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Oil and Gas Co-Tenancy Continues to be an Issue

Oil and Gas Co-Tenancy Continues to be an Issue

We get a lot of calls from individuals who have just learned of a long-lost oil and gas interest. People from all over the country are getting calls from a landman seeking to find the lost heirs of oil and gas owners from decades ago.

The typical scenario is a family member owned land and mineral rights many years ago.  That person usually sold the land, but kept all or part of the mineral rights.  After many years, the mineral interest, which at the time may not have had much value, is forgotten and never clearly devised in any will or by deed.

Fast forward to the future and the laws of intestate succession and created situations where many dozens of people might share ownership of the oil and gas interest. We’ve seen many properties where there are many more people sharing interest than there are acres to be shared.

The law of West Virginia for a very long time actually provided those interest holders protections and, for all intents and purposes, required oil and gas operators to find those individuals and make a deal. The law did provide for partition suits, which allowed courts to divide up split interests and to monitor the sale and/or leasing of properties on behalf of interested holdouts or those that could not be found.

Now, new co-tenancy statutes allow the gas company to force holdouts into a deal without going to court. After making reasonable efforts to locate and negotiate with interest holders an oil and gas operator can possibly make a final and best offer in writing to the mineral interest holder.

If the oil and gas operator has already leased 75 percent of the interest, they can force the remaining 25 percent of the interest holders into either a lease deal or a working interest ownership. A working interest ownership, however, would require the interest holder to share in the actual costs of construction and production.

If joining as a lease holder, the holdout mineral interest holder is guaranteed to get the best of the lease terms other members of the ownership unit have received. Yet how do you know what terms are best? What are reasonable efforts to negotiate? What if your long-lost family made no effort to negotiate and received bad deals before you started the process? Those are all important and, perhaps, largely unanswered questions. How this all plays out in reality is still a little up in the air and it will be interesting to see what the actual effects of this lease process will be.

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