This article originally provided by The Charleston Gazette

August 7, 2010

David McMahon: W.Va. regulatory climate delays gas drilling? Please

CHARLESTON, W.Va. -- An article in the July 2 Gazette reported on an oil and gas industry study that said more Marcellus Shale formation gas wells are being drilled in Pennsylvania than in West Virginia. The reasons cited make me think the study must have been talking about a Pennsylvania and West Virginia on another planet.

The report suggests the tax and regulatory environment in West Virginia is the reason for more Marcellus Shale wells in Pennsylvania This is another conclusion drawn by those who think that economic development occurs because people go around looking for tax breaks and then rely on them, rather than real entrepreneurship, to get into business.

It is preposterous for any "regulatory environment" to be discouraging drilling here. West Virginia has only 18 oil and gas inspectors who should visit a new well site five times during drilling to make sure it is being done properly. Between 600 and 2,200 new wells are permitted each year. That limited number of inspectors cannot possibly do those inspections and check on the more than 55,000 active wells that have already been drilled. And the state regulatory process is so far behind that there are probably 19,000 played out wells that the state should order to be plugged to prevent groundwater pollution, but they have not gotten to that. West Virginia lets all this regulation fall behind in order to keep issuing new permits, so our regulatory structure cannot be impeding drilling.

Pennsylvania doubled its oil and gas staff in one year to respond to the Marcellus Shale play, and is preparing to double it again. West Virginia has added maybe a couple of inspectors.

There are other more important reasons for the disparity.

The report overlooks two obvious factors, besides Pennsylvania being a larger state, that have led to more Marcellus Shale activity there. First is that the hydraulic fracturing techniques that made production from the Marcellus Shale practicable were first tried and developed in Pennsylvania. They are still ahead of us in the use of centralized well sites using horizontal drilling.

Second, and probably most importantly, the Marcellus Shale is less than 50 feet thick and under-pressured in southern and western West Virginia, and rarely more than 100 feet thick in the northern part of the state. In Pennsylvania it is up to 200 feet thick in some areas which makes the gas wells more productive and therefore more profitable.

One other factor may be that in Pennsylvania most of the surface landowners still own the oil and gas minerals under their land. Not so in West Virginia. In the southern West Virginia coalfields, ownership of the minerals was often separated from the surface in huge tracts. In the oil and gas fields in northern West Virginia, the separation was in smaller tracts, but nearly as pervasive. Ownership of inherited surface land tends to get consolidated, so a few heirs own the surface in order to use it for one of its many uses. Not so for the minerals. I have seen "heirship" mineral interest tracts divided into eighths, 46ths and worse. Every one of those heirs has to sign the lease for there to be drilling, or sometimes they all have to sign a lease amendment to allow the modern Marcellus Shale horizontal drilling techniques. Getting all those signatures (or not) could possibly slow down development. 

Two years ago, the lobbyist for both organizations representing well drillers/operators in West Virginia told a legislative subcommittee that he regretted that the oil and gas minerals were owned separately from the surface. "[I]t would be much easier for everybody if there was a unification of the surface and the underlying oil and gas. It would be much easier for the industry. It would be much better for the owners."

Agreed. At the very least, West Virginia should pass laws that enable surface owners to obtain the mineral rights that get sold for non-payment of taxes. West Virginia should look into other laws to pass that give surface owners a leg up in getting ownership of the minerals under their land.

Right now, the Marcellus Shale development is not good. In fact, it is a small private hell, if you own the surface but not the minerals. You will get no royalty, and under our current laws you will get only paltry compensation for the driller's use of your surface. In fact, the law grants you only 15 days notice that the state will be issuing a permit for a five-acre industrial complex and access road to be built on what was your little piece of Almost Heaven.

West Virginia should pass laws and budgets improving our regulatory process, plus giving surface owners ways to obtain ownership of the minerals underneath us. And the oil and gas industry should pay no fewer taxes to help finance its regulation and the rebuilding of roads and bridges than it abuses when these wells are drilled.

McMahon, of Charleston, is co-founder of the West Virginia Surface Owners' Rights Organization (wvsoro.org) and practices oil and gas law for small mineral owners.