WEST VIRGINIA LEGISLATURE
2022 REGULAR SESSION
Introduced
Senate Bill 650
By Senator Nelson
[Introduced February 16,
2022; referred
to the Committee on Energy, Industry, and Mining]
A BILL to amend and reenact §37B-1-4 of the Code of West Virginia, 1931, as amended, relating to amending the number of royalty owners required for utilization by an operator for the lawful use and development by cotenants; and correcting the format of some phrases.
Be it enacted by the Legislature of West Virginia:
ARTICLE 1. MINERAL development by A majority of cotenants.
§37B-1-4. Lawful use and development by cotenants; election of interests; reporting and remitting of interests of unknown or unlocatable cotenants; establishment of terms and provisions for development; and merging of surface and oil and gas.
(a) In cases where there
are seven or more royalty owners, if If an operator or owner makes
or has made reasonable efforts to negotiate with all royalty owners in an oil
or natural gas mineral property and royalty owners vested with at least three
fourths 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, the operator’s or owner’s use or development of
the oil or natural gas mineral property is permissible, is not waste, and is
not trespass. In that case, the consenting cotenants and their lessees,
operators, agents, contractors or assigns are not liable for damages for waste
or trespass due to the lawful use or development and shall pay the
nonconsenting cotenants in accordance with subsections (b) and (c) of this
section, reserve the amounts specified in subsection (d) of this section for
the benefit of unknown or unlocatable interest owners, and report and remit the
reserved interests as provided in subsection (d) of this section.
(b) A nonconsenting cotenant is entitled to receive, based on his or her election, either:
(1) A pro rata share of 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 cotenants 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 cotenant, exclusive of any royalty or overriding royalty reserved in any lease, assignments thereof or agreements relating thereto, after the market value of such nonconsenting cotenant’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 cotenant.
(c) A nonconsenting
cotenant shall have 45 days following the operator’s written delivery of its
best and final lease offer in which to make his or her election for either a
production royalty or a revenue share as specified in subsection (b) of this
section. If the nonconsenting cotenant fails to deliver a written election to the
operator prior to the expiration of such 45-day period, he or she shall be
deemed to have made the election set forth in subdivision (1), subsection (b)
of this section. Within 30 days after a nonconsenting cotenant has chosen or is
deemed to have chosen the production royalty option, the nonconsenting cotenant
shall have the right to appeal to the Commission regarding the issue of whether
there has been compliance with subdivision (1) of subsection (b) of this
section, 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.
(d) Unknown or unlocatable interest owners are deemed to have made the election provided by subdivision (1), subsection (b) of this section and are only entitled to receive the amount provided by that subdivision. Within 120 days from the date upon which an amount is reserved for an unknown or unlocatable interest owner pursuant to subsection (a) of this section, the consenting cotenants and their lessees, operators, agents, contractors or assigns shall make a report to the State Treasurer as the Unclaimed Property administrator and each calendar quarter, thereafter, concerning each reserved interest for each unknown or unlocatable interest owner and shall concurrently remit the amount reserved, in accordance with the provisions of §37B-2-1 et seq. and §36-8-1 et seq. of this code and as determined by the State Treasurer. The quarterly report and remittances shall be submitted by the first day of the month following each calendar quarter.
(e) Unless otherwise agreed
to in writing or defined by this section, any nonconsenting cotenant and any
unknown or unlocatable interest owner who elects or is deemed to elect a
production royalty under subdivision (1), subsection (b) of this section is
subject to and shall benefit from the other terms and provisions defined by the
lease executed by a consenting cotenant which contains terms and provisions
most favorable to the nonconsenting cotenant or the unknown or unlocatable
interest owner: Provided, That nonconsenting cotenants and unknown or
unlocatable interest owners shall not be subject to or liable under any
warranty of title, jurisdictional or choice of law provisions, arbitration
provisions, injection well provisions, disposal well provisions, and storage
provisions: Provided, further however, That
consenting cotenants and their lessees, operators, agents, contractors or
assigns shall only develop the specifically targeted stratigraphic formation
and 100 feet above and below said formation; nonconsenting cotenants and
unknown or unlocatable interest owners will retain all rights to all other
formations unless or until reasonable efforts are made to renegotiate under
this section for each additional formation. If a consenting cotenant has made a
lease only for the targeted formation, in that case the nonconsenting cotenants
and unknown and unlocatable cotenants shall receive the highest royalty, bonus
and delay rental in the lease which was executed for the targeted
formation.
(f) Unless otherwise agreed to in writing or defined by this section, a nonconsenting cotenant who elects to participate under subdivision (2), subsection (b), of this section, shall be subject to and shall benefit from other terms and provisions determined to be just and reasonable by the Oil and Gas Conservation Commission in a manner similar to the provisions of §22C-9-7(b)(5)(B) of this code governing deep wells. The commission may propose rules for legislative approval in accordance with the provisions of §29A-3-1 et seq. of this code, to implement and make effective the provisions of this section and the powers and authority conferred and the duties imposed upon the commission under the provisions of this section. Notwithstanding the determination of participation terms by the commission, an operator may proceed with the development of oil, natural gas, or their constituents pursuant to this section.
(g) After seven years from the date of the first report to the Treasurer, a bona fide surface owner may file an action to quiet title to the interests of all unknown and unlocatable interest owners of the oil and natural gas estate underlying the surface tract. To the extent relevant and practical, such action shall follow the provisions of §55-12A-1 et seq. of this code. Upon presentation of sufficient proof, a bona fide surface owner shall be entitled to receive a special commissioner’s deed transferring title to the interest of any or all unknown or unlocatable interest owners in an oil and natural gas estate which underlies the surface tract. The surface owner shall only be entitled to their proportionate share of all future proceeds and is not entitled to any of the accrued funds which have been remitted to the Treasurer prior to the execution of the special commissioner’s deed. The unknown or unlocatable interest owners are not entitled to any amounts paid to the grantees of the special commissioner’s deed after delivery of said deed.
NOTE: The purpose of this bill is to eliminate the minimum number of royalty owners required to utilize article one of Chapter 37B regarding lawful use and development by cotenants.
Strike-throughs indicate language that would be stricken from a heading or the present law, and underscoring indicates new language that would be added.