West Virginia Cotenancy: Simplifying A Complicated Process
9
Minutes
Written by
Tim Jackson
The Challenge of Oil and Gas Development in Appalachia
Until 2018, oil and gas development in Appalachia faced a significant obstacle: there was no forced pooling system in place.
This created a challenging environment where any single oil or gas owner could effectively halt development, regardless of how small their interest might be.
The problem manifested in two ways. First, there were nonconsenting owners who simply refused to sign oil and gas leases regardless of the terms offered. Second, there were unlocatable owners whose interests couldn't be traced forward, typically due to complex heirship situations where records had become fragmented over generations.
Even if an owner only held a fractional interest, development was impossible without their consent. This created significant barriers to efficient resource development in the region.
The West Virginia Cotenancy Act: A Turning Point
In 2018, the West Virginia Cotenancy Act introduced a mechanism to address these challenges. The legislation created a pathway to move forward with development while protecting the rights of all mineral owners.
What Does the Cotenancy Act Do?
The act allows operators to bind nonconsenting or unlocatable oil and gas owners to a "Standard Lease" under specific circumstances. This balanced approach ensures development can proceed while guaranteeing fair compensation for all owners.
Key Requirements for Using the Cotenancy Act
For the Cotenancy Act to apply, several important conditions must be satisfied.
- The tract in question must have a minimum of seven oil and gas owners with executive rights, ensuring the law only applies to truly fragmented ownership situations.
- At least 75% of the tract must already be leased, demonstrating majority support for development.
- The law also requires that reasonable efforts be made to negotiate with nonconsenting parties, and similar diligent efforts must be undertaken to locate any missing owners before invoking the act's provisions.
The Cotenancy Process: Step by Step
For Nonconsenting Parties
When dealing with owners who refuse to sign a lease, the process follows these steps:
- Initial Negotiation Period: Reasonable efforts must be made to obtain a lease for at least 14 days.
- Documentation: After all offers are refused, an Affidavit of Compliance is filed at the local courthouse stating that:
- All requirements of the WV Cotenancy Statute have been met.
- The document lists all nonconsenting and/or unlocatable parties.
- Final Offer: A Final Offer Letter is sent via certified mail to the nonconsenting party with two options:
- Elect to be bound to a standard lease.
- Participate in the drilling of the well.
- Response Window: The party has 45 days to select an option, or they'll automatically be deemed to have accepted the Standard Lease.
The "Standard Lease" Explained
The Standard Lease terms are equivalent to the best lease given to already-leased owners in the same tract.
This ensures fairness by guaranteeing that nonconsenting or unlocatable owners receive the highest royalty rate, the best bonus offer, and the most favorable provisions that any consenting owner received.
Through this mechanism, the law ensures equitable treatment for all parties, regardless of whether they actively consented to development, protecting the economic interests of every mineral rights holder.
For Unlocatable Parties
The process for unlocatable owners follows a modified approach:
- Search Period: Reasonable efforts must be made to locate the party.
- Documentation: A Final Offer Letter is created and held by the operator (since the party cannot be located).
- Automatic Acceptance: Unlocatable parties are automatically deemed to have accepted the Standard Lease.
- Public Notice: Notice is given based on the Affidavit of Compliance.
- Financial Protection: All money owed to unlocatable parties is held in escrow for a specified period. If not claimed, the money eventually escheats to the state.
Additional Protections Built Into the Standard Lease
The Cotenancy Act builds in important consumer protections by automatically removing certain provisions from the Standard Lease that might otherwise disadvantage nonconsenting or unlocatable owners.
The statute explicitly prohibits warranty of title clauses, venue or choice of law provisions, and forced arbitration requirements. It also prevents operators from including injection or disposal well rights and storage rights in these standard leases.
Through these thoughtful restrictions, the legislature ensured that parties who didn't actively consent to development wouldn't be subject to potentially unfavorable terms that could diminish their property rights or limit their legal recourse.
Professional Documentation: The Brokerage Deliverable
When a brokerage like Dudley Land Company pursues Cotenancy on behalf of a client, we deliver a comprehensive documentation package that thoroughly chronicles the entire process. This includes the Final Offer Letter, complete tracking information for all certified mailings, copies of any responses received from nonconsenting parties, and the Standard Lease itself.
We also provide the Recorded Affidavit of Compliance filed with the courthouse, along with a detailed Resume of Efforts that chronologically documents every action taken to either lease a nonconsenting party or locate a missing owner.
This meticulous documentation serves two critical purposes: ensuring full legal compliance with the statute's requirements and creating an indisputable record of good faith efforts should questions arise in the future.
Strategic Decision Making: Cotenancy vs. Unitization
West Virginia now has two forms of forced pooling: Cotenancy and Unitization. Understanding when to use each approach is critical.
Cotenancy vs. Unitization: Understanding the Differences
Cotenancy applies to specific mineral tracts where 75% of interests are already controlled through existing leases. It provides a targeted mechanism to address the remaining 25% of interest holders who are either unlocatable or unwilling to sign.
When the leased threshold for a specific tract can be met, this approach is generally preferred due to its more streamlined process.
Unitization, by contrast, was adopted later by the West Virginia legislature to address situations where the 75% threshold for specific tracts cannot be achieved. This alternative approach applies when the operator controls 75% of the entire unit acreage, even if individual tracts within that unit fall below the threshold.
While unitization serves an important function in enabling development, it involves a more complex administrative process than cotenancy, making it a secondary option when both pathways are available.
Dudley Land Company specializes in navigating these complexities to determine the most efficient approach for each unique situation.
How Dudley Simplifies The Process
The introduction of the West Virginia Cotenancy Act represents a significant advancement in balancing property rights with efficient resource development. Dudley Land Company specializes in navigating these complex processes to create win-win solutions for all stakeholders.
Our expertise ensures that operators can move forward with development while guaranteeing that all mineral owners receive fair compensation for their interests—even those who are unlocatable or initially unwilling to participate.
Through our comprehensive understanding of both Cotenancy and Unitization, we transform complicated legal requirements into streamlined, effective solutions.
