American Oil and Gas Reporter - July 2016 - 104

Shut-In Bill
According to Burd and Freshwater,
2017 will see IOGAWV continue to urge
legislators to pass SB 396, the so-called
shut-in bill. Passed out of committee during the 2016 session, the bill basically
would allow producers to halt production
on noneconomic wells until they become
profitable again, Burd reviews.
"It also contained a provision that would
not have eliminated any take-or-pay gathering charges, but essentially would have deferred those charges while those wells
were shut in," he explains. "While that bill
did not pass, it certainly generated a lot of
interest in the Senate. It also brought to the
table gathering companies and producers to
further discuss the dilemma in which producers and pipelines find themselves."
In recent years, pipelines made a number of system enhancements based partially on volumes anticipated under various
take-or-pay agreements, Burd notes. "The
pipelines said they did their part and
made the enhancements, but they still need
the natural gas production to run their systems," he remarks. "Producers agree that
those enhancements helped, but the geographic territory in which the drilling occurred has changed so that enhancements
to conventional natural gas production systems ultimately did not help. When gas
prices dropped, there was an unusually
large portion of Marcellus gas production
that made it uneconomical for conventional producers to drill behind nominations
made to produce gas into the system. It is
a very complicated system, and we continue to have discussions with the pipelines.
Members of the Senate made it clear it was
a two-way street and everybody had to
come to the table and work something out,
so we continue to pursue that behind
closed doors."
IOGAWV's proposal boils down to allowing producers to "stop the bleeding,"
Freshwater characterizes.
"I have told elected officials that I am
a producer asking for permission under the
law not to produce," he describes. "I realize that it is inherently contradictory, but
we have spent a lot of time explaining this
to our elected officials. They know the
price of gas is down, but before we met,
I really don't think they comprehended the
absence of a net return after royalties, thirdparty gathering fees, and severance and
property taxes."
Legislative Agenda
For 2017, Freshwater predicts IOGAWV
will continue to monitor and support possible pooling legislation for Marcellus wells
and potential legislation adjusting the laws
for ASTs and horizontal wells.
While some member companies ac-

tively backed a pooling bill during the regular session, IOGAWV asked members to
wait, Burd says. During the regular session,
a group of House Republicans sided with 36
Democrats to oppose a pooling bill, he adds.
"We did not push for it to be taken up
because we knew we did not have the
votes," Burd recalls. "We did not want it
to fail, so our strategy is to wait and see
what happens in the elections. When the
elections are complete, we will see who is
in positions of power in key committees,
including the House Industry and Senate
Energy and Mining committees. We will
see what shakes out of the election and determine if there is a sense that things may
have changed to allow us to amass the
votes to pursue pooling."
Despite previous alterations to the
AST law, which passed two years ago after Charleston's water supply was contaminated by a leaking tank that contained coal
cleaning fluid, additional changes in the
law still are needed, Freshwater insists.
"We have good containments around
tanks to catch a release," Freshwater says.
"The AST Act is about ensuring the integrity of the steel tanks so there is not a release.
But oil and gas tanks have containment
typically in the form of earthen clay. If containment is good, in theory, it prevents a
release."
State Primacy
IOGAWV has welcomed a ruling by
U.S. District Court Judge John Copenhaver
Jr. in early June that a Fayette County,
W.V., ordinance banning storage and injection of oil and gas waste violates state
law and state primacy over oil and gas regulation, Burd says.
EQT Corp., joined by Danny Webb
Construction, filed a lawsuit against the ordinance under a claim that it violated the
state's Oil and Gas Act and the Fifth Amendment to the U.S. Constitution, he says.
Anti-development activism and misinformation are contributing to industry
opposition around Fayette County, an
area in which tourism is a significant economic contributor, Freshwater relates.
"We have had representatives at a lot of
those meetings and have been trying to educate people," he comments. "It is definitely extreme to outlaw any oil and gas waste.
There are thousands of wells and tanks
there. After the ordinance passed, any injected or stored waste was considered in
violation of the ordinance, which contains
extreme penalties."
Industry Safety
Burd indicates IOGAWV continues
to participate in Governor Earl Ray
Tomblin's Commission on Oil and Natural Gas Industry Safety, which issued a re-

104 THE AMERICAN OIL & GAS REPORTER

port at the beginning of the regular session
that prompted two successful pieces of legislation, Burd recalls. One of them, which
contains language similar to statutes that
apply to the coal industry, requires a 15minute reporting system for incidents on
pipelines and well sites with the potential
to cause harm or death, he reviews.
Under it, an operator has 15 minutes to
report an incident to authorities unless parties are busy attending to the incident or
treating associated injuries, Burd says.
The second measure establishes a onecall system governing production lines, requiring parties to call 8-1-1 to identify
buried lines before digging, but IOGAWV
was able to persuade lawmakers to amend
the bill to affect only higher-pressure
pipelines with a minimum inside dimension larger than 4 inches, he recalls.
Special Session
In mid-June, lawmakers in special session continued to disagree about how to
bridge the budget gap, with discussions
centering on sales and tobacco taxes, as
well as covering the shortfall with a
chunk of the state's $900 million RDF,
Burd says.
Fortunately for IOGAWV, Freshwater
says, lawmakers did not appear to be targeting the industry as a source of new revenue. "I believe our elected officials understand West Virginia producers' challenging economic circumstances, but desperate times could call for desperate measures," he says.
There has been division even among
Republicans on a solution to the budget
gap, he says, with 18 GOP delegates
from the House having signed a no-tax pact
that also has support from some House Democrats.
According to Burd, competing proposals call for taxes on tobacco ranging from
an additional $0.45 to $1.00. Others favor
diverting as much as $182 million from the
RDF, which has drawn fire from the governor. "It took several years of really
conservative spending to get that RDF built
up to almost $900 million, and the governor has said he will hold fast and not allow $182 million of that money to be used
to balance the budget because the state
faces a bigger budget hole next year, perhaps as high as $400 million," Burd says.
"The governor does not want to allow that
fund to be consumed during the next
three years."
And while lawmakers had not spoken
of additional oil and gas taxes, IOGAWV
members were looking forward to the June
30 cessation of a $0.047 severance tax on
coal, oil and natural gas production that had
been enacted to pay off the state workers'
compensation deficit, Burd notes.

American Oil and Gas Reporter - July 2016

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