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West Virginia Bill Would Allow Pooling for Marcellus Wells

Legislation being drafted by West Virginia Gov. Earl Ray Tomblin's administration includes a statutory pooling provision for shallow horizontal wells, which would include Marcellus Shale drilling in the state, according to Nick Casey, a member of the Lewis Glasser Casey & Rollins law firm in Charleston, WV.

West Virginia's "definition of shallow is anything above the Onondaga [limestone] formation, and the Marcellus lays right on top of it," Casey told NGI's Shale Daily. And, while the state has been dominated by vertical drilling in the past, "In the last two to three years, with horizontal's technological advances, and the economic reality that you can still make money in the Marcellus Shale at $4-5 or less, horizontal drilling is now being aggressively used in West Virginia. And it's being used primarily and almost exclusively in the Marcellus Shale at the moment," he said.

The bill, drafted by the state's Department of Environmental Protection (DEP), would allow West Virginia's Oil and Gas Conservation Commission (OGCC), which currently regulates the drilling of deep wells, to decide pooling and unitization issues for shallow horizontal wells. Forced pooling would require landowner leases to be combined into a common pool under one drilling production company and using one common underground geological reservoir.

"The legislation in place in West Virginia didn't really contemplate horizontals, didn't contemplate the water uses they have, didn't contemplate a lot of stuff, including the impact on drilling fees and the like," according to Casey. The bill includes pooling provisions for shallow wells that are similar to those already in place for deep wells. It would allow an operator controlling 75% or more of the acreage in a unit to seek a pooling order after notice to the interested parties and a hearing, and would allow the OGCC to designate the operator if no one owns more than 75% of a unit's acreage. In addition, the bill would place certain limitations on surface disturbances for unleased mineral interests.

Another bill, drafted by a joint judiciary sub-committee, focuses on regulating the high-volume hydraulic fracturing operations and horizontal drilling (see Shale Daily, Jan. 24). A provision on pooling was pulled from that bill during subcommittee meetings.

Producers in the state are split on the pooling issue, with large producers being in favor of forced pooling, while smaller producers oppose it.

"People that are purely vertical drillers -- the small guys -- are cautious," Casey said. "All of these provisions -- how do they impact them? Some do, but they won't impact them very much, so they're tentative. The horizontal drillers, who have been pretty active on the bill, are pretty good with it. It's hard to say that they approve of it, because it's a regulatory bill, but it's acceptable in most parts for horizontals because it's kind of designed to deal with things they do, and the bigger operators who do horizontals aren't alarmed or concerned about the regulatory requirements."

Many landowners in West Virginia, whose families experienced precipitous declines in the state's coal and railroad industries in the second half of the 20th century, see the Marcellus as a second chance at boom times, Casey said. Some property owners in Ohio County, in the state's northern panhandle, have received offers of $5,000/acre bonuses and 14-15% royalties from companies looking to lease land for drilling, he said.

"The world has changed dramatically, and people who used to get $2.50 in a royalty from grandpa's farm when a vertical well was on it, now they put a horizontal on it and they're getting $1,800 a month. It's a shockingly lucrative situation...every motel in West Virginia is full of people who are drilling gas wells, and every property owner that doesn't have a gas well wants one."

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