CHARLESTON — The House Finance Committee quickly and without debate passed HB 2673, a bill to reduce the tax burden on low-producing oil and gas wells and provide millions of dollars to cap orphan wells to pose a risk to public health and the environment.
Committee counsel characterized the bill as both an environmental protection and an economic stimulus bill.
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.
A state Tax Department fiscal note estimates that the state will lose $15 million in severance tax but gain $6 million per year for the new fund, amounting to a net loss of $9 million per year.
The bill that came to the committee required the Department of Environmental Protection to spend money from the Oil and Gas Reclamation Fund, which has about $400,000 now, before using Plugging Fund money.
Committee counsel said there was a concern that DEP would never be able to drain the Reclamation Fund and be able to use the other, so a committee amendment allows DEP to use either fund at its discretion. The amendment also gives DEP until June 1, 2020, to ramp up its well plugging program.
There is a difference between abandoned and orphaned wells. An abandoned well hasn’t produced paying quantities in the past 12 months, but the well’s owner is known. A Well is orphaned when there is no owner on record and no one is responsible for it.
The plugging fund will cap orphaned wells; owners of abandoned wells are responsible to cap those.
Finance members said the economic stimulus should come from the tax break: It will motivate operators to keep low-producing wells in operation and perhaps drill some new ones.
As previously discussed in the Energy Committee, of about 72,000 gas wells in the state, 55,385 produce 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. Figuring an average cost of $67,000, $4 million could cap about 60 wells per year.
The bill goes next to the full House for passage next week.
Twitter @dbeardtdp
Email David Beard at dbeard@dominionpost.com
