Partition Suit Decision Could Be Problematic for W.Va. Oil & Gas Operators
September 26, 2014
Based on a recent decision in West Virginia’s 3rd Judicial Circuit, which includes Doddridge, Pleasants and Ritchie counties, the use of litigation in the form of partition suits may be more problematic than it otherwise has been for oil and gas operators attempting to acquire property interests to create efficient drilling units for their planned wells. The Court’s decision (described below) denied a mineral interest owner’s request to partition by sale under W. Va. Code § 37-4-1 et seq. certain real property in Pleasants County, West Virginia. The impact of this decision is to increase a petitioner’s burden of demonstrating the three statutory elements necessary for a partition by sale, which are that (i) the property cannot be conveniently partitioned in kind, (ii) the interest of one or more party will be promoted by sale, and (iii) the interest of the other parties will not be prejudiced by sale.
The Court’s decision highlights the substantive and procedural problems associated with acquisition of oil and gas interests through a partition suit. It also reminds the oil and gas interest owners and operators of the importance of encouraging the West Virginia Legislature to enact fair lease integration/pooling laws to encourage the prompt and fair development of the state’s valuable natural resources.
On September 11, 2014, Judge Timothy L. Sweeney entered a decision in Elder v. Diehl, et al. (Case No. 14-C-9, Cir. Ct. Pleasants County, WV) in which the Court considered motions for partition and allotment in a case involving mineral and surface interest owners who agreed that partition in kind was not appropriate, but conceded that partition by sale was a possible remedy. In denying the motions for partition sale and allotment, the Court concluded that “partition is not an absolute and unqualified right” and that “absent satisfaction of the legal prerequisites to forced sale, there is no right to partition by sale and the same is properly denied notwithstanding a finding that the subject property interest in not capable of a convenient partition in kind.” The Court also offered that “[c]ounsel should promptly seek review of this ruling by the Supreme Court of Appeals of West Virginia in whatever fashion they may elect to as to permit said Court to ‘. . . refine and realign the meaning and concepts underlying our partition jurisprudence to meet modern day realities; and to provide West Virginia’s lawyers and lay people [and circuit court judges] with guidance on how to fairly and easily resolve partition suits’ [citation omitted].”
Particularly meaningful to the Court was its finding that the “interests of the Diehl defendants who own the surface and an undivided interest in the oil and gas minerals, would be prejudiced by a sale due to their likely inability to compete for purchase as individuals against a large oil and gas producing bidder, which inability will likely result in the loss of their mineral interest and consequential inability to negotiate for lease terms and conditions to protect their interests in their surface estate.” In addition, the Court found that “[g]iven the speculative and uncertain nature of the value of oil and gas mineral interests which are not leased and/or under production and situate in a geographical area which has yet to be developed, a public sale is deficient and inadequate to calculate and equitably reflect the value of such interests, thus creating substantial risk of prejudice to the owners of not realizing a fair value for their respective interests.”
While the Court left open a possibility for the parties to justify a partition by sale by “their inability to agree on how to develop the mineral estate,” even such a finding may not overcome the conclusion that the Diehl defendants will be prejudiced by a partition by sale under these circumstances.
The Spilman team is available to address questions regarding the current state of partition law in West Virginia, as well as assist you in the development of effective strategies for navigating the sometimes murky waters of equitable principles in partition litigation.