By JIM ROSS
The State Journal
CHARLESTON, W.Va. — West Virginia is wasting its opportunity to develop industries relying on its ample supply of natural gas because its drillers cannot compete with those in Ohio and Pennsylvania, an industry representative told an interim legislative committee Monday.
His solution: Co-tenancy, in which one person would not have veto power over selling rights to property held by several owners.
The lack of co-tenancy limits the length of laterals that can be used in horizontal drilling, said Jim Pritt, public affairs manager for gas producer Enervest Operating LLC and secretary-treasurer of the Independent Oil and Gas Association of West Virginia.
Ohio and Pennsylvania addressed co-tenancy before the shale gas drilling boom began, so wells in those states can use longer laterals, Pritt said. As a result of that, gas production in Ohio surpassed production in West Virginia last year, he said.
“The shorter the lateral, the less economics you have,” Pritt said. “This gas will be drilled. It’s whether we drill it or they drill it.”
The Legislature tried but failed to enact co-tenancy legislation during its regular session this year. Senate Bill 576, which addressed joint development and co-tenancy, passed the Senate but died in committee when it moved to the House of Delegates.
The bill would have allowed drilling when 75 percent of owners of a tract agree to allow development of mineral rights, even if the other 25 percent do not approve or cannot be located.
Not discussed at the interim committee meeting was another practice the industry has talked about: Joint development. That would allow drilling companies to use horizontal drilling to extract natural gas under land using leases that were bought when shallow, vertical wells were the only drilling technology available.
Pritt said the Independent Oil and Gas Association would like the Legislature to take up co-tenancy again.
Since shale drilling began, West Virginia royalty holders have lost $250 million they could have had if the state had competitive co-tenancy laws, and the state has missed out on more than $80 million of severance taxes, Pritt said.
Last year, West Virginia produced about 1.2 trillion cubic feet of natural gas and Pennsylvania produced about 5 trillion. With co-tenancy, West Virginia probably could have matched Pennsylvania’s output, Pritt said.
“We can’t wait another two or three years to pass co-tenancy. By that time, we’ll be too far behind,” he said.
Pritt also said West Virginia needs to control its economic destiny by developing industries that use natural gas and natural gas liquids. Among them are gas-fired power plants.
The gap between the amount of severance taxes paid by the coal industry and the gas industry is narrowing, and gas could possibly reach parity with coal in four to five years, Pritt said.
“We’re supporters of the coal industry, but we need those gas-fired power plants built. I feel bad for the coal industry, but it comes down to numbers. We’re fighting for the same market share, and it’s tough.”
After Pritt spoke, Robert Akers, counsel for the House of Delegates Energy Committee, talked about how West Virginia’s co-tenancy laws compare with those in other states. Most other states don’t give minority holders of interest in property veto power of the majority, but West Virginia does, Akers said.
“This has led to situations where minerals are essentially sterilized. You can’t develop them,” Akers said.
“Any form of co-tenancy that would allow less than 100 percent will help in the development of property,” he said.
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