The West Virginia Senate Judiciary Committee is currently reviewing a new oil and gas “forced pooling” bill, SB 576. It is the latest attempt by the oil and gas industry to compel mineral interest owners to consent to the pooling of oil or gas leases in order to permit extraction of resources via horizontal drilling. This bill, to amend and re-enact West Virginia Code § 37-7-2 to include by reference a new code section (§ 37B-1-1, et seq.) permitting forced pooling, is detrimental to the interests of West Virginia mineral owners for the following reasons:
1) The bill will allow pooling of leases upon the approval of two-thirds of tenants in common, joint tenants or coparceners. This level of consent is far too low. It permits large fractional interest owners to overpower small interest owners effecting, in essence, a taking of the smaller interests, notwithstanding compensation provided in the proposed bill.
2) Forced pooling is a disincentive for oil and gas operators to diligently search for unknown or unlocatable mineral owners.
3) The bill will reduce or eliminate bargaining power for many, if not most, mineral interest owners in negotiating fair pooling agreements because of the threat of the forced pooling statute. It will allow oil and gas operators to bargain unfairly using West Virginia state law as a club against state real property owners.
4) The bill will cause increased and excessive litigation that will clog the courts and may ultimately delay the production sought by oil and gas operators, frustrating the bill’s ostensible purpose.
5) The reservation or escrowing of unknown or unlocatable interest owners will be an undue burden on mineral owners who subsequently become known and wish to retrieve their shares of monies reserved.
6) The bill will increase the number of surface owners eligible under West Virginia Code § 55-12A-7 to effectively confiscate mineral interests owned by others.
7) The information sources identified to satisfy the requirement for a diligent search of unknown or unlocatable mineral owners are inadequate, particularly in light of modern information technology. This will lead to less diligent inquiry and likely the taking of mineral interests without due notice to or the consent of the owners.
I once had a client that was identified as an unknown heir by an oil and gas operator. Coincidentally, she also had signed a lease with the operator a few years before. That search did not seem particularly diligent to me. It took her nearly two years to retrieve the royalty payment she was due, not to mention the cost of legal representation to protect her rights. She passed away shortly after finally receiving a check for her share of the “unknown heirs” money held by the receiver. I suspect she could have used that money far more effectively had an adequate search been conducted that would have allowed for earlier payment. How much worse will it be when operators are only required to go through the motions of an inquiry as a matter of statute?
This is a bad bill. It will allow oil and gas operators to “carpet bag” in a way we have not seen since the day of the coal baron. West Virginians have a unique connection to their real property, much of which has been passed down from generation to generation for two hundred years. We must not allow property rights to be wrested from our grasp by outside interests with the assistance of our state government.
Lowe Law Solutions 