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West Virginia Panel Calls for 'Dramatic' Well Fee, Bonding Hikes

A committee of West Virginia lawmakers voted Wednesday to recommend steep increases in permit fees and bonding requirements for Marcellus Shale drilling, resolving two key areas of disagreement as they work to cobble together a draft regulatory reform bill.

The Joint Select Committee on Marcellus Shale (JSCMS) said natural gas operators should pay $10,000 for the first horizontal well drilled and $5,000 for each additional well. The higher fees would provide the Department of Environmental Protection (DEP) $2.5 million annually, which the agency said it plans to use to add as many as 15 additional staffers.

"I think that this is a very good compromise," co-chair Del. Tim Manchin (D-Marion) reportedly told the committee Wednesday. "This is a very good step forward in terms of trying to meet the needs of the folks in the impact zone and get more feet on the ground and to restore some confidence in the people that the state is watching out for them."

But industry officials warned the higher fees could have a detrimental effect.

"That is a pretty dramatic increase," Charlie Burd, executive director of the Independent Oil and Gas Association of West Virginia (IOGA) told NGI's Shale Daily on Thursday. " I would be fearful of the message that would send to operators looking to invest in West Virginia."

Burd said that at the beginning of the 2011 legislative session, IOGA was led to believe that the DEP needed to double in size in order to meet the growing workload in the Marcellus. He said IOGA's position at the time was that increasing permit fees from about $600 to the $5,000 range would be appropriate, with additional wells costing $1,000.

"We endorsed a reasonable permit fee increase because we understand these horizontal permits are more complicated and require greater scrutiny," Burd said. "But by the end of the session the DEP was saying they probably needed only 10 additional employees. That's a far cry from what was originally suggested."

DEP spokesman Tom Aluise told NGI's Shale Daily the agency currently has about 800 employees, 17 of whom are oil and gas inspectors.

"Something more reasonable would certainly be more attractive," Burd said. "Admittedly there may be those folks out there who don't believe $10,000 is a hurdle. But smaller operators who are trying to adapt and drill the Marcellus would find these much more difficult to account for."

Burd added that he did not think the committee recommended raising the fees as a way to drum smaller operators out of the Marcellus.

"I don't think it's intentional; I think it's more naivete," Burd said, adding that many state legislators "believe all of these operators are the same and that numbers like this should be acceptable. I just don't think they fully understand that there are operators out there who would find these kinds of increases very difficult to fund in their drilling programs."

The committee also recommended raising bonding requirements from $5,000 to $10,000 for each horizontal well drilled, and increasing blanket bonds -- for operators permitted to drill a number of wells -- from $50,000 to $250,000.

Other recommendations suggested by the committee include requiring that the DEP secretary:

On Monday the JSCMS approved three amendments to the draft bill (see Shale Daily, Sept. 14). The committee recommended eliminating the Oil and Gas Examining Board, giving the DEP secretary the power to call public hearings on permit applications, and expanding the notification requirements for permit applicants.

Additional issues possibly under consideration by the committee include casing and cementing requirements, the protection of water supplies, clarifying reporting requirements, tax reimbursement and well location restrictions.

The JSCMS is using the Natural Gas Horizontal Well Control Act, also known as SB 424, as the basis for a new bill. SB 424 passed the Senate by a unanimous vote on March 2, and a different version of the bill was approved by the House of Delegates on March 10. But legislators could not pass a reconciled version of the bill before the legislature convened for the 2011 season (see Shale Daily, March 15; March 11; March 4).

Gov. Earl Ray Tomblin issued an executive order in July directing the DEP to enforce several new safeguards and to issue an emergency rule over Marcellus regulations. The DEP complied by submitting an emergency rule to Secretary of State Natalie Tennant in August (see Shale Daily, Aug. 24; July 14). Tennant signed the rule on Aug. 29, putting its changes into effect for 15 months while the West Virginia legislature debates and enacts legislation to make the changes permanent.

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