WEST virginia legislature
2017 regular session
Senate Bill 576
By Senators Trump and Blair
[Originating in the Committee on Judiciary; reported on March 24, 2017]
A BILL to amend and reenact §37-7-2 of the Code of West Virginia, 1931, as amended; and to amend said code by adding thereto a new chapter, designated §37B-1-1, §37B-1-2, §37B-1-3, §37B-1-4, §37B-1-5, §37B-1-6, §37B-1-7, §37B-1-8, §37B-1-9 and §37B-1-10, all relating generally to real property; providing an exception to waste for certain oil and gas development; providing a short title; providing declarations of public policy and legislative findings; providing definitions; providing that consent for the lawful use of the oil and gas mineral property by three fourths of the royalty interests in oil and gas mineral property is permissible, not waste and not trespass; allowing nonconsenting cotenants to elect a production royalty interest or a working interest share of production; providing for the joint development of multiple contiguous oil and gas leases by horizontal drilling unless development is expressly prohibited by agreement; limiting jointly developed leases to six hundred forty acres with a ten percent tolerance; requiring a $100,000 payment, as indexed to the consumer price index, to a surface owner whose surface tract is damaged by horizontal drilling; allowing for a net acreage fractional share royalty interest, free of post-production expenses, for multiple contiguous leases jointly developed; providing for timely payment of royalties and requiring specified information to be remitted with such payments; requiring quarterly reporting of production data for horizontal wells drilled pursuant to the provisions herein; providing that cotenants are not liable for damages as a result of the lawful use of oil and gas mineral property; requiring surface use agreements in specified circumstances and preserving common law rights; and providing for severability of provisions.
Be it enacted by the Legislature of West Virginia:
That §37-7-2 of the Code of West Virginia, 1931, as amended, be amended and reenacted; and that said code be amended by adding thereto a new chapter, designated §37B-1-1, §37B-1-2, §37B-1-3, §37B-1-4, §37B-1-5, §37B-1-6, §37B-1-7, §37B-1-8, §37B-1-9 and §37B-1-10, all to read as follows:
CHAPTER 37. WASTE BY COTENANT.
ARTICLE 7. WASTE.
§37-7-2. Waste by cotenant.
If a tenant in common, joint tenant
commit commits waste, he shall
be or she is liable to his or her cotenants,
jointly or severally, for damages, except as provided for oil and gas
development in chapter thirty-seven-b of this code.
CHAPTER 37B. Mineral development by cotenants.
ARTICLE 1. development by cotenants.
§37B-1-1. Short title.
This chapter shall be known as the Cotenancy Mineral Development Act.
§37B-1-2. Declaration of public policy; legislative findings.
It is declared to be the public policy of this state and in the public interest to:
(1) Foster, encourage and promote exploration for and development, production, utilization and conservation of oil and gas resources;
(2) Prohibit waste of oil and gas resources and unnecessary surface loss of oil and gas and their constituents;
(3) Encourage the maximum recovery of oil and gas;
(4) Safeguard, protect and enforce the correlative rights of operators and royalty owners in a pool of oil or gas to the end that each such operator and royalty owner may obtain his or her just and equitable share of production from that pool of oil or gas;
(5) Safeguard, protect and enforce the rights of surface owners; and
(6) Protect and enforce the clear provisions of contracts lawfully made.
As used in this article, and in the absence of specific contract language to the contrary:
“Operator” means any owner of the right to develop, operate and produce oil and gas from a pool and to appropriate the oil and gas produced therefrom, either for that person or for that person and others; and in the event the oil is owned separately from the gas, the owner of the substance being produced or sought to be produced from the pool is the “owner” as to that pool.
“Person” means any individual, corporation, partnership, limited liability company, association, receiver, trustee, executor, administrator, guardian, fiduciary or other representative of any kind, and includes any government or any political subdivision or any agency thereof.
“Pool” means an underground accumulation of petroleum or gas in a single and separate reservoir (ordinarily a porous sandstone or limestone). It is characterized by a single natural-pressure system so that production of petroleum or gas from one part of the pool affects the reservoir pressure throughout its extent.
“Post-production expense” means an expense or cost subsequent to production including, but not limited to, an expense or cost related to pipelines, surface facilities, telemetry, gathering, dehydration, transportation, fractionation, compression, manufacturing, processing, treating or marketing of the oil or natural gas.
“Pro-rata share” means the allocation of revenues and costs attributable to the lawful use of a mineral property that is calculated based on the proportion that the net acreage of such ownership interest bears to the total net acreage of jointly developed tracts in a development or production unit that includes, all or part of, that mineral property, if any.
“Royalty owner” means any owner of oil and gas in place, or oil and gas rights, to the extent that the owner is not an operator as defined in this section. A royalty owner does not include a person whose interest is limited to a working interest in a wellbore only, overriding royalties, nonparticipating royalty interests or net profit interests.
“Unitization” means the exploration and development of an entire geologic structure or producing reservoir.
“Unknown and unlocatable interest owner” means a person vested with a present ownership interest in the oil and gas in place in a mineral property whose present identity or location cannot be determined from:
(A) A reasonable review of the records of the clerk of the county commission, the sheriff, the assessor and the clerk of the circuit court in the county or counties in which the interest is located and includes unknown heirs, successors and assigns known to be alive;
(B) Diligent inquiry in the vicinity of the owner’s last known place of residence; and
(C) Diligent inquiry to known interest owners in the same tract.
§37B-1-4. Waste by cotenant; lawful use; trespass; unknown or unlocatable cotenant; election of nonconsenting cotenant.
(a) If after a reasonable effort to negotiate by the operator with all royalty owners in an oil and gas mineral property, tenants in common, joint tenants or coparceners representing three fourths of the royalty interest in the oil and gas mineral property consent to a lawful use of the mineral property, then that use 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 if they pay nonconsenting cotenants in accordance with subdivision (1) of this subsection, and reserve the amounts specified in subdivision (2) of this subsection in a trust account held for the benefit of unknown or unlocatable interest owners in a state or federally insured financial institution.
(1) A nonconsenting cotenant is entitled to receive, based on his or her election, either:
(A) A production royalty, free of post-production expenses, equal to the highest royalty percentage paid to his or her consenting cotenants in the same mineral property, and a lease bonus payment equal to the average amount paid to such consenting cotenants calculated on net mineral acre basis; or
(B) 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.
A nonconsenting cotenant shall have forty-five 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 paragraph (A) or paragraph (B) of this subdivision. 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 paragraph (A), subdivision (1) of this subsection.
(2) Unknown and unlocatable interest owners shall be deemed to have made the election set forth in paragraph (A), subdivision (1) of this subsection.
§37B‑1‑5. Joint development of minerals; surface damage.
Where an operator or operators have the right to develop multiple contiguous oil and gas leases, the operator may develop these leases jointly by horizontal drilling unless the development is expressly prohibited by the terms of a lease or agreement. In addition to the surface damages payable pursuant to section three, article six-b, chapter twenty-two of this code and any surface damages owed under common law, the operator shall pay the surface owner whose surface tract is damaged by horizontal drilling under this section $100,000, as indexed to the consumer price index, for each well pad constructed by the operator which results in damage to that surface owner’s property.
§37B‑1‑6. Royalties for jointly developed minerals.
(a) In determining the royalty where multiple contiguous leases are developed under section five of this chapter, in the absence of specific agreement language to the contrary, the production shall be allocated to each lease in the proportion that the net acreage of each lease bears to the total net acreage of the jointly developed tracts.
(b) In the absence of specific agreement language to the contrary, the royalty for all royalty owners of the acreage jointly developed under section five of this chapter shall not be reduced for post‑production expenses incurred by the operator. Nothing in this subsection is intended to impact royalties due for wells drilled prior to the effective date of this chapter.
(c) Where multiple contiguous leases are jointly developed under section five of this chapter, the size of any drainage or production unit shall not exceed six hundred forty acres, with a ten percent tolerance.
§37B-1-7. Information reporting.
(a) The developing cotenant, his or her lessees, operators, agents, contractors or assigns shall provide the following information to all cotenants receiving production royalties resulting from the development of mineral property pursuant to this chapter:
(1) A name, number or combination of name and number that identifies the lease, property, unit or well or wells for which payment is being made and the county in which the lease, property or well is located;
(2) Month and year of gas production;
(3) Total barrels of crude oil or number of MCF, MMBTU or DTH of gas or volume of natural gas liquids produced and sold;
(4) Price received per unit of oil or natural gas produced;
(5) Total amount of severance and other production taxes associated with the volume of oil, natural gas or natural gas liquids produced, and other deductions provided under the terms of the governing lease;
(6) Net value of total proceeds from the sale of oil, natural gas or natural gas liquids from the property less taxes and deductions set forth in subdivision (5) of this subsection;
(7) Interest owner’s interest, expressed as a decimal or fraction, in production from the unit or well reported pursuant to subdivision (1) of this subsection;
(8) Interest owner’s ratable share of the total value of the proceeds of the sale of oil, natural gas or natural gas liquids prior to the deduction of taxes and other deductions set forth in subdivision (5) of this subsection;
(9) Interest owner’s ratable share of the proceeds from the sale of oil, natural gas or natural gas liquids less the interest owner’s ratable share of taxes and other deductions set forth in subdivision (5) of this subsection; and
(10) Contact information of the producer of the oil, natural gas or natural gas liquids, including a mailing address and telephone number.
(b) Notwithstanding any of the other provisions of this article, proceeds from production of oil, natural gas or natural gas liquids may be accumulated by the developing cotenant, his or her lessees, operators, agents, contractors or assigns until such time as proceeds attributable to any cotenant exceeds $100 before making a remittance: Provided, That in any event, regardless of the amount of money accumulated, the developing cotenant, his or her lessees, operators, agents, contractors or assigns shall remit proceeds attributable to his or her cotenants not less than once annually. All accumulated proceeds shall be paid to the person entitled thereto immediately, or as soon as practicable thereafter, upon cessation of production of oil, natural gas or natural gas liquids at a particular well or upon relinquishment or transfer of the payment responsibility to another party.
(c) All production royalties due and owing to a royalty owner shall be tendered in a timely manner which shall not exceed one hundred eighty days from the date that a sale of oil, natural gas or natural gas liquids is realized, unless such failure to remit is due to lack of record title in the royalty owner. Failure to remit timely payment shall result in a mandatory additional payment of an interest penalty to be set at the prime rate plus an additional two percent until such payment is made to be compounded semiannually. The prime rate shall be the rate published on the day of the sale of oil, natural gas or natural gas liquids in the Wall Street Journal reflecting the base rate on corporate loans posted by at least seventy-five percent of the nation’s thirty largest banks.
(d) A quarterly report of the volume of oil or natural gas produced from any horizontal well drilled pursuant to this article shall be filed with the Chief of the Office of Oil and Gas on a form prescribed by the Secretary of the West Virginia Department of Environmental Protection. All reported data shall be made available to the public through the Office of Oil and Gas’ website within a reasonable time after such data is collected. The secretary has the express authority pursuant to this article, as well as pursuant to the powers enumerated in section two, article six, chapter twenty-two of this code to promulgate rules and to amend the current rules to require timely quarterly reporting of production data as well as to establish a process for collecting such data.
§37B-1-8. Limitation of liability of nonconsenting cotenant.
A nonconsenting cotenant shall have no liability for bodily injury, property damage or environmental claims, arising out of site preparation, mineral extraction, maintenance, reclamation and other operations with respect to minerals produced from the cotenant’s property.
§37B-1-9. Surface use.
(a) With respect to any tract of mineral property where an interest in the oil and gas in place is owned by a nonconsenting cotenant and is developed pursuant to section four of this article, in no event shall drilling be initiated upon, or other surface disturbance occur on, the surface of or above such tract of minerals without the surface owner’s consent: Provided, That this subsection shall not require surface owner consent for tracts of mineral property otherwise subject to an existing surface use agreement or other valid contractual arrangement in which the owner of the surface has granted rights to the operator to use the surface in conjunction with oil and gas operations.
(b) Except as specifically described in subsection (a) of this section, nothing contained in this chapter is intended to alter in any way, and this chapter shall not diminish or increase, the rights of the owners of the surface overlying the minerals developed in this state. Further, except as specifically described in subsection (a) of this section, in enacting this chapter in 2017, it is the intention of the Legislature to leave unchanged the common law of this state as it relates to the mineral owner’s right to utilize the surface for the extraction of minerals.
The provisions of this chapter are severable and accordingly, if any part of this chapter is adjudged to be unconstitutional or invalid, that determination does not affect the continuing validity of the remaining provisions of this chapter.
Strike-throughs indicate language that would be stricken from a heading or the present law and underscoring indicates new language that would be added.