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Spilman Secures Important Ruling on Gas Pooling and Unitization for NPRIs
Spilman garnered a favorable result for an oil and natural gas client on appeal to the Supreme Court of Appeals of West Virginia. The Court ruled in regard to oil and gas leases and drilling units covering the property to which non-participating royalty interest owners (NPRIs) rights attach. In a 1946 deed, the predecessors in interest to the plaintiffs in this case conveyed away the executive right to lease the oil and gas under a 105.9-acre tract of land as well as the right to obtain bonus payments and delay rentals. These NPRI owners only retained the right to a royalty on any oil or gas produced from the property if and when it was leased for development. Previously, the Circuit Court had granted summary judgment to the NPRI owners ordering that they not only had the right to approve the inclusion of a pooling clause in the lease that applied to the property involved, but also the right to consent to any subsequent inclusion of that property in a drilling unit. Based upon this holding, the Circuit Court ruled that both the pooling clause in the lease and the resultant drilling unit were invalid. In a unanimous decision, the state Supreme Court reversed the order granting summary judgment issued by the Circuit Court, holding that the owners of a NPRI do not have the right to consent to either the inclusion of a pooling clause in an oil and gas lease or the formation of the resultant drilling unit. In writing the opinion, Justice Ketchum found that the pooling of NPRIs with the interests of other property owners does not create a joint or undivided property interest in the oil and gas, and therefore rejected the cross-conveyance theory proposed by the plaintiffs. Instead, he declared that the pooling of oil and gas property interests consolidates the property owners' contractual and financial interests, which is consistent with prior West Virginia law on this subject. The Supreme Court went on to reverse the ruling of the Circuit Court and vacate its invalidation of the pooling provision in the oil and gas lease and the drilling unit at issue in this case. This decision is significant because hundreds of NPRIs are included in drilling units in West Virginia based upon established law in the state. Granting the ability to object to oil and gas pooling and unitization to NPRI holders would have drastically interfered with the ongoing operation of existing drilling units and the development of future operations in West Virginia.

Mineral Title Services Natural Resources Shale Gas Law Matthew P. Heiskell
304.291.7932 William M. Herlihy