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Several Oil/Gas-Related Bills Headed For Defeat in West Virginia

With just days left in West Virginia's annual legislative session, a suite of oil and natural gas-related bills that would benefit the industry appear headed for defeat.

A bill that would clarify the language that defines a private nuisance, which has the backing of not just the oil and gas industry, but also of manufacturers, home builders, retailers, railroads and coal producers, among others, isn't likely to pass by Saturday, when this year's legislative session comes to an end, sources said.

SB 508 passed the state Senate last month, but it remains held up in the House of Delegates Judiciary Committee. The Republican-sponsored bill would not permit individuals to bring nuisance lawsuits against any owner, operator, contractor or subcontractor that has a license, permit or any other authorization from local, state or federal government unless the activity violates a term of contract.

While other industries have been subject to nuisance claims in the state, producers have been particularly vulnerable in recent years with the increase in Marcellus and Utica shale drilling on or near private land.

"I just don't think there's an appetite on the part of those in the House to take up something that is controversial, and we've talked to them," said West Virginia Oil and Natural Gas Association Executive Director Corky DeMarco. "In some circles, this bill has been portrayed as an oil and gas bill, but it's far from that."

DeMarco said the legislation was a key priority for the oil and gas industry, though. Antero Resources Corp. and other operators have faced lawsuits from individuals claiming the companies' operations are causing nuisances in their daily lives, citing noise, truck traffic and environmental concerns. DeMarco added that EQT Corp. is facing more than a dozen such lawsuits, which also affect producer subcontractors.

Last week, Republican House Speaker Tim Armstead said the chamber wanted to make revisions to the legislation that would give the bill more appeal. He said the Senate version raised concerns about property rights and added that in its current form, a compromise appears out of reach.

Another bill that would perhaps give the industry the most benefit during the commodities downturn is SB 705, which would sharply reduce the 5% severance tax rate on oil, natural gas and coal production. The Senate passed the Republican-sponsored bill along party lines by a vote of 19-15 earlier this month (see Shale Daily, March 4). It would lower the severance tax to 4% in July 2017 and to 3% in July 2018.

While no legislative analysis has been conducted on exactly how much the legislation would cost the state, which faces an $800 million budget deficit, it would lower industry taxes by 40% overall by 2019. The bill has received a cold reception in the House, where it's stuck in the finance committee.

DeMarco said some of his colleagues believe that it could pass the House. But in discussions Monday night, DeMarco said he learned that Democratic Gov. Earl Ray Tomblin would likely veto the bill if it were to reach his desk. The legislature already passed a bill to eliminate the volumetric fees that gas and coal producers had paid in addition to the severance tax (see Shale Daily, Feb. 12). Those fees would have generated $110 million in fiscal year 2016, according to the state tax department.

The fees were enacted in 2005 to generate revenue to pay the state's workers compensation debts. The bill, SB 419, was recommended by Tomblin, and the fees had already been anticipated to be eliminated when the debts were paid off, which happened earlier than expected.

"The governor believes removing these additional severance taxes provides much-needed relief to help these industries invest in our state and employ West Virginia workers," Tomblin spokesman Chris Stadelman said about SB 419. "In terms of a larger cut, the impact on the state budget could be well in excess of $100 million. At a time when the state is already dealing with financial difficulties, additional tax cuts are not something the state can consider at this time."

Another crucial bill that would allow forced pooling in the Marcellus Shale and other shallow formations also appears headed for defeat. It would be the fifth time in six years that pooling legislation has failed on concerns about property rights (see Shale Daily, Feb. 18). Under current law, forced pooling is allowed in the state for deep wells below the Marcellus, such as the Utica Shale, as well as shallow secondary oil recovery and coalbed methane wells, but not those targeting other shallow formations, such as the Marcellus.

"It's dead again," DeMarco said of the legislation, which has stalled in the House energy committee. "With this little time to go in the regular session, I'm not sure we can breathe any new life into it. We've got to have it. Of the 38 or 39 natural resource producing states, we're the only one that doesn't have some kind of pooling or co-tenancy law on the books to bring some of these tracts together."

Another bill, SB 565, which passed the Senate last month and would have allowed drillers to construct access roads and well pads before submitting plans and receiving a permit, has also stalled in the House energy committee (see Shale Daily, Feb. 24). West Virginia Department of Environmental Protection Secretary Randy Huffman expressed his opposition to that bill. Legislation that would have given natural gas companies the right to survey on private property without an owner's consent was also rejected by the Senate earlier this month (see Shale Daily, March 2).

"We didn't really have a huge agenda this year. We only had about seven bills that we were interested in, depending on who you ask," DeMarco said. "We've gotten five of them [introduced]. The ones we really needed, the nuisance and [pooling] bills, we're not getting. Lucky for us, at this point in time, drilling is down. There are only about 8 rigs operating in West Virginia. So, from a timing standpoint, those really aren't as crucial as they were, but we do need to get these laws on the books."

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