News

Update to West Virginia’s Cotenancy Modernization and Majority Protection Act

By Matthew J. McClelland, Esquire

The West Virginia legislature has recently passed a modification to the Cotenancy Modernization and Majority Protection Act (the “Act”) (W. Va. Code §37B-1-1, et seq.). The passage of this legislation has resulted in the elimination of the requirement that there be seven (7) or more co-tenants to the oil and gas estate. Now, under the Act, an operator only needs to obtain leases from oil and gas owners vested with at least three-fourths (3/4) of the oil and gas rights for the Act to apply.

Under the Act, the operator must make or has made reasonable efforts to negotiate with all oil and gas owners; and oil and gas owners vested with at least three-fourths (3/4) of the right to develop, operate, and produce oil, natural gas, or their constituents consent to the lawful use or development of the oil or natural gas mineral property.

A non-consenting co-tenant is entitled to receive, based on his or her election, either one of the following:

1. A pro-rata share of the production royalty, paid on the gross proceeds received at the first point of sale to an unaffiliated third-party purchaser and free of post-production expenses, equal to the highest royalty percentage paid to his or her consenting co-tenants in the same mineral property, under a bona fide, arms-length lease transaction and lease bonus and delay rental payments or other non-royalty mineral payments, calculated on a weighted-average net mineral acre basis; or
2. To participate in the development and receive his or her pro-rata share of the revenue and cost equal to his or her share of production attributable to the tract or tracts being developed according to the interest of such nonconsenting co-tenant, exclusive of any royalty or overriding royalty reserved in any lease, assignments thereof or agreements relating thereto, after the market value of such nonconsenting co-tenant’s share of production, exclusive of such royalty and overriding royalty, equals double the share of such costs payable or charged to the interest of such nonconsenting co-tenant.

A nonconsenting co-tenant has 45 days following the operator’s written delivery of its best and final lease offer to make his or her election for either a production royalty or a revenue share.  If the nonconsenting co-tenant fails to deliver a written election to the operator prior to the expiration of such 45 day period, he or she is deemed to have elected the production royalty option.  Within 30 days after a nonconsenting co-tenant has chosen or is deemed to have chosen the production royalty option, the nonconsenting co-tenant has the right to appeal regarding the issue of whether there has been compliance with the production royalty option, to verify the highest royalty paid in the same mineral property and the value for the lease bonus and delay rental payments: provided; however, that the operations upon the parcel may continue during the proceedings.  See W.Va. Code, § 37B-1-4(c).

As a result of the foregoing amendment to the Act, it is important for West Virginia oil and gas owners to be aware that if an operator makes reasonable efforts to lease their oil and gas rights but cannot come to an agreement, the operator may still operate for oil and gas if they have obtained leases from oil and gas owners vested with at least three-fourths (3/4) of the remaining oil and gas rights.

If you have questions about Oil and Gas Leasing, contact us online or call (412) 338-1124.