CHARLESTON — The House Energy Committee approved on Tuesday a bill to reduce the severance tax burden on low-producing vertical oil and gas wells and divert the money into a special fund to cap orphaned wells.
HB 2673 will exempt from the 5 percent severance tax all gas wells producing less than 60,000 cubic feet per day and oil wells producing less than 10 barrels per day. Instead of a tax, these wells will be charged a 2.5 percent fee on the value of product sold that will go into an Oil and Gas Abandoned Well Plugging Fund.
When that fund reaches $4 million, fee collection is suspended for the subsequent calendar year.
Discussion covered two types of wells: abandoned and orphaned.
Abandoned wells haven’t produced paying quantities in the past 12 months, but the well’s owner is known. Wells are orphaned is there is no owner on record and no one is responsible for it.
Combining testimony from three state officials, members learned these facts. Of about 72,000 gas wells in the state, 55,385 produces less than 60,000 cubic feet per day. They produce very little tax revenue – about $15 million of a total $200 million.
There are 4,576 orphaned wells in the state and virtually no capping is going on – about half a dozen in the past five years. Well capping can cost anywhere from $29,000 to $100,000 depending on the complexity of the job. (Office of Oil and Gas Chief Jim Martin said one of the most recent was inside an apartment building.)
Figuring an average cost of $67,000, the $4 million could cap about 60 wells per year. The current reclamation fund used to plug wells has only $400,000.
Speaking for the Independent Oil and Gas Association-West Virginia (IOGA), attorney Phil Reale said these wells make marginal earnings and often gas feed into local distribution systems to benefit small communities. Big companies don’t want to come in and drill new wells and the small companies need the break and the incentive to keep producing for those communities.
Delegate Evan Hansen, D-Monongalia, raised questions about one company that will benefit from the tax break, Diversified Gas & Oil, which has been buying conventional wells in the Appalachian basin and has about 17,000 in West Virginia. He wondered what type of assurance Diversified has given regarding its wells – most of which will see the end of their producing lives by 2048.
Martin said Diversified has an agreement with the state to deal with 50 wells per year – plugging 20 of them and returning the rest to production.
A committee amendment to the bill requires that the new fund money goes strictly to plug orphan wells.
Hansen offered two unsuccessful amendments: one to raise the fee to 5 percent and one to delay the $4 million fund limit to 2024 to allow it to accumulate more money. Both failed in overwhelming voice votes. The amended bill then passed in a voice vote with only one nay and goes next to House Finance.
After the meeting, IOGA Executive Director Charlie Burd pointed out that HB 2673 replaces HB 2489, which the committee passed last week and merely exempted gas wells procuring less than 15,000 cubic feet per day and oil wells producing less than 2.5 barrels per day from the severance tax.
They worked with the committee chairs, he said, to expand the number of wells and create the plugging fund.
“We like this bill,” he said. “It does create money that will take care of an environmental issue that has been recognized by the West Virginia DEP and the industry.”
The bill means royalties, gas to free-gas customers and to distribution systems that have seen no new wells for years. “So we think this is a win, win, win and we’re excited about it.”
Dave McMahon, co-founder of the West Virginia Surface Owners Rights Organization, offered testimony during the meeting and said afterward, “We’re happy that this bill will plug wells that aren’t being plugged now. What this bill doesn’t do is stop there from being more orphan wells. “
This bill may also induce operators to keep wells producing longer than they might have, until they have less money to plug them, he said.
Legislation is needed to address that, he said. WVSORO is working with the chairs on an Orphan Oil and Gas Well Prevention Act. Some possible points for that bill are listed in a WVSORO handout McMahon brought to the meeting. Among them: End blanket bonds and creating plugging assurance bonds for new wells, wells transferred between drillers and abandoned wells.
TWITTER @dbeardtdp Email David Beard at dbeard@dominionpost.com
