American Oil and Gas Reporter - May 2018 - 23

IndustryDigest
hydraulic fracturing and shale gas
development do not threaten
groundwater, according to industry
spokesmen.
On April 13, the DEP released the
first four years of data under its
Mechanical Integrity Assessment
Program. A comprehensive analysis of
the first year, 2014, shows that the
majority of wells in the state are being
operated in a manner that greatly
reduces the risk for groundwater
impacts, according to DEP Secretary
Patrick McDonnell.
He says the data show that fewer
than 1 percent of operator
observations indicated the types of
integrity problems that could allow
gas to move beyond a well's footprint.
While 30 percent of wells had gas
present outside production casing,
McDonnell attributes that to an
approved well design that allows for
engineered vents.
"Operator compliance with
mechanical integrity inspection
requirements has been consistent since
the program began, with reports
submitted for approximately 99 percent
of unconventional wells and 50-60
percent of conventional wells,"
McDonnell says.
Energy in Depth spokesperson
Nicole Jacobs calls the DEP report "a
far cry from the ridiculous and oftrepeated well integrity claims made by
anti-fracturing activists across the
country."
"It is nice to get validation to what
the industry has been saying for years,"
adds Pennsylvania Independent Oil &
Gas Association President Dan Weaver,
who thanks the state's producers "for
doing a great job of developing a
tremendous resource while going
above and beyond in protecting the
environment."
Marcellus Shale Coalition President
David Spigelmyer says, "At a time
when anti-energy activists are seeking
to undermine the integrity and safety of
our operations, this report-like
countless others-reflects that natural
gas development and strong protection
for our environment are not mutually
exclusive."
Jacobs points out that the DEP report
comes at a critical time, since the
Delaware River Basin Commission is
deliberating whether to ban highvolume hydraulic fracturing in the river
basin (see "DRBC Moves Toward

Banning Fracturing In Delaware River
Basin," AOGR, October 2017).
"This report shows the decision to
ban shale development in the
commonwealth has no basis in science,"
Jacobs insists. r

EQT Trying To Block
West Virginia Law
On Royalty Calculations
CLARKSBURG, W.V.-EQT
Production Company is suing the West
Virginia Department of Environmental
Protection in an attempt to prevent the
agency from enforcing SB 360, which
was signed March 9 by Governor Jim
Justice to prevent West Virginia
operators from deducting postproduction costs from royalties paid on
so-called flat-rate conversion leases.
As pointed out in EQT Production
Company v. Austin Caperton (DEP
secretary), which was filed April 12 in
the U.S. District Court for the Northern
District of West Virginia, many old
West Virginia leases called for flat-rate
annual royalty payments rather than
volumetric royalties. In 1982, the West
Virginia Legislature enacted the FlatRate Statute, which mandates a
minimum one-eighth royalty on all
new or recompleted wells on old flatrate leases.
But, EQT's lawsuit notes, the FlatRate Statute called for royalties to be
calculated "at the wellhead." And, on
rehearing in May 2017, the West
Virginia Supreme Court of Appeals in
Patrick D. Leggett et al v. EQT
Production Company et al determined
the at-the-wellhead language allowed an
operator to deduct post-production costs
for gathering, compressing, transporting
and marketing the gas (AOGR, August
2017, pg. 111).
The Independent Oil and Gas
Association of West Virginia had filed a
brief supporting EQT's position in
Leggett, and hailed the court's ruling as
potentially opening the door to allowing
post-production cost deductions for all
classes of West Virginia wells.
Subsequently, the West Virginia
Legislature this spring enacted SB 360,
which amends the Flat-Rate Statute so
as to prohibit deduction of postproduction costs.
In its lawsuit, EQT, which says it
operates approximately 1,700 flat-rate

leases, argues both the Flat-Rate
Statute and SB 360 violate the
Contract and Due Process clauses of
the U.S. Constitution, commenting that
the West Virginia Legislature "twice
has substantially impaired EQT's
contract rights by retroactively
awarding lessors more compensation
than they bargained for."
"Without justification, the SB 360
formula requires EQT to pay royalties
on a price that often is higher than EQT
actually receives for the gas," the
lawsuit contends, further stating: "The
Flat-Rate Statute, both in its currently
operative form and as amended by SB
360, lacks the significant and legitimate
public purpose that is required to
warrant the substantial impairment of
EQT's contract rights that it imposes.
Far from benefitting West Virginians
generally or solving a broad and general
social or economic problem, the FlatRate Statute creates a windfall for a
special interest: a small but vocal
faction of private lessors." r

NDIC Makes Adjustments
To Its Gas-Capture Policy
BISMARCK, N.D.-In the face of
growing associated natural gas
production and concerns about
operators' ability to meet the state's
flaring restrictions, the North Dakota
Industrial Commission has responded
by leaving its gas-capture goals intact,
but modifying its gas capture policy.
"Industry is committed to meeting the
gas capture targets today and in the
future. The NDIC approved minor
modifications to a policy that is more
than three years old. Often after that
length of time and the lessons learned,
enhancements can benefit both the
regulators and the regulated community,"
comments North Dakota Petroleum
Council Vice President Kari Cutting.
During the hearing, she mentions,
Lynn Helms, director of NDIC's
Department of Mineral Resources,
shared recommendations made by the
industry's Natural Gas Capture and
Infrastructure Development Task Force.
Among the significant changes in the
order, Cutting points to:
* Companies will be allowed to
remove 60 days of initial production
from their monthly volume calculations,
up from 14 days previously, to help
assure the right size infrastructure is
MAY 2018 23



American Oil and Gas Reporter - May 2018

Table of Contents for the Digital Edition of American Oil and Gas Reporter - May 2018

Contents
American Oil and Gas Reporter - May 2018 - 1
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