Surface, mineral rights owners say details will be key to getting co-tenancy bill passed

CHARLESTON — Surface and mineral rights owners most affected by co-tenancy legislation say they’re wary of jumping on the bandwagon until they see exactly what form the much-talked about legislation takes.

“Co-tenancy has never been completely objectionable to us. It’s just a matter of the details,” said Tom Huber, president of the West Virginia Royalty Owners Association.

“We feel like this bill, should it come out on the floor … and head to committee, needs to address our concern about how non-consenting owners are compensated. We want to feel it encourages the gas companies to exhaust all possible negotiations before utilizing it,” he said.

Co-tenancy deals with single tracts of minerals that have subdivided ownership. It would allow energy companies to drill on those tracts in West Virginia as long as a majority of the mineral rights owners accept the lease.

Huber describes it as “a very narrow way of dealing with what you might call ownership disputes.”

“Right now, if 99 out of 100 owners agree to lease and there’s one holdout, those 99 owners are deprived of the benefits of their ownership,” he said.

“The only recourse then is ... a court action that results in the public sale of everyone’s interests, then you’re deprived of your royalty and everything — you’d just get your share of a lump sum. My membership can’t stand for that,” Huber said.

Dave McMahon, co-founder of the West Virginia Surface Owners, is adamant that drilling should only be done with the surface owner’s consent and with a guarantee they’ll get fair value.

Any legislation “has to have the conditions that the surface owners’ consent for the well pad is required” and that dissenting owners “can go to a commission and get a fair lease, (we) shouldn’t be bound by (somebody else’s) bad deal.”

“Surface owners’ consent and fair value, that’s it,” McMahon said. “The last version I saw did not meet those two criterion yet.”

Anne Blankenship, executive director of the West Virginia Oil and Natural Gas Association, concedes it’s hard to speak definitively until the bill is introduced, though at first blush “absolutely, we’re in favor of co-tenancy.”

“We’d have to see exactly what it looks like, but I think it’s the most fair way to proceed when you don’t have 100 percent consent of the mineral owners to develop,” Blankenship said. “They’re closer to agreement with all the other stakeholder groups than there’s ever been, but, as with everything, the devil’s in the detail.”

But Blankenship said co-tenancy is a priority for her membership.

“We feel this year is absolutely the time to do it with all the downstream development investment opportunities coming,” she added. “(And) West Virginia has been out-of-step with our other oil and gas producing states — they have some sort of mineral efficiency laws in place, but we do not.”

Independent Oil & Gas Association Executive Director Charlie Burd said it’s “extremely important” that producers be able to renegotiate these leases on individual tracts.

“From a regulatory standpoint, we’ve been at a disadvantage because two states contiguous to us, Ohio and Pennsylvania, have co-tenancy laws already in place,” he said. “Whereas in West Virginia, just one co-tenant on an individual tract of land can prohibit the majority of co-tenants from developing that tract. This legislation would seek to create a situation where a super-majority of co-tenants on an individual tract of land could speak for the entire ownership.”

Burd said non-consenting and unlocatable owners would have to be compensated under co-tenancy, “they would still ... participate in the financial rewards of the renegotiation of the lease, they would be treated equally.”

“Everybody would benefit. It’s not like somebody would be left out of the mix,” he said.

But Burd said he’s encouraged that diverse groups with a stake in the outcome have been working together to try to hammer out a compromise.

“We’ve all worked in unison to craft the provisions that have been floated out for everyone to comment on,” he said. “That’s always best, having stakeholders at a table and all voices being heard.”

Huber, though, said when it finally comes out his members will be dissecting the bill, because “they want to be sure they’re not getting a raw deal.”

“It’s been a long process, but I think we’ve finally found the sweet spot for co-tenancy,” he said. “I don’t think it’s a bad thing at all. The way the (draft) is done, it ensures the rights of the majority owners in an individual tract, their property is not devalued by one or two small holdouts but it also makes sure the holdouts get a good deal, that they’re not being taken advantage of and just getting breadcrumbs. And they’d be getting significant protection from things like post-production deductions and royalties based on first sale to an unaffiliated purchaser of the gas, we feel that’s an important protection.”

Blankenship said it will boil down to lawmakers getting the details right, “and we expect them to. But anything can happen.”

“Am I optimistic we can get there?” McMahon said. “I can’t say that. This is an unpredictable place.”

This article was authored by Linda Harris for the Clarksburg Exponent Telegram. Click here to read it on the publication's website.