W.Va. Lawmakers Pass Bills To Expedite Output, Transport

Legislation by West Virginia lawmakers during their recently concluded legislative session is expected to encourage the construction of distribution pipeline systems in underserved areas of the state, as well as provide a tax break to producers from low-producing natural gas wells, reports S&P Global Platts.

Among the bills passed during the session, which concluded March 9, was HB 2661, which allows natural gas utilities to provide incentives for gas drilling “where dependable, lower-priced supplies of natural gas are not readily available.” The legislation, which was awaiting the signature of Gov. Jim Justice, is aimed at encouraging 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 (IOGAWV), said. HB 2661 was just one of several pieces of legislation the lawmakers passed, which is expected to increase the state’s natural gas output, Burd added.

Gas production in West Virginia has increased rapidly since the middle of the current decade as producers began to tap into the deep liquids-rich Utica Shale formation, as well as the shallower Marcellus Shale. Production grew from about 2.24 Bcfd as of Jan. 1, 2014 to about 4.54 Bcfd currently, according to S&P Global Platts data. Production in the state is projected to continue to ramp up over the next five years, topping 7 Bcfd by 2024.

Another bill IOGAWV favored for passage was HB 2673, which increases the exemption from severance tax for marginally producing wells. Under current law, only wells producing 5 MMcfd are exempted from paying the 5% severance tax, based on total production. HB 2673 raised that production level eligible for exemption to 60 MMcfd from 5 MMcfd. For affected wells, the severance tax will be replaced by a 2.5% well-plugging tax, with funds going to the capping of abandoned and orphaned wells for which no responsible owner can be found.

Burd said the legislation allows producers to pocket the proceeds from an additional 2.5% of their output, 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. Not only does it keep wells in service, it also serves to keep the integrity of pipeline distribution systems.”

Not all the bills 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 allow wells targeting the deep Utica Shale to be drilled on the same pad as wells drilled in the shallower Marcellus formation. Burd said IOGAWV would continue to work with the West Virginia Conservation Commission in the legislative off season to encourage the regulators to schedule a public hearing and develop an emergency rule to bring about the desired change, which would greatly enhance producers’ ability to develop the Utica play.

(SOURCE: The Weekly Propane Newsletter, April 8, 2019)