By Whitney Burdette | February 15, 2015
Legislation moving through the West Virginia House of Delegates seeks to allow lease integration for deep well horizontal drilling.
House Bill 2688, introduced by Energy Committee chairman Delegate Woody Ireland, R-Ritchie, would allow property owners to come together and agree to allow gas companies to drill deep horizontal wells on their properties. Under current law, one holdout can prevent development and royalties for all other rights owners. Lease integration, also referred to as forced or fair pooling — depending on which side you’re on — would take care of that. It already exists for shallow Marcellus shale wells, but Ireland said this legislation would allow companies to take advantage of the abundant Utica shale, which lies deep under much of West Virginia.
“Marcellus shale, if you look at the geographic map of West Virginia, is primarily in the northwestern part of the state, which is where I’m from as a resident of Ritchie County,” Ireland said. “You look at Ritchie, Doddridge, Harrison, Tyler, Marshall, Wetzel, that’s where you see much of the play in Marcellus. Now, if you look at Utica, it’s much more widespread across the state and encompasses much of the state except for a few counties in the Eastern Panhandle and perhaps a few of the southernmost counties.”
Utica shale wells produce much more natural gas than Marcellus wells. Ireland said 1 million cubic feet per day is the average amount of gas extracted from Marcellus wells. While that may sound like a lot, Utica wells have been known to produce 8 to 10 million cubic feet and up to nearly 50 million cubic feet of natural gas. That’s one reason gas companies are growing more and more interested in drilling Utica wells across the state.
“If you look at the old traditional wells where you got a half million, and that was good, and Marcellus where you get 8 to 14 million and you look at the Utica, which is 30 to 40 to almost 50 million cubic feet a day, you begin to understand where folks may be going to the development part of it,” Ireland said. “Obviously the Utica well is more to drill, but the payback is significantly higher.”
The Utica shale is much deeper than the Marcellus shale. Current state code, passed in the early 1990s, allows for forced pooling of deep wells such as Utica. Anything under the topmost part of the Onondaga limestone is considered a deep well, with anything above it considered a shallow well. Ireland said his bill would affect all strata, regardless of depth.
“It would encompass not only the shallow wells, which is the Marcellus, but also the deep wells — the Utica,” Ireland said.
Lease integration, or forced pooling as it’s commonly known, works like this: Property owners agree to allow gas companies to drill under their land. The company works to get property owners of joint tracts of land to agree to lease their rights to the company into what’s known as a unit of production. But if the owner of one tract of property encompassed in the larger tract doesn’t want to sign over his or her rights, a supermajority consisting of 85 percent of property owners in that tract can force the holdout to participate. That allows all property owners to reap the economic benefits of leasing to the gas company and earning royalties on gas extracted from beneath their land. Under the proposed bill, gas companies must make multiple, good faith efforts through letters or phone calls to get the holdout to agree to lease before a pooling hearing takes place.
“You have some people who oppose the extractive industries,” said Kevin Ellis, director of business development and governmental affairs for Antero Resources and president of the West Virginia Oil and Natural Gas Association. “We’re in West Virginia; we don’t have that luxury. This is our bread and butter. We have coal and natural gas.”
WVONGA and the Independent Oil and Natural Gas Association have tried for a few years to get lease integration legislation through the Legislature, but have faced roadblocks. Now with a Republican majority, they’re seeing more success. Ireland’s Energy Committee passed out the bill Thursday and it will likely be taken up by the Judiciary Committee later this week. He said he expects some debate on it but is confident the bill will pass. He’s already working with members and counsel of the Senate Energy, Industry and Mining Committee, which will receive the bill once it passes the House and is reported to the Senate.
“We’re trying to be forward thinking,” said Jim McKinney, senior vice president and general manager of EnerVest and immediate past president of IOGA. “Marcellus shale changed how we drill here in West Virginia. Horizontal drilling will change not just the deeper shales but the shallower ones too.”
Lease integration is not without controversy, but Ireland said he’s met with stakeholders, including Ellis and McKinney, as well as groups representing the interests of surface and mineral owners. Ireland said the bill he’s introduced includes something to make each interest group happy and no group got everything they wanted.
“What we’re saying is, we’re allowing the vast majority of people to enjoy the benefits of their ownership and not allow a small minority of people who refuse to negotiate from enjoying those benefits,” McKinney said. “It’s just not fair.”