Natural gas production continues to rise in the United States because of increased demand domestically and globally. Improved technology has made it commercially viable to reach massive supplies of gas buried deep inside shale formations.
Nearly endless reserves of gas are buried underneath West Virginia’s hills. Mineral rights holders and gas companies have been benefiting from horizontal drilling and hydraulic fracturing for a few years now, but several obstacles remain.
One of those hurdles is the ability of a minority owner of the mineral rights of a particular plot to block the majority owners from leasing the gas for drilling. This is a common problem in West Virginia where often those mineral rights have been passed down through generations and split many times.
For example, just one owner with one one-hundredth of a share can keep the other 99 owners from leasing. Additionally, it’s sometimes impossible to track down all the rights holders when the property has been split over and over.
Currently, either the majority rights holders are denied the ability to benefit from their investment or gas companies go through the courts to force a sale of the property. The mineral rights holders receive a lump sum payment, but are denied royalties.
There is, however, a solution. The West Virginia Legislature is moving HB 4268, the Co-Tenancy Modernization and Majority Protection Act. The bill has cleared the House Energy and Judiciary Committees and is now on the House floor.
The bill allows for the leasing of mineral rights if 75 percent of the owners agree. The remaining 25 percent will still get their equal share. Unclaimed royalties would go into a special fund to pay for capping gas wells that were abandoned years ago.
The bill is a delicate balance among all the stakeholders. West Virginia Royalty Owners Association President Tom Huber said, “We are very satisfied with this approach to co-tenancy. David McMahon with the West Virginia Surface Owners Rights Organization said the bill is acceptable to his group because it contains adequate safeguards for surface owners.
The natural gas industry is supportive because it provides for a reasonable way to resolve disputes over leases and drilling. “It’s something on which royalty owners agree and the industry agrees,” said Maribeth Anderson, director of government affairs for Antero Resources.
However, House Democrats object to the bill. Some see this is a campaign issue for 2018, and will try to portray the bill as an infringement on property rights because it is “forced pooling,” which is not.
Forced pooling is when mineral right holders of multiple pieces of property are forced into allowing drilling over their objections. Under forced pooling 100 percent of the mineral rights holders could oppose leasing and drilling, but still have to comply if their neighbors agreed to drilling.
That’s a far cry from co-tenancy, but opponents may try to confuse the issue as the debate moves forward.
The Legislature has been working on the co-tenancy issue for several years now. HB 4268 may require some tweaking along the way, but the framework for a reasonable solution to a significant roadblock for mineral rights holders and the gas industry is in place.