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Deja Vu for West Virginia NatGas Pooling, as Legislation Likely to Fail

The oil and natural gas industry's ongoing attempt in West Virginia to get some kind of law passed to gather landowners into large tracts for unconventional horizontal drilling will likely have to wait another year as the latest legislation remains stuck in the House Energy Committee with little time left in the regular session.

The industry opted to push for co-tenancy and joint development this year instead of forced pooling legislation, which has failed repeatedly in recent years over property rights concerns. West Virginia is one of only three producing states without a comprehensive pooling law.

SB 576 was approved on a 19-14 vote last month by the state Senate. The bill was amended several times, forcing Senate lawmakers to work through various versions after they had already considered a different, but similar bill earlier in the session.

But the clock has run out in the House of Delegates, where lawmakers are busy with a packed schedule. House Energy Chairman Bill Anderson indicated that there simply wouldn't be enough time to move the bill out of committee for three readings on the House floor and a vote before the 60-day regular session ends at midnight Saturday.

"As West Virginia looks for more opportunities to enhance economic development, the natural gas industry is poised to lead the way," said Anne Blankenship, executive director of the West Virginia Oil and Natural Gas Association (WVONGA), which was instrumental in helping craft the bill. "However, until the state's mineral efficiency laws are brought into the 21st century, we will never fully maximize all of the job, revenue and consumer benefits that natural gas development has to offer."

WVONGA helped to introduce the first bill, SB 244, in February. The legislation would have required a producer to obtain a simple majority agreement from mineral rights owners within a proposed tract rather than the current 100%. SB 576 -- introduced to appease a wide variety of stakeholders -- kept that provision but would have prevented operators from forcing a co-tenant into a tract if the landowner owned at least a fourth of the mineral rights. Under joint development, operators would have been able to integrate older leases executed before the shale era into large tracts.

The state's oil and gas industry has pushed for years for forced pooling. Proponents argue it would enable producers to better block up their acreage positions for today's far-reaching laterals, maximize production and reduce surface disruption. Blankenship, who was at the Capitol in Charleston on Wednesday, said her organization would continue to lobby for the legislation in the future.

The West Virginia Royalty Owners Association (WVROA) initially opposed SB 576, said Vice President Tom Huber. But a provision added to the bill before it left the Senate that would have prohibited exploration and production companies from deducting post-production expenses unless otherwise specified in leases earned the organization's support.

"Unfortunately, the deal came pretty late in the session, and when you get deals done late in the session, it's pretty difficult to try and get them through," Huber told NGI's Shale Daily. "People have already formed their opinions at that point, and it's hard to change their minds back. It's disappointing, but hopefully over the summer we'll get together with industry and come up with a good compromise bill and try to get it passed next year."

WVROA has attempted successfully in the past to include royalty protections in other forced pooling bills that have failed. Previous legislation was more complex, however, and the industry narrowed its scope this time around to focus solely on getting acreage positions blocked with co-tenancy and joint development. Past versions have dealt with spacing, resource waste, hold-out landowners and even severance taxes, among other things. It was unclear this year if the bill would have passed the House, though.

"It was made clear that there needed to be compromises with the landowner groups, and industry decided it was worth giving us what we were asking for to support the bill," Huber added. "I think there was some trouble getting broader support for that [co-tenancy/joint development] model because it couldn't deal with as many of these broad issues."

The West Virginia Farm Bureau (WVFB), which has a strong lobby throughout Ohio, Pennsylvania and West Virginia, supported the co-tenancy measure but not joint development, said spokeswoman Joan Harman. "WVFB believes it wrong to force those who hold old leases to now accept a modern method of drilling without also being allowed to re-negotiate their royalty payments," she said. Harman said the surface-use protections included in SB 576 are also not strong enough to support.

The office of SB 576 sponsor Sen. Charles Trump referred NGI's Shale Daily questions to the House Energy Committee. The legislature was in session on Wednesday and the committee chairman was unavailable. However, Anderson told the news media late Tuesday that before time ran out, his committee had planned to remove the bill's joint development provision and keep only co-tenancy. It was clear, according to Anderson, that the House wasn't going to support lease integration.

The latest developments come after a similar bill failed just hours before the 2015 regular session ended. The House rejected a forced pooling bill after lawmakers failed to agree on several amendments added to the bill by the Senate. The changes resulted in a stalemate 49-49 vote, which defeated the legislation.

In separate legislative news, the Pennsylvania House of Representatives this week passed its first version of the state budget, approving $31.5 billion in spending. The move, which sets the stage for further negotiations, was below the $32.3 billion budget proposed by Democratic Gov. Tom Wolf in February. The Republican-crafted budget leans heavily on spending cuts and does not include a severance tax on natural gas production.

Wolf proposed a 6.5% severance tax to help plug a projected $3 billion budget deficit in the state's next fiscal year, which begins in July. It was his third such proposal since taking office in 2015.

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