[O]il and gas in place is real estate . . . .
How later courts described this case
- [O]il and gas in place is real estate . . . .
- Under State Constitution, all property, real and personal, must be taxed equally according to its value, unless property falls within tax exemption.
- Cosgrove is notable because it is the first time this court expressly held that production is the vesting event.
Written by the judges who cited it.
The opinion
IN THE INTERMEDIATE COURT OF APPEALS OF WEST VIRGINIA
FILED
Fall 2024 Term
October 8, 2024
_____________________ released at 3:00 p.m.
ASHLEY N. DEEM, CHIEF DEPUTY CLERK
INTERMEDIATE COURT OF APPEALS
No. 23-ICA-351 OF WEST VIRGINIA
_____________________
VENABLE ROYALTY, LTD, and
V14, LP,
Plaintiffs Below, Petitioners,
v.
EQT PRODUCTION COMPANY, ET BLUE GRASS, LLC, and
AMP IV, LP, et al.,
Defendants Below, Respondents.
___________________________________________________________
Appeal from the Circuit Court of Wetzel County
Honorable Ronald E. Wilson, Judge
No. CC-52-2021-C-19
REVERSED AND REMANDED
_________________________________________________________
Submitted: September 4, 2024
Filed: October 8, 2024
J. Thomas Lane, Esq. Kerri C. Sturm, Esq.
J. Mark Adkins, Esq. Trisha R. Hudkins, Esq.
Charles R. Hughes, Esq. Bernstein-Burkley, P.C.
Gabriele Wohl, Esq. Pittsburgh, Pennsylvania
Bowles Rice LLP Counsel for Respondents, AMP IV, LP
Charleston, West Virginia
Counsel for Petitioners
Samuel H. Simon, Esq. S. David Wilharm, Esq.
Houston Harbaugh, P.C. Rokisky, McCune, Wilharm & Blair,
Pittsburgh, Pennsylvania PLLC
Counsel for Respondents, Weirton, West Virginia
Steven A. Snodgrass and
Nancy J. Barker Christian E. Turak, Esq.
Gold, Khourey & Turak, L.C.
Moundsville, West Virginia
Counsel for Respondents,
Linda W. Nuckolls, Larry W. Wiles,
Sherry D. Compher, Vicki Snodgrass
Starr, Donna Grimm Hansen, Maureen
Grimm Plumstead, Gail Grimm, and
Bonnie Snodgrass Hayton.
JUDGE GREEAR delivered the Opinion of the Court.
GREEAR, JUDGE:
Petitioners, Venable Royalty, LTD, and V14, LP (collectively “Petitioners”)
appeal the July 5, 2023, order of the Wetzel County Circuit Court, which granted
Respondent Appalachian Mineral Partners IV, LP’s (“AMP”) Motion for Summary
Judgment; Respondent Steven Snodgrass and Nancy Barker’s (collectively “McGary
heirs”) Motion for Summary Judgment; and Respondents Linda W. Nuckolls, Larry W.
Wiles, Sherry D. Compher, Vicki Snodgrass Starr, Donna Grimm Hansen, Maureen
Grimm Plumstead, Gail Grimm, and Bonnie Snodgrass Hayton’s (collectively “Additional
McGary heirs”) Motion for Summary Judgment.1 On appeal, Petitioners argue that the
circuit court erred in awarding summary judgment to all respondents herein by concluding
non-participating royalty interests (“NPRI”) are personal property.
In a cross-assignment of error, the McGary heirs argue that the circuit court
erred in its description of the fractional percentages of the NPRI. After our review of the
record, we reverse the circuit court’s award of summary judgment to the respondents herein
and remand the case to circuit court for further proceedings consistent with this opinion.
1
EQT Production Company, ET Blue Grass, LLC, and The Tracy Living Trust,
dated April 14, 1986, et al., are parties in the underlying action but have not participated in
this appeal.
1
I. FACTUAL AND PROCEDURAL BACKGROUND
In 1884, William McGary acquired 201 acres of land in fee simple (“parent
tract”), with no oil and/or gas or other reservations included within the conveyance. In
1907, Mr. McGary and his wife conveyed the parent tract to Joseph Carpenter; however,
this conveyance contained a reservation by the McGarys, wherein “one sixteenth of all the
oil and one half the royalty of gas produced from the [. . .] premises[,]” were reserved “from
the operation of” the deed. The parties herein agree that this reservation then vested the
McGarys with a ½ or 50% NPRI in the oil and gas produced from the parent track
(“McGary Interest”).
In 1907, Joseph Carpenter conveyed his interest in the parent tract to brothers
A.E. Riggenbach and J.W. Riggenbach, which vested the Riggenbachs with 100% of the
surface and oil and gas in place. However, the Riggenbachs received only 50% of the
royalty from oil and gas produced from the parent tract due to the McGary Interest.2 Ad
valorem taxes were collected by the Sheriff of Wetzel County on the McGary Interest from
1907 until 1962 (55 years). At this point, the tax payments for assessments on the McGary
Interest ceased and the property taxes became delinquent. The McGary Interest was sold
by the Sheriff of Wetzel County on October 21, 1963, and conveyed to J. H. Riggenbach
in a tax deed dated April 1, 1965.
2
The tract of land at issue (“subject tract”) is a 181-acre oil and gas estate lying
under 201 acres of land in Wetzel County, West Virginia. It is undisputed that 20 acres was
carved out of the parent tract and is not at issue here.
2
On July 13, 2021, Petitioners filed the underlying complaint seeking to quiet
title and a declaratory judgment relating to the ownership of the oil and gas underlying the
subject tract, naming all known heirs to William McGary and his wife (“McGarys”), and
all other existing parties and entities believed to have a potential interest in the land.
Respondent AMP filed its answer, counterclaim and crossclaim on October 15, 2021. In
its counterclaim, AMP acknowledged that the McGary Interest reserved to the McGarys a
50% interest in the royalties generated by oil and gas produced from the subject tract.
However, AMP asserted that this was an interest in personal property, not real property,
and could not be subject to land book tax assessments or tax sales. AMP argued that the
1965 tax sale was invalid and the interest remained vested in the McGarys and their heirs,
which was eventually conveyed, in part, to AMP. The McGary heirs answered Petitioners’
complaint and denied that the 1965 tax sale transferred the McGary Interest. The
Additional McGary heirs answered Petitioners’ complaint, and also denied Petitioners’
claim to the McGary Interest.
After the close of discovery, AMP filed its motion for summary judgment
asserting that NPRIs are personal property and therefore the 1965 tax sale of the McGary
Interest was void. The McGary heirs also moved for summary judgment arguing that the
McGary Interest, as personal property, was not divested via tax sale. The Additional
McGary heirs filed a separate motion for summary judgment, making similar arguments.
Conversely, Petitioners moved for summary judgment arguing that the NPRI carved out in
3
1907 was properly assessed and taxed as an interest in real property, and thus the 1965 tax
sale was valid.
On July 5, 2023, the circuit court entered its order finding in favor of AMP,
the McGary heirs, and the Additional McGary heirs. The court’s order noted a lack of
guidance from the Supreme Court of Appeals of West Virginia (“SCAWV”) as to whether
an NPRI in oil and gas could be assessed as real property for ad valorem tax purposes. The
court decided that it could not find in favor of Petitioners, “based upon the law this court
feels is the most applicable to the facts.” The court explained that there are two types of
assessments with respect to oil and gas, one which is real property and one which is
personal property. The value of the oil and gas in place is assessed as real property. The
value of the royalty received from the production of oil and gas once it is produced is
personal property. The court reasoned that the value of the McGary Interest fell into the
latter category and thus was improperly assessed as real property and could not serve as
the basis of a sale for delinquent taxes. Accordingly, the court voided the 1965 tax deed.
This appeal followed.3
II. STANDARD OF REVIEW
“A circuit court’s entry of summary judgment is reviewed de novo.” Syl. Pt.
1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994).
3
This Court heard oral argument on September 4, 2024.
4
III. DISCUSSION
On appeal, Petitioners argue that the circuit court erred in its July 5, 2023,
order by declaring the tax deed void and ruling that NPRIs are personal property. 4 We
agree.
To begin our analysis, we concur with the circuit court that there is no clear
law or decision in West Virginia which clarifies whether NPRIs should be classified as real
or personal property. However, it has been well settled in West Virginia that an interest in
oil and gas in place is a real property interest.5 Further, it is well established that a royalty
in oil and gas that is produced, or brought to the surface, has been determined to be personal
property.6 In other words, accrued royalties are personal property. It’s generally understood
that a royalty walks hand in hand with pulling the minerals from the ground. “The concept
Petitioners’ notice of appeal asserts a second assignment of error; specifically, that
4
the order clearly erred concerning the respective ownership interest from the current
owners of the McGary interest. As Petitioners’ brief fails to contain any assignments of
error and fails to argue this point, we will not address this issue.
Oil and gas in place is real estate. Syl Pt., Manufacturers’ Light & Heat Co. v.
5
Knapp, 102 W. Va. 308, 135 S.E. 1 (1926). See also Boggess v. Milam, 127 W. Va. 654,
659, 34 S.E.2d 267, 269 (1945) ([O]il and gas in place is real estate . . . .) (citing Wilson v.
Youst, 43 W. Va. 826, 28 S.E. 781 (1897); South Penn Oil Company v. McIntyre, 44 W. Va.
296, 28 S.E. 922 (1898); Preston v. White, 57 W. Va. 278, 50 S.E. 236 (1905); and
Manufacturers’ Light & Heat Co. v. Knapp, 102 W. Va. 308, 135 S.E. 1 (1926)).
Royalty in oil brought to the surface is “personal property,” and as such is
6
susceptible of partition among its co–owners. Syl Pt. 5, Warren v. Boggs, 83 W. Va. 89, 97
S.E. 589 (1918). When oil and gas is produced and marketed from said lands, it loses its
character of real property and, as shown in the Warren case, assumes the quality of personal
property. McIntosh v. Vail, 126 W. Va. 395, 401, 28 S.E.2d 607, 610 (1943).
5
of royalty always presupposes development or production of the mineral to which it
relates.” Davis v. Hardman, 148 W. Va. 82, 89, 133 S.E.2d 77, 81 (1963) (citing McIntosh
v. Vail, 126 W. Va. 355, 358, 28 S.E.2d 95, 97 (1943)). “The distinction between oil and
gas in place and oil and gas produced appears in McDonald v. Bennett,7 [. . .], wherein the
word ‘produced’, qualifying a reservation of oil and gas, was held not to mean oil and gas
in place.” McIntosh v. Vail, 126 W. Va. 395, 401, 28 S.E.2d 607, 610 (1943).
In regard to NPRIs or an unaccrued royalty interest, the SCAWV has
previously set forth the distinguishing characteristics of an NPRI versus an interest in oil
and gas in place:
[T]he distinguishing characteristics of a non-participating
royalty interest are: (1) Such share of production is not
chargeable with any of the costs of discovery and production;
(2) the owner has no right to do any act or thing to discover and
produce the oil and gas; (3) the owner has no right to grant
leases; and (4) the owner has no right to receive bonuses or
delay rentals. Conversely, the distinguishing characteristics of
an interest in minerals in place are: (1) Such interest is not free
of costs of discovery and production; (2) the owner has the
right to do any and all acts necessary to discover and produce
oil and gas; (3) the owner has the right to grant leases, and (4)
the owner has the right to receive bonuses and delay rentals.
Davis, 148 W. Va. at 90, 133 S.E.2d at 81-82 (1963) (citing Mounger v. Pittman, 235 Miss.
85, 108 So.2d 565 (1959)). The SCAWV has also stated:
[g]enerally, a nonparticipating royalty interest (“NPRI”)
describes a right to share in royalties from oil and gas drilling
and production operations where the holder thereof has
conveyed away all other interests in the oil and gas he or she
7
McDonald v. Bennett, 112 W. Va. 347, 164 S.E. 298 (1932).
6
may have had, including any possessory interest and the right
to lease the minerals.
Gastar Exploration, Inc. v. Contraguerro, 239 W. Va. 305, 308, 800 S.E.2d 891, 894
(2017) (citing Benjamin Holliday, New Oil and Old Laws: Problems in Allocation of
Production to Owners of Non-Participating Royalty Interests in the Era of Horizontal
Drilling, 44 Saint Mary's L. J. 771, 799 (2013)) (“An NPRI is a nonpossessory interest,
which means that the NPRI owner does not own the minerals in place but instead holds
only a presently vested right to a stated fraction of production from any and all minerals
produced.”).
Despite setting forth the distinguishing characteristics of NPRIs and oil and
gas in place, Davis does not decide whether NPRIs are real property or personal property.
This issue has not been determined and settled in West Virginia.
Throughout the United States, two theories have been adopted regarding
unaccrued royalty interests. The majority of states have held that NPRIs are a real property
interest in the form of an incorporeal hereditament that immediately vests at the time of
conveyance.8 Essentially, the owner of the NPRI holds a single stick out of the proverbial
bundle which immediately vests the right to receive a portion of royalties if, and when,
8
See Andrew S. Graham, Allison J. Farrell, Lauren A. Williams, Amber M. Moore,
One Stick in the Bundle: Characterizing Nonparticipating Royalty Interests Under West
Virginia Law, 117 W. Va. L. Rev. 519, 524-526 (2014) (citing Hanson v. Ware, 224 Ark.
430, 274 S.W.2d 359 (1955)).
7
production occurs. The immediate vesting of this interest does not violate the rule against
perpetuities, as holders of this interest acquire a present interest, not a future interest in the
land.9
The minority view treats NPRIs as a personal property interest that vests
upon production.10 This approach is most notably taken by the Supreme Court of Kansas
(“SCK”). In Lathrop v. Eyestone, the SCK stated:
[o]n the other hand ‘royalty’ in its ordinary meaning is that part
of oil and gas payable to the lessor by the lessee out of oil and
gas actually produced and saved. It is the compensation to the
lessor provided in the lease for the lessee's privilege of drilling
and producing oil or gas. It does not include a perpetual interest
in and to the oil and gas in place.
170 Kan. 419, 424, 227 P.2d 136, 141 (1951). “It is not uncommon to find ‘royalty’ shortly
defined as ‘a share’ in production ‘paid’.” Id. “It is personal property.” Id. The SCK
See Hanson v. Ware, 224 Ark. 430, 436 274 S.W.2d 359, 362 (1955); Conway Land,
9
Inc. v. Terry, 542 So.2d 362, 364-365 (Fla. 1989); Wedel v. Am. Elec. Power Serv. Corp.,
681 N.E.2d 1122, 1132-1134 (Ind. Ct. App. 1997); Price v. Atlantic Ref. Co., 447 P.2d 509,
510 (N.M. 1968); J.M. Huber Corp. v. Square Enters, Inc., 645 S.W.2d 410 (Tenn. Ct. App.
1982); McGinnis v. McGinnis, 391 P.2d 927, 929-930 (Wyo. 1964).
10
Graham, Ferrell, Williams, Moore, supra, at 527.
8
reaffirmed that royalty interests are personal property in Cosgrove v. Young11 and Rucker
v. DeLay.12 Further, the SCK in Cosgrove determined that production is the vesting event.13
However, as highlighted in Lathrop and Cosgrove, any royalty reservation
which does not vest within a certain time period violates the rule against perpetuities and
is void. Cosgrove, 230 Kan. at 714, 642 P.2d at 82 (citing Lathrop, 170 Kan. 419, 227 P.2d
136 (1951)). The SCK in recent years has begun moving away from Lathrop and Cosgrove.
Recently, the SCK stated:
The criticism about this court's prior vesting analysis has some
merit. Thus, we decline to extend it to royalty interests reserved
in the grantor. It is better to right the ship and apply the well-
recognized property law principles excepting reservations
from the rule against perpetuities despite any “conceptual”
difficulties this may cause. But we need not determine in this
case whether we should overrule our caselaw holding royalty
interests created in a transferee are future interests that vest at
production because that issue is not squarely before us.
Rucker, 295 Kan. at 836, 289 P.3d at 1173 (2012). Thus, while still regarding NPRIs as
personal property, the SCK has had to take extra measures to circumvent the rule against
perpetuities.
11
See Syl Pt. 2, Cosgrove v. Young, 230 Kan. 705, 642 P.2d 75 (1982).
12
The term “royalty interest” refers to a share in the production of oil and gas at
severance. It is personal property and concerns the proceeds from oil and gas leases if and
when there is production. Syl. Pt. 2, Rucker v. DeLay, 44 Kan. App.2d 268, 235 P.3d 566
(2010).
13
See Cosgrove, 230 Kan. at 715, 642 P.2d at 83. See also Rucker v. DeLay, 295
Kan. 826, 835, 289 P.3d 1166, 1172 (2012) (Cosgrove is notable because it is the first time
this court expressly held that production is the vesting event.).
9
The adoption of the real property approach, which holds the royalty interest
to vest upon conveyance instead of production, prevents violation of the rule against
perpetuity and prevents clouding of title. West Virginia Code § 36-1A-1 (2023) grants a
ninety-year window for the nonvested property interest to either vest or terminate. Under
the personal property view, this could delay the vesting of the NPRI for, potentially, up to
ninety years. This is problematic as the holder of the NPRI has no control over the vesting
of the right. Essentially, the holder of the NPRI would have nothing more than an interest
in the uncertain. This binds the land on two fronts. First, an analysis of whether the NPRI
interest has vested or will vest within the time frame would be required in every NPRI
transaction. Second, this can create stagnation upon the land as the original grantor in
interest may hold the land in stasis until the NPRI is deemed invalid.
Further, classifying an NPRI as personal property would affect the ability to
pass clear title. West Virginia Code §§ 40-1-8-9 (2015) protects the ownership of real
property by requiring recordation in the county where the property is located. If an NPRI
interest was considered to be personal property it could cause lengthy litigation to
determine who owned the NPRI and at what point, if any, the rule against perpetuities
rendered it invalid. Classifying NPRIs as real property would help create certainty as to
who owns the NPRI interest based upon the title as shown through the recorded real estate
documents.
10
Additionally, classifying NPRIs as a real property interest bolsters certainty
with the law governing these transactions. West Virginia adheres to the doctrine known as
lex loci rei sitae, where the law of the state in which the real property is located governs
any transaction affecting the real property. If NPRIs were considered real property, it is
clear that West Virginia law applies when a West Virginia NPRI passes via estate
administration. If found to be personal property, the NPRI would be subject to the laws of
the decedent’s domicile.
For these reasons, we hold that NPRIs should be classified as real property.
As described in McIntosh, 126 W. Va. at 401, 28 S.E.2d at 610 (1943), oil and gas property
loses its designation as real property and assumes the status of personal property at the
point of production. While the SCAWV in Davis distinguished the characteristics between
an NPRI and oil and gas in place, the SCAWV in Gastar cites that an NPRI is a presently
vested right to a stated fraction of production from any and all minerals produced. Thus, it
stands to reason that an NPRI, which is unaccrued, would be a vested real property interest,
which converts to a personal property interest upon production.
Accordingly, we find that the circuit court erred in awarding summary
judgment to respondents, and, therefore, reverse the court’s July 5, 2023, order. This matter
11
is remanded to circuit court for entry of an order awarding summary judgment to
Petitioners.14
As we have determined that NPRIs are real property, we must briefly address
AMP’s argument that treating NPRIs as real property violates West Virginia’s state tax
laws. We find this argument unavailing. “[T]axation shall be equal and uniform throughout
the state, and all property, both real and personal, shall be taxed in proportion to its value
to be ascertained as directed by law.” W. Va. Const. Art. 10, § 1.; see also In re Northview
Services, Inc., 183 W. Va. 683, 398 S.E.2d 165 (1990) (Under State Constitution, all
property, real and personal, must be taxed equally according to its value, unless property
falls within tax exemption.). Thus, West Virginia requires taxation of both real and
personal property unless said property falls under an enumerated exception.15
AMP’s argument regarding West Virginia Code Chapter 11, articles 4 and 5
is irrelevant to our determination. As discussed above, an NPRI is a vested real property
interest to the oil and gas in and under the land. West Virginia Code chapter 11, article 4
simply addresses how real property is to be assessed, while chapter 11, article 5 addresses
Based upon the finding of this Court that NPRIs are real property, respondents
14
McGary heirs’ cross-assignment of error is moot.
15
West Virginia Code § 11-3-9 enumerates the property exempt from taxation such
as cemeteries, public and family libraries, property used for charitable purposes and not
held or leased out for profit, etc.
12
how personal property is to be assessed. As an NPRI is real property, West Virginia Code
§ 11-4-9 requires the assessor to assess each respective estate when any person becomes
the owner of the surface and another or others become the owners of minerals below. As
pointed out in Petitioners’ reply brief, this statute clearly contemplates that there can be
various owners of various severed interests in a single tract of land, and each shall have its
interest entered for taxation. An NPRI is simply that, a severed individual interest in oil
and gas currently in place. Thus, as a severed interest from the surface on the subject tract
of land, the NPRI must be assessed as real property in compliance with West Virginia Code
§ 11-4-9.
Finally, the parties during oral argument asserted that under Orville Young,
LLC v. Bonacci, 246 W. Va. 26, 866 S.E.2d 91 (2021), a separate tax assessment is
duplicative, and therefore the tax sale was void. However, Bonacci is distinguishable from
the facts before us. In Bonacci, the subject parcel’s surface and mineral rights were held
by owners, the Bonacci brothers, who owned the undivided interest in the surface and the
unsevered oil and gas estate (emphasis added). The SCAWV determined that per West
Virginia Code § 11-4-9, the property could not be assessed separately as the owner of both
the surface and the mineral estate cannot be taxed separately on both. In the case before us,
the oil and gas estate has been severed from the surface rights. This severance creates the
situation contemplated in West Virginia Code § 11-4-9, where one party owns the surface
and another owns the minerals. Thus, this severance allows for separate assessments of the
13
surface and the minerals for taxation purposes. Therefore, we find the holding in Bonacci
relies upon facts that do not exist in this matter.
IV. CONCLUSION
For the foregoing reasons, we adopt the view that NPRIs are real property
subject to ad valorem taxation as such. Therefore, we reverse the Circuit Court of Wetzel
County’s order dated July 5, 2023, and remand the matter for further proceedings consistent
with this opinion.
Reversed and Remanded.
14