Surface owners’ group asks for different approach to co-tenancy

CHARLESTON, W.Va.  — A legislative interim committee delved into the details of gas drilling law Tuesday as it heard from lawyers who explained the complicated process of how land owners are paid for gas that comes from their property.

The last of four people to address the Joint Committee on Natural Gas Development was David B. McMahon, co-founder of the West Virginia Surface Owners Organization. McMahon told the committee his group represents 900 dues-paying members, of which two-thirds own only surface rights to their property.

McMahon addressed the topic of co-tenancy. He told the committee that co-tenancy is another form of forced pooling, in which people can be forced to allow extraction of gas under their property.

McMahon said a commission bill could help protect the value of landowners’ mineral rights.

“The commission bill says basically that in a co-tenancy situation, instead of me being stuck with my cousins’ lease, I would go to a commission and say, ‘What’s a fair lease?’” McMahon said.

“If I know that the people around me didn’t know what they were doing when they agreed to those leases, I ought to be able to go in and say, ‘Oh no, I know there’s a lease way over here where somebody got 18 percent (royalty). I know the state gets 20 percent, so I want 18.’”

Much of the talk on natural gas during the interims has centered on co-tenancy. Co-tenancy would solve, for drillers, the problems that arise when a parcel has more than one owner. Usually, a minority interest holder in the land can prevent the gas under it from being sold.

This year, the Senate approved a bill allowing people owning 75 percent interest in a parcel to sell the mineral rights, even if the other 25 percent did not want to sell. That bill died in the House of Delegates as the session ended.

{span style=”font-size: 12px;”}Ben Sullivan, general counsel for Energy Corporation of America, a natural gas production company based in Charleston, asked legislators to come up with reasonable co-tenancy legislation that would make West Virginia more competitive in the drilling industry.{/span}

“We’re looking for certainty here,” Sullivan said. “The alternative is, at the end of the day, the dollars go out of the state.”

Earlier in Tuesday’s meeting, Timothy Miller, an attorney with Babst Calland in Charleston, discussed the different ways that property owners receive royalties for gas extracted from their property.

Some property owners receive a certain amount for the gas that comes from the wellhead, although a percentage is deducted for leakage in transit, he said.

But over the years, as gas transmission has separated from vertically integrated companies, land owners are being paid for gas delivered at pipeline aggregation points, not necessarily for the gas that comes from wells on their land, Miller said.