Legislation to help natural gas companies force holdout mineral owners to allow drilling reached the Senate floor Friday, with plenty of time for the industry to win passage of a bill that’s been a Statehouse priority for them for years.
Senate Bill 576 allows natural gas companies to drill over the objections of a co-owner of mineral rights unless that co-owner holds at least a fourth of the mineral involved.
It also contains a provision that allows what the industry calls “joint development” of multiple contiguous oil and gas leases for horizontal drilling, unless that type of drilling — unheard of when many older leases across West Virginia were written — is specifically prohibited by that existing lease.
Shortly before midnight Thursday, the Senate Judiciary Committee approved a rewritten and amended version of the bill, despite continued opposition from land and mineral owner groups and from the West Virginia Farm Bureau.
The bill was then read on the Senate floor a first time Friday and is scheduled for second reading, or amendment stage, during Saturday’s session.
Industry lobbyists and the Republican legislative leadership support the bill, or at least a version of it. They say it is needed, to help the natural gas industry pool together sufficient tracts of land and gas reserves for large-scale horizontal drilling and hydraulic fracturing in the state’s Marcellus Shale region.
Industry technology has fueled an economic boom in the area, but also created problems for surface owners who worry about damage to their homeplaces and peaceful rural lifestyle. The drilling boom also has generated conflicts between gas companies and mineral owners over how the wealth created is being divided.
Judiciary Chairman Charles Trump, R-Morgan, said Republican leaders in the Legislature hope the bill will spur more natural gas production and jobs, while also addressing the concern about property rights and potential damage from drilling.
“We want West Virginia to be a leader while, at the same time, protecting the rights of surface owners and mineral owners,” Trump said in an interview early Friday after a three-hour committee meeting focused on the bill.
Trump’s committee took up the bill during a meeting that started shortly after 9 p.m. Thursday, just two days after hundreds of oil and gas workers attended a rally on the Capitol steps, during which industry lobbyists promoted what they say is their need for legislation to deal with unwilling mineral owners whose opposition could block the ability to develop large gas-production units to take advantage of larger-scale drilling methods.
Several lawmakers attended the rally, including Senate President Mitch Carmichael, R-Jackson, and House Speaker Tim Armstead, R-Kanawha, a former gas industry lawyer.
“We need to do more to help you do your jobs,” Carmichael told workers at the rally. “We stand with you in making the changes in the policy and the law.”
Two years ago, a bill with somewhat similar goals — it was referred to then as the “forced pooling” bill — died on the last night of the session in a rare tie vote, with liberal Democrats and conservative Republicans opposing it as a violation of private property rights.
Several bills with similar goals have been tossed around this session, but using somewhat different tools and labels than the “forced pooling” bill that went down in 2015. Senate Bill 576 contains two major sections: One addressing what the industry calls “co-tenancy” and another that it refers to as “joint development.”
“They change so much that you forget what you’re talking about here,” said Sen. Mike Romano, D-Harrison. “The co-tenancy part was last year’s forced pooling and the joint development was last year’s integrated leasing.”
The co-tenancy provision allows drilling over the objections of a co-owner of mineral rights if the co-owners who favor drilling represent at least three-fourths of the mineral ownership.
The joint development provision allows drilling of multiple contiguous leases with horizontal drilling methods, as long as the leases involved don’t expressly prohibit horizontal methods. With horizontal drilling, gas companies can drill not just down, but horizontally across, allowing one well to capture gas from a larger area.
The current bill is the end result of weeks of effort by Trump to bring together a wide variety of interested parties to come up with some sort of compromise bill.
An apparent deal earlier this week on a bill to address only co-tenancy issues fell apart when just one oil and gas company, EQT, wouldn’t back it, said Jason Webb, the leader of the West Virginia Land and Mineral Owners Association.
The bill contains a new section that allows unwilling co-owners to be forced to allow drilling only if the company involved has an agreement with the surface landowner of the site. That language is intended to provide protections for surface owners, giving them some leverage to control exactly where and how the gas development occurs on their property.
In many parts of the state’s gas-producing region — as with West Virginia’s coalfields — surface owners don’t necessarily own the rights to the minerals under their land.
But Dave McMahon, founder of the West Virginia Surface Owners Rights Organization, noted that the language does not require new surface owner consent for drilling if a previous agreement — no matter how old — exists. McMahon said the bill should at least require a new surface agreement, so that the larger surface disturbance required for horizontal drilling could be taken into account.
In the Judiciary Committee, Romano added some amendments to limit the size of an area that can be used for pooling the gas of unwilling co-owners. He also successfully added language to improve royalty payments for unwilling co-owners of minerals and to require $100,000 payments for surface owners whose property is damaged, on top of whatever payments are due for the damages themselves.
Romano said part of the issue is ensuring that unwilling co-owners who are forced into allowing drilling are treated fairly and also about ensuring enough of the wealth from the Marcellus stays in West Virginia.
“We can’t be like our government was, because they sat in this very room 100 years ago, and they decided how coal was going to be dealt out of this state, and they made a huge mistake, didn’t they,” Romano said. “Because we got raped and the coal went out, our people got a pittance and our state got just enough to be happy until it all sunk. We’ve got to make sure we don’t cheat these people anymore than we already are.”
Jessica Blake Brisendine, a lawyer for EQT, said her company is willing to go along with a fee of $30,000 per well pad, but that the $100,000 Romano suggested is too much.
“This is something that we felt was a compromise position, and a good, meaningful one,” Brisendine said. “One hundred thousand makes it a huge difference in whether or not we may decide we want to put a well somewhere, as opposed to a different state that doesn’t have this sort of fee.”
Sen. Randy Smith, R-Tucker, a Mettiki Coal employee, scoffed at those comments.
“So you’re telling us that $70,000 could determine whether you drill a well here or drill it in Pennsylvania?” Smith said. “The coal industry, we might pay $70,000 for a motor that goes bad or something and it’s just the cost of doing business. It seems strange to me that $70,000 would decide whether you go to another state.”
Reach Ken Ward Jr. at email@example.com, 304-348-1702 or follow @kenwardjr on Twitter.