Mineral Extraction Efficiency: Co-tenancy
West Virginia is the only major O&G producing state that allows a single minority interest owner of jointly owned property to prevent all other interest owners from drilling on the property. Co-tenancy legislation is a viable solution and would provide significant economic benefits for individuals and communities across the state and prevent the waste of valuable resources.
Modern O&G Production: Horizontal drilling and hydraulic fracturing enables O&G resources in shale rock to be produced economically throughout the U.S. From a single well pad, numerous wells are drilled vertically toward the shale resource lying a mile or more below the land’s surface. Each well bore is gradually steered into a horizontal position and drilled laterally for distances of 5000 feet or longer. To develop shale resources, O&G companies enter leases with mineral owners to form Development Units.
The Development Unit: Numerous parcels of land typically form a horizontal well Development Unit. Most often, mineral interests beneath each parcel of land consist of anywhere between one and hundreds of individuals who own the mineral rights. These mineral owners are co-owners, or cotenants.
The Problem: It is very difficult, and sometimes impossible, for O&G companies to obtain leases with 100% of the mineral owners before development can begin. The diagram illustrates how a single co-tenant with even a small minority interest can impede development of an entire Unit, or significant portions of the Unit.
The Consequence: Mineral owners are denied the opportunity to have their O&G resources developed when a minority, or even just one, of the co-tenants in their own parcel’s mineral interest refuse to lease, or are not locatable. Sometimes development may occur by reconfiguring the Unit in a less efficient manner, but this approach defies O&G conservation by leaving resources stranded in place indefinitely.
The Solution: Every major O&G producing state, except West Virginia, has laws that allow resource development to proceed without requiring every mineral owner to have a lease. An equitable solution for WV is a co-tenancy law allowing development to begin when 75% of the interests in each parcel of the Development Unit are under lease. Under proposed co-tenancy legislation, every mineral owner in the Development Unit would be compensated in proportion to their ownership interest. In fact, co-tenancy isconsistent with Article 9 of WV’s O&G Conservation statute which seeks to prevent the wastefulness of stranded resources.
BENEFITS OF CO-TENANCY
Economic Growth: Modernizing WV’s O&G development laws through co-tenancy will attract billions of dollars more in capital investment from the O&G industry, spur job growth, boost state/local tax revenues and provide personal income to mineral owners.
O&G Conservation: Co-tenancy honors the tenets of Article 9 in WV’s O&G Conservation statute bypromoting efficient extraction of shale resources and preventing resource waste.
All Co-tenants would be Compensated: Every co-tenant in every parcel within a Development Unit --including minority unleased owners, holdouts and majority leased owners – would be compensated for their proportionate share of the mineral interest they own.
Majority Rules: Resource development can begin when 75% of co-tenants in every parcel included in a Development Unit have leased or sold to the operator.