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North Carolina Senate Passes Bill to Allow Fracking, Consider Offshore

The Domestic Energy Jobs Act (SB 76) was passed by the North Carolina Senate Wednesday, setting the stage for horizontal drilling and hydraulic fracturing (fracking) of oil and natural gas wells to begin in the state two years from now. It also encourages the governor to coordinate with South Carolina and Virginia for offshore drilling.

The measure passed by a final vote of 39-7. There is no schedule so far for consideration by the state House.

The bill explicitly allows permits for horizontal drilling and fracking to be issued beginning on March 1, 2015. It directs state regulatory agencies, including the North Carolina Mining and Energy Commission (MEC), to complete the rules for "a modern regulatory program" to manage oil and gas drilling using horizontal drilling and fracking by Oct. 1, 2014.

Further, "The governor is strongly encouraged to commence negotiations on the development of a regional energy compact with the governors of South Carolina and Virginia in order to develop a unified regional strategy for exploration, development and production of all commercially viable federal and state offshore energy resources within the three-state region." The governor's recommendations would be considered by the legislature.

The composition of the MEC would be reformed and allowable rules for oil and condensate production would be modified by the bill. It specifically prohibits the injection of waste water into underground wells.

A severance tax on oil and condensates would be set at 1% of the wellhead sale price of a barrel of oil equivalent for the years 2015-2017, rising to 2.5% in 2018-2019 and 6% in 2020 and after. The percentage rate of the severance tax on natural gas would be calculated for each sale of gas. The rate would be the wellhead sales price minus the marketing costs of each Mcf divided by 100, with the following limitations: the tax would not exceed 1% in the years 2015-2017, nor 2.5% in 2018-2019. In the years 2020 and beyond the tax would not be lower than 2.5% nor higher than 6%.

The bill includes directives indicating how the resulting revenue would be allocated.

According to the U.S. Geological Survey (USGS), North Carolina has two basins, the Deep River and the Cumberland-Marlboro. The USGS's conservative estimate is that the Deep River basin has 779 Bcf of gas and 35 million bbl of natural gas liquids. An estimate was not provided for the Cumberland-Marlboro basin.

The state legislature legalized fracking last July, overriding a veto by former Democratic Gov. Beverly Perdue, however there were no rules in place to allow unconventional wells to be permitted (see Shale Daily, July 5, 2012).

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