We are now two-thirds of the way through the legislative session for 2017. Today is the last day to introduce bills into the Senate; and, tomorrow (Tuesday, March 21) is the last day to introduce bills in the House. All bills are due out of committees this coming Sunday, the 26th.
The “Cotenancy and Lease Integration Act” (SB 576) was taken up by the Senate Judiciary Committee this past Friday and Saturday. The Committee listened to approximately five (5) hours of testimony on Saturday, without taking any action on the bill. It is presumed that Senate Judiciary will again take up the bill sometime again this afternoon.
The best and brightest thing about this version of a forced pooling/leasing bill is that it SPECIFICALLY requires a surface use agreement from the surface owner(s) upon which the well bores (which extract minerals from the pooled leaseholds) are to be constructed. (However, this inclusion of surface owners’ rights is partially dulled by the fact that it has long been the justly arguable legal position of many oil and gas attorneys and groups, including West Virginia Surface Owners Rights Organization (WVSORO), that a surface use agreement is required from a landowner if a driller intends to burden the surface by extracting minerals from multiple, neighboring leaseholds.) Nevertheless, this inclusion of a term for a surface owner is very much appreciated.
This version of a Bill follows on the footsteps of this session’s failed SB 244 which required only a majority (50.01%) of co-tenant lessors to have signed a lease and did not protect surface owners from having “joint development” operations (well bores for developing pooled leaseholds) placed on their land without their bargained-for consent.
Despite its requirement that only 2/3rds of the mineral owners sign a lease and/or a pooling modification in order for development to proceed, SB 576, as this attorney reads it, requires a good faith negotiation to have taken place with all of the royalty owners within a proposed unit. At this point in the development of the Marcellus shale play, it is well established what a good faith negotiation for either a lease or pooling agreement should look like. I think the requirement that good faith negotiations be entered into with all royalty owners is promising and easily quantifiable.
Also, presumably a forced pooling statute Would help promote the interests of the majority of the mineral owners of the leaseholds who want for the minerals to be produced and do not want production to be prevented or held off by known, but “hold out” cotenants. Please consider, that at this time, if mineral owners are deemed to be “hold outs,” a producer will purchase a small amount of mineral ownership in the leasehold and bring a partition suit in Circuit Court against the hold out mineral owners seeking to divest them of their real property instead of just forcing them to lease for average lease terms.
Despite my foregoing generally positive appraisal of the practicalities of the bill, I do have hesitation and distaste as to how this law, if enacted, could be communicated to every single one of the leaseholders approached in a regular negotiation pitch. For example, landowners who are approached for FERC project pipelines are often told that they will be sued under “eminent domain” way before a pipeline has been granted federal eminent domain status. Landowners do not understand the process but do not want to be told they are going to be sued or taken to Court, so the interaction becomes stressful and fear inducing for them.
I would ideally prefer to see a forced pooling bill, should one pass, that would only allow for any “non-consenting” property owners to “forced” to be leased (after 2/3 of the owners have leased or pooled) if they own less than a specific amount of net mineral acres individually in the planned unit, like 5 or 10 net mineral acres.