Today, the West Virginia Supreme Court reversed a ruling of the Circuit Court of Marshall County to hold that nonparticipating royalty interest owners need not consent to pooling or unitization. In an opinion issued this afternoon, the Supreme Court held in Syllabus Point Two of its opinion: “Where a lessee designates tracts of land for pooling regarding horizontal drilling and production of oil and gas from the Marcellus Shale Formation, which includes nonparticipating royalty interests, consent or ratification by the holders of the nonparticipating royalty interests to the pooling is not required, where the holders of the nonparticipating royalty interests have conveyed the oil and gas in place and the executive rights thereto to the lessor.” (Emphasis added.)
The Supreme Court explicitly rejected the “cross-conveyance” theory and recognized established West Virginia common law in holding that pooling does not create a joint or undivided property interest in the pooled oil and gas; rather, “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.”
While the Supreme Court explored the distinction between pooling and unitization in oral argument on May 23, 2017, the Court used the terms interchangeably in its opinion (please see footnote 1).
If you have a question about today's ruling, please reach out to one of the authors of this alert.