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Utica Spacing Bill Fails in West Virginia, but New Rules May Modernize Law
A high-priority bill to modernize deep well spacing laws has failed in West Virginia, where the legislature’s 60-day regular session came to an end last weekend with mixed results for the oil and natural gas industry.
After passing the state House unanimously, House Bill (HB) 2834 failed to gain support in the Senate and never emerged from the energy committee, said Anne Blankenship, executive director of the West Virginia Oil and Natural Gas Association (WVONGA). The bill, which would have eliminated limitations to allow for tighter lateral spacing on deep wells like those drilled to the Utica Shale, was WVONGA’s top legislative priority. State regulators are working on rules that could potentially address the issue.
Current laws, developed decades ago, require 3,000 feet between each deep well, which WVONGA has argued discourages multi-well pads and limits Utica development in the state.
“It’s not just about how good or bad a bill is sometimes,” said Charlie Burd, executive director of the West Virginia Independent Oil and Gas Association, which also supported the legislation. “They sometimes get caught up a bit in politics.”
Burd said it seemed that the bill got snagged in the legislative process as the session ended. However, he said the industry plans to try again next year. Under current law, shale operators have to obtain an exception for multi-well Utica pads from the state Oil and Gas Conservation Commission (OGCC) during a hearing, a process that WVONGA estimates costs about $25,000 each time for legal and other fees. Blankenship said Wednesday that OGCC, which testified against aspects of the bill in the House, plans to draft emergency rules to update and modernize the law.
“There will be a public hearing for industry to provide comments and suggestions on what the revised regulations should be,” she told NGI’s Shale Daily. “We hope the OGCC will be supportive of reasonable and updated spacing requirements for horizontally drilled wells.”
HB 2661, another bill pushed by the industry, passed and was awaiting Gov. Jim Justice’s signature. It would allow utilities to offer incentives for producers to enhance production or drill new wells in areas where supplies are not readily available and then recover those costs from ratepayers. Incentives have not yet been determined. The state Public Service Commission noted during its testimony that it already has the ability to allow utilities to pay incentivized rates to drillers to produce more, Burd said.
Burd said the incentives are likely to be offered in the southern and central parts of the state that are removed from unconventional drilling in the north and where legacy producers have been more active. The bill might also lead to the development of additional gathering and distribution infrastructure.
Another bill aimed at helping the state’s smaller operators is HB 2673, which passed and is also awaiting the governor’s signature. It would exempt wells that produce 5-60 Mcf/d of natural gas or 0.5-10 b/d of oil from paying a severance tax. Instead, the previously paid tax monies would go toward maintaining or plugging the marginal wells.
“It gives a tremendous lift to smaller producers,” Burd said, adding that it would also help address a widespread environmental issue in the state.
David McMahon, co-founder of the West Virginia Surface Rights Organization, which backed HB 2673, estimated that the bill would help plug an additional 60 wells per year. There are currently more than 12,000 abandoned wells and more than 4,000 orphaned wells in West Virginia, according to the state Department of Environmental Protection, which generally plugs them with money provided by well fees, forfeited bonds and operator penalties in a reclamation fund.
Other bills that failed would have helped to put a bigger dent in the problem, McMahon said. HB 2779 would have dedicated proceeds from partition proceedings toward a special well plugging fund, but it was rejected by the state Senate. If property owners couldn’t be identified, for example, unclaimed proceeds from oil and gas wells after seven years would have went toward the fund.
McMahon said the bill was “ambushed” on the final day of the session by varying interests, including surface owners who felt they might lose out on revenue from their property. McMahon said he plans to pursue the bill again next year.
SB 665 would have provided the industry with expedited permitting. Producers could have paid extra money for a fast-tracked well permit. Those additional funds would have went toward the permit review and well plugging. The bill passed both chambers, but after the industry pushed to lower the additional fee for the service, the bill was amended by the Senate and the House ultimately rejected it.
Efforts to raise the state’s 5% severance tax and another effort to implement an additional volumetric fee to fund the Public Employees Insurance Agency also failed.
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