Co-Tenancy Not Forced Pooling

House Bill 4268 in the West Virginia Legislature is called the “Co-tenancy Modernization and Majority Protection Act.” It is no secret that there has been a battle in West Virginia concerning the development of the natural gas industry.

The players involved in the battle include the gas companies versus the citizens but more specifically versus the royalty owners and the surface owners of the land involved. The citizens are represented by the Royalty Owners Association, the Surface Owners Association and the West Virginia Farm Bureau (looks out for the interest of both groups).

The bill that passed the House of Delegates (60-40) is HB 4268. This piece of legislation is the product of hard work and compromise of the above-mentioned parties.

This is not forced pooling, as mentioned by some legislators. All parties are content with the bill as it left the House of Delegates. They will remain content if it survives the Senate unaltered.

The substance of the bill deals with co-tenancy — multiple owners of a single parcel of land. Current West Virginia law requires 100 percent approval of the owners of mineral rights to develop a parcel. Any percentage owner can halt development.

For example, a parcel of land owned by multiple family members with 99 percent ownership wanting to develop and 1 percent refusing to develop: Current law allows the 1 percent interest to halt development.

In many instances, small percentage heirs are unable to be located and thus development is halted.

West Virginia is one of three states that does not have such a law and the other two are not in the extraction business. This bill states that if 75 percent of the owners of a parcel want to develop, then development happens. The minority (25 percent or less) that did not agree are included and get the highest royalty rate of the majority and the average of majority acreage bonus payments. Alternatively, they could partner with the gas company and opt for a working interest in the well.

There is also a mechanism for the minority to appeal the royalty rate and bonus payments with the Oil and Gas Commission.

Surface owners have protections as well and include the right to negotiate. If a prior contract has a component that addresses “horizontal drilling,” then the contract is valid. When not specifically mentioned is where the right to negotiate comes into play. Additionally, surface owners have a right to claim the mineral rights and thus royalty payments if unclaimed minority owners do not come forward in seven years. During that seven-year period, the royalties are placed in a fund that is divided 50-50 between the Public Employees Insurance Agency and a fund to plug wells.

Another protection in the bill for citizens indicates that the terms are strata specific and future development of a different strata or shale is not included and would require new negotiations.

I personally spoke with the director of government affairs for the West Virginia Farm Bureau, Dwayne O’Dell, and both Tom Huber and David McMahon, representing the Royalty Owners Association and Surface Owners Association, respectively. They are all on board, if of course, the bill does not change as it moves through the Senate. I was told by Mr. O’Dell that approximately 75-80 percent of the people they represent are in favor of the bill.

One last time, this is not forced pooling. More simply and accurately stated, this is a good piece of legislation that is the result of compromise between all parties involved.

Dr. Mike Maroney, of Glen Dale, is one of two state senators representing the Second Senatorial District of West Virginia. He is chairman of the Senate Economic Development Committee and co-chairs several other committees.