On March 5, 2018, the West Virginia legislature passed the Cotenancy Modernization and Majority Protection Act (“the Act”) to promote oil and gas development and production while also protecting the rights of mineral owners (WV Code Chapter 37B Mineral Development). The Act, which comes into effect 90 days from passage, will allow, subject to satisfaction of certain requirements, oil and gas exploration companies to drill and develop land held by cotenants without the consent of all cotenants.
Where there are seven or more cotenants, operators may develop land if 75% of the cotenants sign leases (WV Code §37B-1-4(a)). The Act protects nonconsenting cotenants, being those cotenants who choose not to sign leases. Nonconsenting cotenants shall elect to: (i) receive royalty payments equal to the highest percentage royalty paid to a consenting cotenant, or (ii) participate in the development and production and share the revenue and cost of development (WV Code §37B-1-4(b)). The Act also protects unknown or unlocatable cotenants. Pursuant to WV Code §37B-1-4(d), unknown or unlocatable cotenants shall receive royalty payments equal to the highest percentage royalty paid to a consenting cotenant.
In conjunction with the Cotenancy Modernization and Majority Protection Act, the West Virginia legislature passed the Unknown and Unlocatable Interest Owners Act, which sets forth the procedure to protect the reserved interests due and payable to unknown or unlocatable interest owners. Pursuant to WV Code §37B-1-4(d), both consenting cotenants and lessees shall make a report to the State Treasurer as the Unclaimed Property administrator regarding the reserved interest of the unknown or unlocatable interest owner as well as concurrently remit the amount reserved, which shall be submitted on the first day of each month following each calendar quarter. The remitted amount shall then be deposited in the Unknown and Unlocatable Interest Owners Fund as a special revenue and interest-bearing account, which shall be administered by the State Treasurer (WV Code §37B-2-5).
After the expiration of seven (7) years from the date of the first report to the State Treasurer, a bona fide surface owner may file an action to quiet title to the interests of all unknown and unlocatable cotenants. However, while the surface owner may become entitled to the interests of all unknown and unlocatable tenants and receive a special commissioner’s deed transferring title, the surface owner shall only be entitled to the proportionate share of all future proceeds and will not be entitled to any amount remitted to the Treasurer prior to the execution of the special commissioner’s deed. Unknown or unlocatable cotenants shall not be entitled to amounts paid after delivery of the special commissioner’s deed to the surface owner (WV Code §37B-1-4(g)).
Prior to filing an action to quiet title to the interests of all unknown and unlocatable cotenants (at least 60 days prior to the expiration of the seven (7) year period), the administrator shall provide notice of the seven (7) year expiration period to the surface owner and unknown or unlocatable cotenants by publication in the county where the minerals are located once a week for two successive weeks (WV Code §37B-2-5(g)).
The implementation of the Cotenancy Modernization and Majority Protection Act overcomes a major legal hurdle many oil and gas companies were facing in West Virginia. Without the consent of all cotenants, oil and gas companies were unable to explore for, develop and produce oil, gas, and other minerals; and obtaining the consent of all cotenants was oftentimes difficult when the cotenants were unknown or unlocatable. The Cotenancy Modernization and Majority Protection Act grants oil and gas companies more flexibility to develop and produce without the consent of all cotenants, but also safeguards the rights of nonconsenting cotenants and unknown or unlocatable cotenants.
Shana M. Smith is a partner in the Energy Practice Group, and is based in Leech Tishman’s Pittsburgh office. Shana can be reached at 412.261.1600, or by email at email@example.com. Catherine C. Sakla is an Associate with Leech Tishman and a member of the firm’s Energy Practice Group. Catherine is based in Leech Tishman’s Pittsburgh office and can be reached at 412.261.1600, or by email at firstname.lastname@example.org.
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