State bill targeting nonpayment of gas and oil production royalties becomes law

Having passed through the Republican-supermajority Legislature with bipartisan support, SB 22 sets a penalty for nonpayment of royalties under oil and natural gas leases during production from conventional vertical wells.

The bill makes liable any lessee or operator who fails to pay a royalty payment for mineral production to a lessor under the terms of a lease or other agreement within six months of the payment due date. The lessee or operator also is liable for attorney’s fees under the new law, which takes effect 90 days from passage on July 6.

Morrisey had disagreements about the drafting of the legislation, Morrisey Deputy Press Secretary Drew Galang said via email Friday. But Morrisey recognized some of the positive aspects of the bill and supported royalty owners receiving payments in a timely manner, Galang indicated. Galang did not respond when asked to specify what disagreements he had with the drafting of the legislation.

SB 22 was led in sponsorship by Senate President and former Energy, Industry and Mining Committee Chair Randy Smith, R-Preston.

‘Not enough for an attorney to justify taking your case’

The legislation is designed to address nonpayment of relatively small royalty payments from conventional vertical wells, as opposed to what West Virginia Royalty Owners Association president Thomas Huber told lawmakers last year was an “astronomical amount more� of royalties from horizontal wells. The latter wells involve drilling a vertical well and then angling the drilling path away from the vertical well.

SB 22 is nearly identical to last year’s HB 4292, which stalled in the Senate after the House of Delegates passed it in an 87-6 vote.

Huber told legislators last year the purpose of SB 22 forerunner HB 4292 was to address what he said was “often smaller producers� realizing they can avoid royalty payments in part due to royalty owners not pursuing what they’re owed.

West Virginia Surface Owners’ Rights Organization cofounder Dave McMahon told the Energy, Industry and Mining Committee last year during its consideration of an identical version of HB 4292, SB 235, that royalty checks could be as small as $40 to $50 per month and considerably greater for larger landowners.

“But not enough for an attorney to justify taking your case on a one-third contingency,� McMahon added.

Newer well completions nationwide predominantly have been horizontal or directional rather than vertical, according to the federal Energy Information Administration. The EIA estimated 81% of well completions nationwide were horizontal or directional as opposed to 19% of wells that were drilled vertically in 2021.

West Virginia is the nation’s fourth-largest producer of marketed natural gas, according to the EIA.