Industry Groups Pan New Gas-Permit Fees
Say Marcellus panel’s draft bill amendment came as a surprise
Morgantown Dominion Post
21 September 2011
By David Beard
Two natural gas industry groups are balking at the permit fee
hikes proposed last week by the Legislature’s Joint Select
Committee on Marcellus Shale.
They say the proposal was unexpected, exceeds hikes they had found
agreeable and could make West Virginia’s Marcellus industry
uncompetitive relative to neighboring states.
In Morgantown, meanwhile, fracking at the two Morgantown
Industrial Park wells has been moved to next week, Northeast
Natural Energy President Michael John said.
Last week, the Marcellus committee amended its draft Marcellus
bill — based on the failed Senate Bill 424 from the 2011 session —
to raise horizontal well fees from a flat $600 to $10,000 for the
first well on a pad and $5,000 for subsequent wells on the same
pad. The draft bill originally raised fees to $5,000 for a first
well and $1,000 for subsequent wells.
“What concerns me is we’re already in a less than competitive
position as it relates to severance tax,” said Corky DeMarco,
executive director of the West Virginia Oil and Natural Gas
Association (WVONGA), which represents about 75 percent of the gas
production in the state today.
Pennsylvania has no severance tax; Ohio’s is less than 3 percent
of gross receipts. West Virginia’s is 5 percent of gross receipts
plus 4.7 cents per thousand cubic feet at the wellhead to pay off
the old workers’ compensation debt.
“Where does that leave us?” he asked. It seems “the Legislature is
trying to find ways to punish the industry.”
Committee co-chair Sen. Doug Facemire, D-Braxton, said at last
week’s meeting that industry supported the fee hike. DeMarco
counters, “He didn’t call us to ask if we supported it. I never
heard from Sen. Facemire.”
Industry did, in fact, support a fee hike, DeMarco said, but not
this high. WVONGA members were agreeable to something more in line
with neighboring states, such as the $5,000/ $1,000 originally
proposed, or perhaps a flat $3,500.
Taking in many of the other 19 amendments the committee has passed
to date, DeMarco said, “This is getting ridiculous. We have a
chance to capitalize on an asset. We’re doing everything we can as
a legislature to screw it up. They ought to be finding ways to
work with industry, to get best management practices in places
rather than look at us like were ogres trying to steal the keys to
the vault.”
Doug Facemire’s view
Facemire said Tuesday that the fee stemmed from the DEP coming
to the committee with a figure to hire a certain number of
inspectors and permitting staff.
“There’s no doubt that’s an enormous increase in what they’re used
to paying,” he said, but the state’s residents “have made it
perfectly clear” they want more inspectors out there.
Facemire said the DEP has said it’s revisiting that number to make
sure it’s accurate. If it’s a miscalculation, he’d like to see a
lower fee.
His remarks about industry support, he said, were about a fee hike
in general, not the $10,000 in particular. On the other hand, the
amendment was available for review for some time.
“The industry didn’t come to us and say, ‘We have a problem with
that number. I assumed they were OK with it. ... We are trying to
do the best that we can to regulate this industry and let them go
to work. That’s been my battle cry. ... I fully understand the
importance of this industry to this state.”
IOGA’s view
Charlie Burd, executive director of the Independent Oil and Gas
Association of West Virginia (IOGA), was also taken aback by the
committee’s amendment.
“This did surprise us. It seemed to come out of left field a
little bit,” he said. “We’ve been insistent we support a permit
fee increase,” he said. What it should be, no one knows
precisely.”
That’s partly because the Department of Environmental Protection
(DEP) won’t pin down its staffing needs, he said.
DEP General Counsel Kristin Boggs told the committee last week
that its amendment would provide enough money to fill a $1 million
annual operating deficit and $1.5 million more to hire six
inspectors and three permitting staffers.
She would only address how much the proposal would provide. She
said her DEP superiors would not say how many more inspectors and
staffers they actually want.
Burd said that’s a backward approach. The DEP ought to say how
many people it wants and how much it needs, then figure the fee
accordingly. (The DEP had proposed a flat $5,000 per well in its
2011 bill that ultimately died in the House.)
Burd said the original $5,000/$1,000 proposal was a fair approach,
since subsequent wells just call for skidding a drilling rig. Most
of the physical preparatory work — such as roads, site safety
permits, ponds, pipelines — has already been done.
Burd pointed out that IOGA supported permit fee hikes back in
2005-’06, and “is not averse to higher fees if they’re reasonable
and justified.” The DEP needs to assess its needs and propose
something in line with other states.
The Pennsylvania DEP provides an online permit fee calculator. A
total well bore of 14,500 feet, horizontal and vertical, would
cost $3,500. The maximum fee on the chart, for a total well bore
of 25,000 feet, is $5,600.
The DEP and Northeast
DEP spokesman Tom Aluise said Secretary Randy Huffman was planning
some Marcellus-related discussions today at the Capitol, and would
be prepared to discuss permit fee issues after those meetings.
Mike John, president of Northeast Natural Energy, told The
Dominion Post in an email exchange, “Northeast Natural Energy is
supportive of increased permit fees for Marcellus wells in West
Virginia to help fund the administration of the DEP. Based on our
understanding of discussions on this matter involving the varied
stakeholders, our expectation was that the permit fee would likely
be increased to $5,000 for the first well on each pad.”
Northeast is preparing to frack two wells in the Morgantown
Industrial Park (MIP) and is working on two others east of
Blacksville off W.Va. 7.
John said the delay stems from fracking equipment availability.
“Some preliminary work is under way now on the MIP wells,” he
said, “But due to the high demand for frack equipment, we are
delayed in moving forward with our project until early next week.”