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SB 554 Oil and Gas Lease Release Legislation

Charlie Burd’s article this month brings you up to speed on the significant bills that passed the Legislature and were approved by the Governor. This article provides an overview of one bill that may adversely affect your land department. The West Virginia Legislature in its infinite wisdom voted to create some additional protections for oil and gas mineral owners and likely contribute to confusion regarding the validity of oil and gas leases. It is worth noting that the Legislature imposed this law only on oil and gas leases and not coal or other natural resource leases.

SB 554 passed the Legislature on March 2, 2020, was approved by the Governor on March 25, 2020 and will become law on May 31, 2020 (90 days after passage). The bill creates a new section of the West Virginia Code designated § 36-4-9b and titled “Release of terminated, expired or canceled oil or natural gas leases.”

The bill imposes a requirement on oil and natural gas lessees to deliver to the lessor, without cost to the lessor, “a properly executed and notarized release of such lease in recordable form” within 60 days after the termination, expiration, or cancellation of an oil or natural gas lease, unless the lease provides for a different time period for release. Of course, the bill does not address the challenges of determining a precise date for the termination, expiration or cancellation of the lease.

Then, if the lessee fails to provide a release on a timely basis, the lessor may serve notice of lessee’s failure to provide such release. The notice must be made in good faith and contain a statement that: (i) the lease is terminated, expired, or canceled according to its terms, including the date of such termination, (ii) the lessee has a duty to provide a release, and (iii) if the release, or a written dispute to the notice of termination, is not received by the lessor from the lessee within 60 days from receipt of the notice, the lessor shall have the right to file an affidavit of termination, expiration, or cancellation. The statement must also include (1) the name and address of the lessor, (2) a brief description of the land covered by the lease including, but not limited to, the state, county, tax district, tax map and parcel, watershed, historical farm name, or other identifying information, (3) the name or API number of the well, if known to the lessor, (4) if located in a unit, the name of the unit, if known to the lessor, (5) the recording information for the lease in the public records of the county or counties, along with the execution date of the lease, (6) the identity of the original lessor and lessee under the lease, and (7) a service sheet showing the names and addresses of all persons upon whom the notice has been served. The notice must be based upon a reasonable review of the public records and be sent to the lessee(s), other lessors and others who may have an interest in the lease or mineral estate. The lessor must deliver the notice by personal delivery or by certified mail, or, if appropriate, by publication. After receipt of the notice from lessor, the lessee has 60 days to deliver a written dispute of the contents of the notice to the lessor detailing the good-faith basis for such dispute. If the lessee fails to timely deliver a written dispute or opposition to

SB554 Continued on page 6 the notice from lessor, a lessor may record an affidavit of termination, expiration, or cancellation of an oil or natural gas lease in the office of the county clerk in the county or counties where the lease is located. The affidavit of termination shall contain basically the same information contained in the original notice by lessor, plus a statement that the lessor complied with the duty to serve proper notice to the lessee along with a copy of the notice served to lessee(s), other lessors and others. The bill also provides that filing of an affidavit does not constitute a modification of a lease, nor does it limit, waive, or prejudice any claim or defense of any party to the lease in law or in equity.

The effect of recording an affidavit under the new law simply confuses or clouds the status of the lease, but does not adversely affect the validity and enforceability of the lease at issue. Fortunately, the bill was amended during the legislative process because the original bill contained language stating that the affidavit created a rebuttable presumption that the lease was terminated or canceled. The removal of that language was very important to oil and gas lessees and will reduce the number of challenges operators will face over the validity of leases. Lessees may want to take one or more proactive steps to avoid having affidavits recorded challenging the validity of leases. First and most obvious, timely respond in writing to any notices received from a lessor asserting a lease is terminated. Second, consider sending all lessors correspondence designating the title