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WV House Committee on Energy and Manufacturing passes bills relating to mineral property rights and oil and gas interests for horizontal well drilling

By Autumn Shelton, WV Press News Service

CHARLESTON, W.Va. – Two Senate bills relating to mineral property rights and oil and gas interests for horizontal well drilling have now moved out of the House Committee on Energy and Manufacturing.

Senate Bill 650 and Senate Bill 694 were the two bills discussed and moved during the committee’s Tuesday meeting, which lasted about 30 minutes. 

As explained by counsel during the meeting, Senate Bill 650 would strike out language at the beginning of WV Code §37B-1-4 thereby removing the “seven or more royalty owners” condition for the code to be applicable. 

The bill would retain language that development by owners and operators “is permissible, is not waste, and is not trespass” as long as they make “reasonable efforts to negotiate with all royalty owners” and to those “vested with at least three fourths of the right to develop, operate, and produce oil, natural gas.” 

Counsel noted that the Senate version of the bill is being moved through the legislative process instead of the similar House Bill 4022, due to improved technical clarity. 

Rachel Vass, representing the Land and Mineral Owners Association, delivered testimony before the committee stating that the bill will affect land and mineral owners as a result of removing the “seven or more royalty owners” condition from seven to zero. 

“It would mean that the bill applies to more mineral owners and, especially, I would imagine that the purpose of the bill is to incorporate smaller owners into it and by taking out the number of seven, that vastly increases the number of owners that could be impacted,” Vass said. 

Following a brief discussion, committee members recommended that the committee substitute of the bill be moved to the floor for passage. A public hearing has been set in the matter for Friday, March 4, at 8 a.m. in House chambers. 

Committee members then discussed the engrossed version of Senate Bill 694. 

Counsel explained that the purpose of this hefty bill “is to allow for unitization of oil and gas interests” for horizontal well drilling. 

The bill would add two more positions on the Oil and Gas Conservation Commission, counsel continued, noting that the commission currently has five members. One person appointed to the commission must have agricultural and farming experience and another appointed member must be a resident mineral owner. Neither position allows for the appointment of former operators. 

Additionally, the bill would establish an application process for both shallow and deep horizontal well drilling and unitization, counsel said. Each applicant must obtain consent from royalty owners who have “at least 75% of net acreage in the target formation of the proposed unit” and must “obtain consent of operators in the proposed unit of 55% of the net acreage in the target formation.” 

The bill would require each application to contain numerous items including description of the proposed unit, land surveys, names and addresses of royalty owners and operators, a statement of drilling permits and more, according to counsel. 

Once application conditions have been satisfied, members of the Oil and Gas Conservation Commission will enter a horizontal well drilling unit order, with restrictions that the unit may not exceed 640 acres, except in instances of efficiency, or that a unit containing one or more horizontal wells cannot contain more than 128 net acres controlled by nonconsenting royalty owners, counsel noted. The bill also requires a unitization consideration to be paid to royalty owners “at an amount equal to 25 percent of the weighted average monetary bonus per net mineral acres basis” and that a “production royalty equal to 80 percent of the weighted average production royalty percentage must be paid to owners of leased tracts in the target formation.”

Following counsel’s explanation of the bill, Vice Chairman Del. John R. Kelly, R-Wood, moved to adopt the “strike and insert” amendment to the bill, which helped clarify language. Additionally, a technical change was made in this version to remove a code conflict with the Senate bill on underground carbon sequestration, Del. Kelly noted. 

Other changes include the surface owners option to purchase the oil and gas of unknown interest owners, and language that removes the authority of the Oil and Gas Conservation Commission to make recommendations to already established deep well operators, unless the operations have asked for a modification, was stricken. 

Vass, who spoke earlier, stated that this bill will “have a great impact on mineral owners,” adding that “when mineral owners start to become royalty owners, they are subjected to the rules of law. While they can negotiate their leases, there are things that they cannot control and a bill like this is something that they cannot control.” 

After discussion, committee members decided to move the committee substitute of Senate Bill 694, with the strike and insert amendment, to the House floor with the recommendation that it do pass. The bill is now on its way to the House Judiciary Committee.

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