2016 Legislation Upadate
2016 Legislation Update
We would all like to thank everyone who called and emailed legislators this session, without you our efforts would not be successful! Without you some terrible legislation would have passed. This session we saw a multitude of versions of forced pooling, lease integration and co-tenancy introduced. We as an organization still feel strongly that the compromised bill would be the most beneficial to the state. The compromised bill, which we worked diligently with ALL stake holders, gives the most protections to mineral owners as well as surface owners. This bill, which is by far the most fair and reasonable of the bills that were introduced, got the least support from our representatives. The proposal to repeal the deep well statute, which allows for forced pooling in the deep strata, was also shut down quickly by legislators.
The good news is, nothing was passed this year. However it still has left our members having to deal with the copious amount of partition suites filed by gas companies. As we all know our royalty checks are getting smaller and smaller and the ability to continue to fight these attacks will become more difficult. In addition to the low gas prices, we are concerned that there will be a greater push for unfair pooling legislation next session.
This session was also the first session that an accounting (transparency) bill was introduced which was a good start to what needs to pass in order to repair the distrust between royalty owners and industry. However, we feel that it needed some additional work to truly make it an effective accounting bill.
We must continue to be vigilant in Charleston. As the gas prices continue to stay low the industry will want more rights to our surface and minerals. We suspect that next year we will continue to see legislation introduced that is solely there for the benefit of industry.
Again we thank you for all your hard work this winter and we will continue to keep you informed with what is going on in Charleston.
The Horizontal Unitization and Landowner Protection Act
Why WVROA Supports The Horizontal Unitization and Landowner Protection Act
1. The bill replaces the current pooling law for formations below the Onondaga and applies to all horizontal wells. Currently below the Onondaga, West Virginia allows for forced pooling without any of the protections listed below. That means formations such as the Utica and the Rodgersville can be pooled without any effort to lease before going to the Commission.
2. The bill expands the Oil and Gas Commission to include a Royalty Owner who is unaffiliated with an operator and a farmer giving property owners a powerful voice in the decision making process.
3. The bill requires multiple good faith efforts to lease the property before applying for a unit order as well as requiring at least 80 percent of the proposed unit acreage to have pooling agreements, meaning leases that contain pooling provisions. This threshold is the highest in any pooling statute nationwide. This threshold forces companies to actually negotiate in order to achieve this number.
4. Companies applying for a unit order must provide the details of how much was paid in upfront money and how much was agreed to in royalty percentage prior to any hearing. That information is available to anyone involved in the hearing for ten days prior to the hearing.
5. Property owners being forced in can present their own evidence or witnesses at the hearing to argue why they should not be pooled or how much they should be paid.
6. Any pooled tract cannot be used for surface operations. So the well pad and all pipelines, roads, and other surface use must have voluntary agreements made with owners.
7. The bill prohibits the Unit Order from allowing deductions from royalties. Since deductions can reduce royalty checks by up to 75% this is an essential protection. It also makes it easier for royalty owners to hold out against leases containing deductions as it makes going to a forced pooling hearing possibly desirable for a mineral owner.
8. While the minimum royalty is set at 12.5% with no deductions, the Commission can decide to order a higher royalty percentage with no deductions, with no ceiling. That determination is made by the Commission based on evidence from the hearing.
9. On lease modifications, the terms can be no less favorable to the mineral owner as the original lease, so they cannot insert deductions into deduction free leases or change free gas provisions where they already exist in old leases.
10. Pooled in owners can choose from multiple options, including being a carried interest owner with only a 200 % risk penalty, a participating owner, or simply a traditional royalty owner.
11. All Unit Orders are appealable to the Circuit Court under administrative rules. We opposed De Nova Review as was offered as an amendment because De Nova would mean none of the important protections would apply to the court’s decision on appeal and would advantage the Producer over the property owner.
12. After a period of 5 years and due diligence in locating lost owners, the surface owner can apply for a deed to be issued for those minerals, and once that deed is issued they would receive royalties and two years back royalties. The royalties accruing in that 3 year period go to plug abandoned wells in WV.
What Post Production Deductions will Do to YOU
How Post Production Deductions Affect Your Royalty Check
We advocate a cost free royalty clause whenever someone asks about a lease, so the question is what really are “Post Production Costs”? Here is a list of some of the deductions we recently saw on a royalty check:
Compression Fee (3 different types)
Marcellus Cone Gathering System Charges
Marcellus Flat Fee Production ($1.20)
Marcellus Post Production Cost (3 different types)
Plant Processing Fee (2 different types)
Transportation (2 different types)
This is how much a simple 12.5% royalty would be impacted by allowing for post-production costs.
This Royalty Owner would lose $1,274.53 a MONTH! Over HALF of what they should have gotten.
Leasing Clauses to Look for
Top Leasing Clauses to Include or Remove!
1. Specific Depth Reservation
· Lease only the Marcellus, or only the shallow formations; never lease the surface to center of the earth.
2. Lease only Your Tract
· Avoid language that includes words such as adjacent, or contiguous; it can allow them to hold your tract even though there is no production.
3. Your Royalty Payments are Deduction Free
· Deductions or post production expenses on royalty payments can reduce a 12.5% lease to under 6%.
4. Avoid Enhancement Clauses
· Enhancement clauses have been used against royalty owner’s under the guise of ‘The gas is not marketable at the well head, so transportation is an enhancement’; even if your lease says deduction free.
5. Pugh Clause
· If a portion of your acreage is not included in a unit, the non-developed acreage is released, allowing for another company to potentially develop it.
6. Warranty of Title
· Do not give any warranty on your title, in most cases you haven’t done title and they have approached you wanting to lease.
7. Limit on Shut in Payments
· Put a time limit for how long a shut in payment can hold your lease in full effect.
8. ALWAYS Consult a Lawyer
· These are a few things to watch for and should not be considered legal advice, find a good oil and gas lawyer that will be able to assist in the leasing process.