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Co-Tenancy Bill Signed by Governor Jim Justice

On Friday, March 9, 2018, Governor Jim Justice signed West Virginia Senate  HB 4268, known as the “Cotenancy Modernization and Majority Protection Act” into law, effective July 1, 2018.  As discussed in our post from last week, the passage of this legislation is the culmination of years of negotiations and compromise between West Virginia elected officials, the industry, landowners and mineral owners.  The bill is designed to streamline the oil and gas leasing process and facilitate further development without unnecessary delay, by carving out an exception to the West Virginia statute governing waste between certain co-tenants (individuals that all own undivided interests in the same tract of land).

Under the existing law (W. Va. Code § 37-7-2) development of oil and gas from a tract of land without the consent of all the owners, or co-tenants, of the same will result in waste, with any party committing such waste being subject to their operations being enjoined and/or treble damages.  The new law states that development of oil and gas under certain conditions will not constitute waste. The bill states that any tract held by seven or more co-tenants can be developed upon the consent of 75% of such co-tenants.  However, the proposed operator must make reasonable efforts to negotiate leases with all of the oil and gas owners before they can find protection under the proposed new law.

Non-consenting co-tenants can either accept royalties equal to the highest percentage royalties paid to one of the consenting parties, proportionally reduced to their respective fractional interest, or elect to participate in the development and bear equal development and other costs with the lessee.  Unknown or unlocatable owners will be limited to receiving royalties equal to the highest percentage royalties paid to one of the consenting parties.  The statute also allows surface owners to reclaim the oil and gas title held by any unknown or unlocatable owners after seven years.

The bill strikes a delicate balance between all stakeholders by protecting land and minerals owners while updating the law for the horizontal drilling era.