drilling companies for a higher royalty payment percentage. Iowa’s compulsory pooling laws (Iowa Code § 458A.8) are simple grants of power to the DNR which allows “pooling orders” to be issued by the Department, compelling unwilling landowners to participate in a pool. 

Most states’ laws dictate that pooling orders can only be issued after a minimum percentage of the property owners in that unit request to be pooled together. For instance, North Dakota and South Dakota cannot issue pooling orders and force an unwilling owner to participate in a pool unless 60% of the owners by acres in that unit, request to pool. For example, if a spacing unit on a common pool has 100 acres, with ten property owners each owning ten acres, and four of the property owners do not want to have gas production in the area, the remaining six property owners must request that their state agency issue pooling orders to compel the remaining four property owners into the pool before they may drill for a natural resource. 

In other states, this minimum percentage of willing owners required to prevent an unwilling owner from blocking their drilling interests is as low as 25% and as high as 80% in some states, but most commonly this percentage requirement ranges between 45-60%. However, Iowa Law has no minimum owner percentage requirement in a spacing unit and only specifies that pooling orders may be issued “upon the application of any interested person” pursuant to Iowa Code § 458A.8(1).

Additionally, where other states’ laws require that the unwilling owner is paid a minimum royalty payment percentage of 1/8^th of the profits from their share of mineral rights in the common pool, Iowa Code § 458A.8(1) sets no minimum royalty payment percentage for unwilling owners but simply promises “a just and equitable share” as compensation for unwilling owners when issuing pooling orders. The DNR determines the “just and equitable share” in the pooling order. Iowa legislation introduced in 2025 proposed a 12.5% minimum royalty payment after costs and penalties are taken out. When pooling orders are issued in Iowa, the unwilling owner will only be paid their “just and equitable share” of royalty payments after their share of development costs have been covered.  

In other states like North Dakota and Texas, unwilling owners face a penalty (paying costs greater than their share of development costs) before they receive royalties. This is to encourage voluntary participation and prevent people from blocking gas development in a common pool. While pooling orders differ by state, most states either penalize unwilling property owners or withhold royalties to cover drilling costs before they can receive their share. Proposed 2025 Iowa legislation would penalize unwilling landowners 200% of their share of the development costs as a penalty to be paid from their share of the royalties.

Finally, where other states have passed laws establishing minimum royalty payment requirements, for both private parties, state leased lands, and pooling orders, Iowa has not. Oil and gas royalties are typically paid on how much of that natural resource is produced, or a percentage of every unit of that resource sold. Royalties are generally the lease payment from the energy company to the property owner for the mineral lease. Most property owners negotiate with drilling companies what their royalty payments will be before leasing their minerals to the drilling companies. However, to protect property owners, some states have passed minimum royalty laws, like the Pennsylvania Minimum Royalty Act (58 Pa. Stat. Ann. § 33) which requires energy companies to pay property owners at least a 1/8 share of all natural resources recovered off that property. 

Discussion Questions:

1. Should Iowa encourage the extraction and production of hydrogen as an alternate fuel source and additional income to landowners?
2. Should Iowa have minimum royalty payments for the extraction of natural resources?
3. Who should pay for the extraction cost if both the landowner and the drilling company make income from the sale of the hydrogen?
4. Should landowners who resist the extraction of hydrogen be assessed a risk penalty?