On May 31, 2017, the West Virginia Supreme Court issued an opinion eliminating the need for nonparticipating oil and gas royalty interest owners to consent to pooling agreements sought by lessees. A nonparticipating royalty interest exists where a party owns a right to a stated fraction of production from a particular tract of land. Pooling allows multiple owners to bring together their smaller tracts of land to form a larger drill site in order to comply with spacing requirements or to obtain sufficient acreage with which to obtain a well permit.
This decision was made on the grounds that the pooling of nonparticipating royalty interests does not create a joint or undivided property interest in the pooled tract, in rejection of the cross-conveyance theory. Rather, the Court stated that, “pooling results in a consolidation of contractual and financial interests regarding the drilling and production of oil and gas from the combined parcels of land.”
Under the cross-conveyance theory, a single nonparticipating royalty interest owner could refuse to enter a pooling agreement and thereby unilaterally void an agreement against the wishes of numerous other interest-holders. With this opinion, the Court has made it easier for lessors to enter pooling agreements, thereby allowing for freer pooling of interests where there is business cause for such an agreement.
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