West Virginia has the right idea. Their legislature meets for 60 days total at the beginning of each new year, and then they’re pretty much done for the year. Go to Charleston, work hard, then leave and go back to your day job. Part-time legislators. Love it! The 2019 session is now done and dusted. In the closing days of the session, two bills to help the oil and gas industry got passed and now wait for Gov. Jim Justice to sign them. However, one very important bill for the industry did not pass.
One of the bills that passed, HB 2673, gives a severance tax break to low-producing wells. Gas wells that produce less than 60,000 cubic feet per day, and oil wells that produce less than 10 barrels per day, will be exempt from paying WV’s 5% severance tax. Hold on there, don’t get your knickers in a twist. In place of the severance tax is a new 2.5% fee on the value of product sold. That fee will go into an Oil and Gas Abandoned Well Plugging Fund. So, low-producers get a 2.5% tax break, and the money that’s raised from them will go to a fund to plug old wells. A win/win.
Another bill that passed was HB 2661. The bill permits natural gas utility companies to request “incentivized” gas drilling where dependable, low-priced supplies of natural gas are not readily available. That is, the state will fund drilling in areas that currently aren’t all that economic to drill in. The bill also permits gas utilities to recover costs (charge ratepayers) should they need to convert customers to an alternate fuel source when gas service to those customers has been abandoned. Not so sure we like this particular bill.
The one bill the industry wanted, really needs, didn’t get passed–HB 2834, which would change the spacing restrictions for deep Utica wells and allow multiple wells on the same pad. In West Virginia there’s a regulation on the books, put there decades ago (pre-shale), that stipulates wells targeting “deep” formations including the Utica Shale must be at least 3,000 feet apart. It’s nuts. With modern shale pad drilling you can stick a dozen wells on the same pad a few feet apart because the horizontal portion of the well stays well away from the other wells.
In WV it takes a lot of money ($25,000) and lots of time to get an exemption to drill multiple Utica wells on the same pad. Consequently, very little Utica drilling happens in the state. Which is a crime. The industry is trying to get the state to hold public hearings, and perhaps even issue an emergency temporary regulation to allow the change before a law can be passed. We hope they succeed.
Legislation West Virginia lawmakers passed in their recently concluded legislative session is expected to encourage the construction of distribution pipeline systems in underserved areas of the state, as well as to give a tax break to production from low-producing gas wells.
Among the bills passed during the session, which closed Saturday, was House Bill 2661, which allows natural gas utilities to provide incentivizes for gas drilling “where dependable, lower-priced supplies of natural gas are not readily available.”
The legislation, which awaits the signature of Governor Jim Justice, will help encourage the utilities to build new gas gathering systems in areas of the state “where there haven’t been wells drilled in the last several years,” Charlie Burd, executive director of the Independent Oil & Gas Association of West Virginia, said Monday in an interview.
HB 2661 was just one of several pieces of legislation that the lawmakers passed, which are expected to help increase the state’s output of gas, Burd said.
Gas production in the state has increased rapidly since the middle part of the current decade as producers began to tap into the deep liquids-rich Utica Shale formation, as well as the shallower Marcellus. Production grew from about 2.24 Bcf/d as of January 1, 2014, to about 4.54 Bcf/d currently, according to S&P Global Platts Analytics data.
Production in the state is projected to continue to ramp up over the next five years, topping 7 Bcf/d by 2024, according to Platts Analytics.
Another bill IOGA WV favored for passage was HB 2673, which increases the exemption from severance tax for marginally producing wells. Under current law, only wells producing 5 Mcf/d are exempted from paying the 5% severance tax, based on total production.
HB 2673 raised that level of production eligible for exemption to 60 Mcf/d from 5 Mcf/d. For those affected wells, the severance tax will be replaced by a well plugging 2.5% tax, with funds going to the plugging of abandoned and orphaned wells for which no responsible owner can be found.
MARGINALLY PRODUCING WELLS TARGETED
Burd said the legislation allows producers to pocket the proceeds from an additional 2.5% of their production, which will “incentivize them to keep those wells in production, invest that money back into low-producing wells to benefit the state.” The bill is expected to raise from $10 million to $14 million a year for the state’s well-plugging fund.
“This will keep wells in production in those areas that are seeing declining production,” Burd said. This, in turn, will provide a benefit for gas gathering systems that service rural parts of West Virginia, he said. “Not only does it keep wells in service, it also serves to keep the integrity of pipeline-distribution systems.”
Not all of the bills that were championed by the association, which represents oil and gas producers, were successful. Burd said. One major disappointment for the group was the failure of lawmakers to pass HB 2834, which would have changed the rules regarding well spacing to have allowed wells targeting the deep Utica shale to be drilled on the same pad as wells drilled into the shallower Marcellus formation.
Burd said IOGA WV would continue to work in the legislative off season with the West Virginia Conservation Commission to encourage the regulators to schedule public hearings and to develop an emergency rule to affect the desired regulatory change, which would greatly enhance producers’ ability to develop the Utica play.*
*S&P Global Platts (Mar 11, 2019) – West Virginia lawmakers pass bills to expedite natural gas output, transport
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