HB5889 97TH GENERAL ASSEMBLY

LRB097 19335 AJO 64584 b

97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
HB5889

Introduced 2/16/2012, by Rep. David Reis

SYNOPSIS AS INTRODUCED:

New Act

Creates the Oil and Gas Leasing Act. Provides that the purpose of the Act is to clarify the rights of joint owners of oil and gas in this State, to promote and preserve the value of oil and gas reserves in the State, and to maximize the recovery of oil and gas through the orderly and efficient development of oil and gas reserves for the benefit of all joint owners in a fair and equitable manner. Provides definitions. Includes provisions concerning venue of an action seeking to impress a trust upon an oil and gas interest for the purpose of leasing and developing it, joint ownership of a freehold interest in an oil and gas estate, declaration of a trust in oil or gas land and the powers and duties of a trustee, court procedures, oil and gas leases, payments under an oil and gas lease, and construction of the Act. Effective immediately.

A BILL FOR

AN ACT concerning oil and gas leasing.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Oil and Gas Leasing Act.

Section 5. Purpose. In recognition of the fact that an estate of a joint owner in oil and gas can be enjoyed only by producing, removing, and selling the products of the oil and gas, and that the producing, removal, and sale of oil and gas by one joint owner therefore constitutes the use and not the destruction of the common estate, the purpose of this Act is to clarify the rights of joint owners of oil and gas in this State, to promote and preserve the value of oil and gas reserves in the State, and to maximize the recovery of oil and gas through the orderly and efficient development of oil and gas reserves for the benefit of all joint owners in a fair and equitable manner.

Section 10. Definitions. As used in this Act:

"Joint owner" means a person or entity that is a joint tenant, a tenant in common, or a tenant by the entirety.

"Oil and gas owner" means a person or entity vested with a whole or undivided fee simple interest or other freehold interest in the oil and gas estate, but "oil and gas owner" does not include a person or entity with a leasehold or any other lesser estate.

"Producing, removing, and selling" includes drilling operations, seismic operations, and such other actions upon the surface of the land reasonably necessary to explore, drill, develop, produce, transport, store, and market oil and gas.

Section 15. Venue. Proceedings under this Act must be brought in the circuit court of the county in which the oil and gas land sought to be affected, or the major portion of that land, is located.

Section 20. Joint owners; trusts.

(a) If the title to oil and gas is owned by joint tenants, tenants in common, or tenants by the entirety, whether the title is derived by purchase, legacy, or descent, any oil and gas owner vested with at least a one-half interest in the oil and gas under the land, or any oil and gas lessee of the oil and gas owner, upon proper petition, shall be authorized to produce and remove oil and gas from the land in the manner provided in this Act. This Act affects only an oil and gas owner, as defined in Section 10 of this Act, and does not affect the rights of a surface owner, except to the extent that the owner may also be an oil and gas owner.

(b) The circuit court of the county in which the oil and gas land or the major portion of that land lies has the power to declare a trust in that land, appoint a trustee for all persons owning an interest in the oil and gas who are not plaintiffs, and authorize the trustee to sell, execute, and deliver a valid oil and gas lease on that land on behalf of all of the defendants on terms and conditions approved by the circuit court for the purposes provided in this Act. The lease shall continue in full force and effect after the termination of the trust unless the lease has previously expired by its own terms.

Section 25. Proceedings for appointment of trustee. Proceedings for the appointment of a trustee may be instituted by any person or persons (i) vested in fee simple with at least an undivided one-half interest in the oil and gas sought to be developed or (ii) vested with a valid and subsisting oil and gas lease, the lessor of which is a person defined in item (i).

Section 30. Procedure.

(a) A person seeking to impress a trust upon an oil and gas interest for the purpose of leasing and developing it shall join as a defendant any person, other than the plaintiff, having a legal interest in the oil and gas, including any mortgagee thereof. A party not in being who might have some contingent or future interest in the oil and gas and all persons, whether in being or not in being, having any interest, whether present, future, or contingent, in the oil and gas interest sought to be leased shall be fully bound by the proceedings.

(b) A verified petition shall be filed specifically setting forth the following:

(1) The request of the plaintiff that a trustee be appointed to execute a lease granting the plaintiff the right to produce, remove, and sell oil and gas from the subject land.

(2) The legal description of the land.

(3) The interest of the plaintiff in the oil and gas underlying the land.

(4) The apparent interest of the defendant in the oil and gas underlying the land.

(5) That the plaintiff is willing to purchase a mineral lease covering the interest of the defendant and that the existence of this unleased mineral interest is detrimental to and impairs the enjoyment of the interest of the plaintiff.

(c) If in any action there are persons who would be unknown parties as defined in Section 2-413 of the Code of Civil Procedure, those persons may be made defendants to the action in the same manner and with the same effect as provided in the Code of Civil Procedure. The defendant shall be given notice of the pendency of the action by publication as provided in the Code of Civil Procedure.

(d) The court shall appoint a guardian ad litem for any party to the proceeding who is a ward and is not represented by a guardian.

(e) If it appears that any person not in being, upon coming into being, is or may become or may claim to be entitled to any interest in the property sought to be leased, the court shall appoint a guardian ad litem to appear for and represent the interest in the proceeding and to defend the proceeding on behalf of the person not in being, and any judgment or order rendered in the proceeding is as effectual for all purposes as though the person were in being and were a party to the proceeding.

(f) The court shall take evidence and hear testimony as to the matters set forth in the petition. The court shall determine the prevailing terms of similar oil and gas leases obtained in the vicinity of the land described in the petition, including, but not limited to, length of primary term, bonus moneys, delay rentals, royalty rates, and other forms of lease payments. If, upon taking evidence and hearing testimony, it appears that the material allegations of the petition are true and that there has been compliance with the notice provisions of this Act, the court shall enter an order determining the interest of each defendant in the oil and gas sought to be leased. The court shall also appoint a trustee for the purpose of executing in favor of the plaintiff an oil and gas lease covering the interest of any defendant. The judgment appointing the trustee and authorizing the execution of the lease shall specify the minimum terms which may be accepted by the trustee. Those terms shall be substantially consistent with the terms of other similar oil and gas leases obtained in the vicinity as determined by the court. The terms of the oil and gas lease shall also be substantially consistent with the terms of other existing leases, if any, covering the remaining oil and gas interests in the land described in the petition. All of the land to be covered by the oil and gas lease shall be contiguous. To the extent that any of the land described in the petition is not contiguous to other land in the petition, that land shall be the subject of a separate oil and gas lease. The court shall determine a reasonable fee to be paid to the trustee, and that fee, together with the reasonable attorney's fees and costs of the proceeding incurred by the trustee, shall be paid by the plaintiff.

(g) In the event that a defendant owns an interest in the surface of the land described in the complaint, the court shall also hear evidence and make an adjudication as to the terms and conditions of surface use by the lessee and as to the rights of the defendant surface owner to compensation with respect to such surface use, which shall be substantially consistent with the terms of other leases in the vicinity as to compensation for surface use and other terms calculated to protect the surface of the land.

(h) The plaintiff shall forthwith furnish the court with a report of proceedings of the evidence received and testimony taken at the hearing on the petition, and the report of proceedings shall be filed and made a part of the case record.

(i) In any action under this Act, the court may investigate and determine all questions of conflicting or controverted titles, remove clouds from the title to the oil and gas, and establish and confirm the title to the oil and gas or the right to mine and remove oil and gas from any of the land.

(j) An action filed under this Act may be joined with an action under the Severed Mineral Interest Act.

Section 35. Oil and gas lease; report by trustee. The trustee shall enter into negotiations with the plaintiff and shall execute an oil and gas lease in favor of the plaintiff covering the interest of the defendant. The terms of the oil and gas lease shall be in accordance with the findings and judgment of the court. The trustee shall forthwith prepare and file a report of the sale of the oil and gas lease stating the terms of the lease and the payments received for the lease and give notice to all parties appearing of record. If the court finds that the sale was in accordance with its judgment, the sale shall be confirmed by court order and the court shall order the trust terminated and the trustee and his or her bond discharged.

Section 40. Payment. All moneys due to the defendant under the lease executed by the trustee shall be paid by the plaintiff directly to the defendant.

Section 45. Binding effect of lease. The sale of and execution of any oil and gas lease under this Act is binding in all respects as to all of the interest in the oil and gas and the right to mine and remove the oil and gas owned by the defendant to the action in the same manner as if the defendant had personally signed and delivered the lease. The lease shall be binding upon the heirs, legatees, personal representatives, successors, and assigns of the defendant.

Section 50. Incapacity of trustee; subsequent proceedings.

(a) In the event of the death or resignation of the trustee or the refusal or inability of the trustee to act, the court, upon its own motion or upon the motion of the plaintiff, shall appoint a successor trustee.

(b) After the entry of the initial judgment authorizing a lease, all subsequent proceedings pertaining to the land and the oil and gas interest involved in the initial litigation, including subsequent leasing proceedings or proceedings by the trustee requesting authority to execute and deliver additional documents pertaining to a oil and gas lease, shall be commenced and prosecuted in the same case as the proceedings for the initial lease. The acting trustee at the time of any subsequent proceedings shall act as the trustee in those proceedings. The court shall retain continuing authority and jurisdiction to conduct the subsequent proceedings.

Section 55. Costs. All court costs incident to the proceedings authorized under this Act shall be paid by the plaintiff.

Section 60. Construction. This Act shall be liberally construed so that any lease issued under this Act conveys merchantable title.

Section 99. Effective date. This Act takes effect upon becoming law.