With less than a month before the West Virginia Legislature’s 60-day regular session concludes, a suite of oil and natural gas-related bills is advancing in what has so far been a calmer year for the industry at the capitol, especially compared to 2018 when it won a long-fought battle for co-tenancy.
Among the top priorities for the state’s leading trade organizations is House Bill (HB) 2834, which would implement much-needed reform to modernize deep well spacing laws. Deep wells in the state, such as those drilled to the Utica Shale, are regulated by the state Oil and Gas Conservation Commission (OGCC) under rules developed decades ago for vertical wells.
Current deep well spacing laws require 3,000 feet between each well, which discourages multi-well development, according to the West Virginia Oil and Natural Gas Association (WVONGA), which considers HB 2834 its top priority this session.
“Exploration of wells in the Utica Shale has been minimal in West Virginia because it is much costlier to produce than a well in the Marcellus Shale,” WVONGA said.
Under current law, shale operators have to obtain an exception for multi-well Utica pads from the OGCC during a hearing, a process that WVONGA said costs about $25,000 each time for legal and other fees.
“They just want to eliminate that process of having to go before the commission every time,” said Charlie Burd, executive director of the West Virginia Independent Oil and Gas Association (WVIOGA).
The bill would eliminate limitations to allow for tighter lateral spacing. Introduced earlier this month, HB 2843 has already cleared the House energy committee and is scheduled for its first reading on Thursday.
Two other Republican-sponsored bills that would help address the thousands of orphaned and abandoned wells in the state are also cruising through the legislative process.
HB 2779, drafted by the West Virginia Surface Owners’ Rights Organization (SORO), passed the house and is now in the Senate energy committee. That bill has the backing of the industry, as another, HB 2673, written by WVIOGA, has the backing of SORO. HB 2673 cleared committee and was set for its second reading on Wednesday. A bill gets three readings before lawmakers vote on it.
Hundreds of thousands of abandoned wells dot the Appalachian landscape. 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 the minimal money provided by well fees, forfeited bonds and operator penalties in a reclamation fund.
The latest bills would provide more funding. HB 2673 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 and plugging wells.
“These wells probably represent about 4% or 5% of the total severance taxes that are collected,” Burd said, when asked about some of the criticism the bill has faced for the perceived tax break, noting that the bulk of those collections come from unconventional wells that would continue paying severance taxes.
HB 2779, meanwhile, would dedicate proceeds from partition proceedings. If property owners can’t be identified, then unclaimed proceeds from oil and gas wells after seven years would go toward a special well plugging fund.
While SORO co-founder David McMahon said both the plugging bills would provide much needed funding, he added that neither would “do anything but put a dent in the orphan well problem.”
That’s why Republican and Democratic lawmakers introduced another bill for SORO this week that would better assure wells get plugged by requiring single-well bonds or payment into an escrow account to cover the costs. The state currently requires only a $50,000 blanket bond to cover two or more wells or a $5,000 bond for individual wells, which is far less common. The bill would also impose a litany of other requirements, including permitting restrictions and limitations on the transfer of wells from one owner to another.
While the industry is pushing priorities as usual this year, Burd said the session has been a quieter one. Last year, the industry won passage of co-tenancy after years of fighting for some iteration of the bill. It better allows operators to block up larger tracts of land by having to obtain consent from fewer landowners.
The industry also fended off a proposal from Republican Gov. Jim Justice last year to trade the co-tenancy legislation for an increased severance tax, as he searched for ways to increase pay for angry teachers that went on strike. Justice eventually backed off the proposition.
Even still, two Democratic-sponsored bills were introduced last month shortly after this year’s regular session got underway. One would increase the state severance tax from 5% to 7.5%, while the other would implement a new volumetric fee to fund the Public Employees Insurance Agency.
“We are always fighting off talks of severance tax increase,” said WVONGA Executive Director Anne Blankenship, who said her organization doesn’t see much chance of the latest bills advancing. Burd agreed, adding that “none of the severance tax bills are moving that I’m aware of.” Both pieces of legislation have been stuck in committee since they were introduced.
The industry is also supporting HB 2661, which would allow utilities to request that the state Public Service Commission offer unspecified incentives for producers to enhance production or drill new wells in areas where supplies are not readily available.
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