10/23/2023
MINERAL OWNERS RIGHTS UNDER THE NEW “FORCED POOLING” LAW IN WEST VIRGINIA
If you are a mineral owner in West Virginia, it is possible that your minerals rights are “tied up” or “held by production” by an old shallow well that is still producing small amounts of oil and/or gas. The old leases from the late 1800’s or early 1900’s usually do not contain “pooling clauses” allowing the operator to “pool” the tract with other tracts of land.
Prior to 2022, an oil and gas operator was required to obtain an amendment to every oil and gas lease that did not contain a pooling clause.
Now, West Virginia has a “forced pooling” law that has changed everything.
West Virginia Code §22C-9-7a still requires the operator to “negotiate in good faith” with mineral owners to obtain the mineral owners consent to pool their interest before they can use the new forced pooling provisions. However, if an agreement is not reached, you are entitled to “unitization consideration.”
For a “Consent to Pool” agreement, a mineral owner is “entitled” to 25% of the weighted average monetary bonus amount on a net mineral acre basis and a production royalty percentage equal to 80% of the weighted average production royalty paid to other mineral owners in the same unit.
However, the law also states, “No Unitization consideration may be required to be paid to any royalty owner who has consented or agreed to pooling or unitization by virtue of the terms contained in an oil and gas lease, or other agreement which permits pooling or unitization.”
So, what are the practical implications of this for mineral owners?
Not long ago, I had a client come to my office with an offer to sign a “pooling modification” for $1,000. The Landman downplayed the agreement as “no big deal” because the well was held by production and the quicker the client signed, the quicker he’d get his long-awaited royalty checks.
Upon further investigation, I discovered that the client owned more than 60 acres of minerals. The “average bonus” paid to other mineral owners in this unit was approximately $4,000 per acre. This means that the client was entitled to over $60,000 just to add a pooling clause to his lease as “unitization consideration”, and the operator offered him $1,000.00! If he would have signed, there was no going back, and this money that he was entitled to would have been gone. The law states that ‘no unitization consideration is due to royalty owners who consent to pooling.’
Representing mineral owners is more than “reviewing the lease” and “adding some language.” Our job is to evaluate your situation, see how much bargaining power you have in the negotiation, and advise you accordingly. We will make many changes to every lease we negotiate, but there is much more to properly representing a client in negotiating agreements with oil and gas operators than blindly looking at the lease. A proper investigation of the circumstances surrounding the offer can save you a lot of money. In my client’s case, I earned him over $60,000 with a phone call. If you are a mineral owner, don’t be afraid to call a lawyer, in the vast majority of situations, it is going to make you money.
**DISCLAIMER**: This is no guarantee that every $1,000.00 offer can be turned into a $60,000.00 offer or every offer can be increased. It is also not a post to bash oil and gas operators or Landmen. The point of this post is to warn mineral owners that oil and gas operators will allow you to sign bad agreements if you are willing and don't do your due diligence.
