West Virginia has long been among the minority of jurisdictions requiring all owners of a mineral interest to consent prior to any development of oil or natural gas. This principle is stated in the case Law v. Heck Oil Co., 106 W. Va. 296 (1928), which held that an owner of an undivided 1/768 could block the development of mineral resources even though the owners of the remaining undivided 767/768 interest consented to such development. The court reasoned that permitting development over objections of a non-consenting co-tenant, no matter how small the proportionate share, would be waste, forcing the non-consenting co-tenant to exchange real property for personal property. Obviously, the strict co-tenancy leasing requirements have had a chilling effect on the development of West Virginia’s valuable oil and gas natural resources.
On March 5, 2018, the West Virginia Legislature completed legislative action on House Bill 4268, titled the Cotenancy Modernization and Majority Protection Act (the “CMMPA”). The CMMPA proposes to alter the Heck rule and allow development of oil, natural gas or their constituents within a particular tract owned by seven or more cotenants upon obtaining consent from a supermajority consisting of 75 percent of the executive interest in the tract. Developers still must obtain consent of all interest holders with tracts owned by six or fewer cotenants.
The fate of the CMPAA now rests with Governor Jim Justice. Though Governor Justice has raised some concerns about how the CMMPA affects West Virginia mineral owners, he is expected to sign the bill into law. The West Virginia Legislature has expressed that the bill represents a reasonable compromise between protecting the interests of individual property owners and making West Virginia more competitive with other oil and gas producing states.
Unquestionably, the CMMPA is a step in the right direction towards promoting the growth and development of the oil and gas exploration and production in West Virginia. In addition to altering West Virginia’s co-tenancy requirements for development of oil and natural gas, the CMMPA also:
provides E&P companies with a statutory defense against claims of waste and trespass by non-consenting cotenants (W.Va. Code §§ 37-7-2 and 37B-1-4(a)),
limits liability of non-consenting cotenants (W.Va. Code § 37B-1-5),
establishes a framework for non-consenting cotenants to receive a prorata share of production royalty and other payments or a working interest (W.Va. Code § 37B-1-4(b)) ,
defines “unknown and unlocatable” interest holders (W.Va. Code § 37B-1-3), and,
outlines a structure for oversight by the West Virginia Oil and Gas Conservation Committee (W.Va. Code § 22C-9-4).
While West Virginia property owners have expressed concerns over these changes, the CMPPAA balances those concerns with the important public interest of promoting the exploration and production of West Virginia’s natural resources. Although there is a significant amount of uncertainty surrounding the CMPAA, unquestionably, it will spawn voluminous litigation if passed.
This article is intended to provide a sweeping overview of the substantial changes to West Virginia Oil and Gas Law to be implemented by the CMPAA and should not be construed as providing legal advice. For a more in-depth and comprehensive review of the particular changes proposed by the CMPAA, kindly contact Gordon & Rees Energy Attorneys, Brant Miller and/or Chris Haselhoff at 412-577-7400.