American Oil and Gas Reporter - January 2018 - 108

ConventionSection: Independent Oil and Gas Association of West Virginia

IOGAWV Looks To Improve
State Investment Climate
By Danny Boyd
Special Correspondent
CHARLESTON, W.V.-Members of
the Independent Oil and Gas Association
of West Virginia will gather for their
annual convention, Jan. 23-24 at the
Charleston Marriott Town Center, hopeful
that a 60-day legislative session produces
a cotenancy statute and tax reform to
help operators attract investment and improve business prospects.
"West Virginia is one of very few
states without some type of lease efficiency
statute, and we need to update our laws
to compete with surrounding states," urges
IOGAWV President Marc Monteleone,
a partner at Bowles Rice LLP. "Cotenancy
is a good start to putting West Virginia
producers on equal footing."
Despite previous unsuccessful attempts,
the outlook for passage of a cotenancy
statute appears to be favorable for the
legislative session beginning Jan. 20, suggests IOGAWV Executive Director Charlie
Burd.
Cotenancy, which would allow an established percentage of mineral interest
owners in a tract of land to approve development over the objections of a minority of interests, would help make up
for the absence of pooling in shallow
formations, and would be an integral part
of updating mineral development laws
that need revision, he says.
"Our mineral development laws have
not changed in many years, certainly they
did not anticipate horizontal drilling to
the extent that the industry now does it,"
Burd says. "Needed changes will make
natural gas development much more efficient in West Virginia and will lead to
more production, which leads to more
downstream investment-not only additional oil and gas investment, but also
additional property and severance tax
revenue for the state and more royalties
paid to thousands of royalty interest
owners across West Virginia."
Although a pooling law, in place since
1972, is effective for deep wells drilled
at depths from the top of the Onondaga
Limestone and below, including the Utica

Shale, the law does not apply to the Marcellus Shale because it sits atop the
Onondaga, which can be found at depths
ranging from 5,000 to 6,000 feet below
sea level around the state, explains Brett
Loflin, IOGAWV vice president and
chairman of the association's Government
Affairs Committee.
"The lack of pooling makes developing
the Marcellus very difficult in West Virginia," says Loflin, vice president of regulatory affairs at Charleston-based Northeast Natural Energy. "We have a lot of
fractional interests in our mineral tracts.
We can have a tract of 40 acres with 150
separate owners, and we have to get the
lease agreement approved by all 150
owners in that tract. One mineral interest
owner can veto the deal. Obviously, a
pooling statute would take care of it, but
in the past we have not successfully
passed pooling legislation."
Forced pooling failed in the 2015 session and attempts at approving cotenancy
were unsuccessful in the past two sessions,
Loflin says, but lawmakers seem to be
warming to the issue as the absence of a
pooling statute leaves operators increasingly challenged to raise investment dollars
from outside the state.
"We spent a lot of time last year trying
to educate lawmakers, the public and
some other interest groups," he says. "We
met with several stakeholders last year
and we plan to campaign again this year
on what cotenancy is and how it differs
from pooling."
Encouraging Investment
IOGAWV favors a cotenancy that allows for a simple majority of mineral interest owners in a tract to approve leasing,
Burd says. "We will push for 51 percent,
but frankly, in negotiations that number
could be a bit higher," Burd acknowledges.
"But we want some majority of owners
of a tract of land to be able to speak for
that land."
Cotenancy will allow members to
avoid pursuing partition lawsuits against
a minority of mineral interest owners
who object to development, Loflin adds.
Partition suits can endure for a year or

108 THE AMERICAN OIL & GAS REPORTER

much longer and still may prove fruitless,
he observes. "Cotenancy also is fairer to
mineral owners in those suits, which can
result in requiring a sale of their interests
on the courthouse steps," he says.
Investment bankers and individual investors outside West Virginia often are
keen to know if the state has a pooling
statute, Loflin says, but "when we say
we don't, they cannot understand how
we are going to develop our assets in a
timely and efficient manner."
Cotenancy will help operators shore
up acreage and drill longer laterals, he
continues, with those longer laterals contributing to better rates of return in a
lackluster natural gas price environment.
"With current commodity prices, we are
not able to drill 4,000-5,000 foot laterals
and get a worthwhile rate of return,"
Loflin relates. "We need to be able to
drill 10,000-12,000 foot laterals."
Although pooling can be done in the
Utica, the association is pushing for cotenancy to apply to the Utica and any
other deep formations, he says. "Cotenancy
will foster additional investment in West
Virginia oil and gas production, which is
the catalyst needed for upstream and
downstream development in our state,"
says Monteleone. "The natural gas industry
is West Virginia's best hope for a strong
economy and good paying jobs for future
generations."
IOGAWV also favors changing spacing
laws to allow for minimum spacings of
1,000 feet between the ends of laterals,
instead of the current 3,000 feet, Burd
says, which would help operators drill
into the Utica from the same pad.
Tax Issues
IOGAWV also wants to reform the
state's tax structure, Loflin says, including
legislation to allow operators to deduct
actual well expenses. "On valuations of
oil and gas wells for property taxes, the
state gives us a yearly standard deduction
of $175,000 for operating expenses and
for an unconventional horizontal well,"
he explains. "That may cover an existing
dry gas unconventional horizontal well,
but it is certainly way too low for a hori-



American Oil and Gas Reporter - January 2018

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