Approved Marcellus Bill Took Months of Work by W.Va. Lawmakers, Governor

The State Journal
14 December 2011
By Taylor Kuykendall, Reporter

It took lawmakers just four days in a special session to approve a law aimed at regulating Marcellus shale drilling in West Virginia.

But the actual work of drafting, tweaking and altering the bill took months.

On Dec. 14, both chambers of the West Virginia Legislature approved Gov. Earl Ray Tomblin's Marcellus shale bill. The bill contains much of the same language as an interim bill created by the Joint Select Committee on Marcellus Shale, which had spent most of the year drafting a plan for an industry that has largely been operating under conventional drilling standards and emergency rules issued by the governor this summer.

Under the bill passed this week, permit fees, a contentious point for those in the industry, will be raised to $10,000 per first well and $5,000 per well drilled from the same pad, similar to the joint committee's bill.

The bulk of the bill addresses natural gas operations that use horizontal drilling and disturb more than three acres of surface, excluding roads, pipelines or gathering lines. Horizontal operations using more than 210,000 gallons of water per month also are included.

Drilling sites that were established prior to the effective date of the "Horizontal Well Act" will not be subject to the new requirements.

According to a fiscal note attached to the bill, the legislation is supposed to employ 14 new oil and gas personnel at the state Department of Environmental Protection at a cost of $1.3 million, DEP Secretary Randy Huffman told lawmakers. The DEP expects the new permit fees to generate approximately $2.4 million in revenues.

Employment

One of the primary differences in the bill presented by Tomblin and the effort produced by the joint committee relates to employees of Marcellus operations. The interim committee's version of the bill mandated reporting of jobs data, while the governor's bill calls for the issue to be studied.

The study will review the number of jobs created, salaries, how many West Virginia residents are employed, total economic impact and recommendations for establishing an "overall work force investment public education agenda."

The interim bill would have required employers to report similar data to the Division of Labor.

The bill retains the salary of $40,000 for oil and gas supervisors and $35,000 for inspectors.

Shifting Responsibilities

The governor's office also tweaked language in the bill to give more authority to the DEP. The governor's bill would allow the agency to make adjustments to changing technologies in the process of drilling and casing a well.

The bill will place management of road issues caused by the heavy machinery and traffic generated by drilling activity to the Division of Highways.

Operators will be required to reach an agreement with the DOH prior to beginning drilling operations.

The bill also would require the DEP to establish a website that contains filing and electronic notice of the filings. The DEP also is charged with studying possible health impacts related to air quality, as well as studying impoundment and pit safety.

The bill calls for a monthly report from the DEP to the governor's office on the time between permit requests and permit issue dates. Delays in permitting have been a cause of concern for numerous extractive industries nationwide.

Surface Owners, Other Affected Parties

Those concerned about drilling in their areas also will be given 30 days for filing comments on drilling permits, as opposed to the currently allotted 15 days. Notice of fracturing operations, deep well objections, shallow well objections and other comment periods are extended by 15 days as well.

When drillers file their applications for permits, they will also include approximate depth to be drilled, formations involved, the entire casing program, information on plugging or conversion of existing wells, a soil and erosion control plan and a well site safety plan.

Well locations also may not be within 250 feet of existing water wells; 625 feet of another well and certain agricultural structures; 100 feet of any perennial stream, water body or wetland;  300 feet of a naturally producing trout stream or 1,000 feet of a public surface water or groundwater intake.

Drillers may not send employees onto a surface owner's property to conduct plat surveys without at least 72-hours notice under the governor's bill. The surface owners must also be given copies of all applications and approvals the Horizontal Well Act requires.

Surface owners also will be given notice prior to operations that could result in seismic activity, and within seven days of commencing drilling activity.

The governor's bill seeks to address water withdrawal issues by requiring a water management plan from each operation. Drillers must also demonstrate the water management plan is safe to aquatic life and disclose any additives used in fracturing fluid. Opponents of fracturing say knowing which additives are used is essential if anyone is to determine whether the process of fracking has contaminated water sources.

The bill gives the DEP authority to deny permits to any operation that could be hazardous to safety, damage publicly owned land or resources, fails to protect fresh water supplies, or fails to provide a soil erosion and sediment control plan.

Drill cuttings, leftover remnants of solid material removed from the borehole where drilling is occurring, must also be disposed of in a landfill unless the DEP approves of on-site management. The bill also outlines requirements for adopting best management practices, plugging wells and minimizing fire hazards or other harmful conditions.

Operators who create pits or impoundments that hold more than 210,000 gallons of water will also be regulated by the DEP.

Once drilling is completed, the bill requires drillers to reclaim the site of a pad with a single well within six months of completion. "Partial reclamation" on sites with multiple wells is to begin upon completion of the well pad.

In the newly crafted "Oil and Gas Horizontal Well Production Damage Compensation" area of the legislation, certain conditions for surface owner reimbursement are outlined.

Under the bill, the surface owner would have rights to lost income or expenses caused by drilling, market value of crops, including timber prevented from reaching market, damage to any water supply, repair to personal property and the land value lost due to the surface disturbance.

The bill also gives the DEP authority to require emergency supplies of water, temporary water supplies and permanent water supply replacement in the event of contamination.

Drillers must also obtain a $50,000 performance bond to ensure compliance with the new regulations. If there are multiple wells drilled, the operator can instead obtain a blanket bond of $250,000 to cover all wells.

The governor's bill will allow drilling up to 100 feet into the Onondaga for non-production purposes without threatening the status of shallow well definition.

The governor's bill, like the bill that was produced by the Legislature, also includes precautions for drilling in karst formations. These are areas where the ground below is cavernous, which presents concern for migration of pollutants across water supplies.

Senate Makes Amendments

The Senate made only a few tweaks to the legislation after more than four hours of deliberation.

"I would encourage us to look at it very carefully," Sen. Clark Barnes, R-Randolph, said Dec. 12. "What we do here today is going to affect people, it's going to affect the environment, it's going to affect jobs and it's going to affect our economy. It's going to affect all of us. … So I ask you not to rush this."

Most of the amendments were offered by Sen. Gregory Tucker, D-Nicholas.

Tucker's first amendment, which passed the Legislature changes language that requires operators to notify surface owners to ensure that all property holders involved will receive notification by certified mail of intention to drill on the property. The second amendment extends the 72-hour minimum notification outlined in the bill to seven days.

A third amendment requiring extra diligence on the part of the operator should the address of record be a lien holder was also passed.

Tucker's fourth amendment, and last to be passed, requires that mineral owners are notified of intent to drill when the operator surveys the site.

Sen. Evan Jenkins, D-Cabell, offered an amendment to the bill that would require the DEP Secretary to report any waiver of minimum requirements he grants an operator. Under the governor's bill, operator's can be granted a waiver of minimum restrictions at the discretion of the DEP Secretary.

Jenkins' amendment to the legislation passed the committee.

House Amendments

The bill didn't pass the House without its share of amendments. That chamber's Judiciary Committee offered more than 15 amendments.

An amendment by Delegate Woody Ireland, R-Ritchie, required the DEP to look at ways of measuring setback requirements — not by distance, but by actual effect on property owners.

"My intention here is to set limits on those things that are truly important to people," Ireland said. "Whether a well is 1,000 feet away or 25 feet away doesn't really make much difference if the noise levels are too high or volatile chemical levels are too high. Those are the things that really affect people's lives."

Ireland's amendment would seek to "get away from" what he called arbitrary distances and instead examine scientific measures of exposure to noise pollution, air pollution, chemical exposure and light pollution. The amendment, he said, could mean setback distances that may be further or closer than current standards depending on circumstances at each well.

Ireland also introduced an amendment giving surface owners more say in the burial of pit waste on their own property. Prior to Ireland's amendment, pit waste burial on site was at the discretion of the DEP.

Delegate Tim Miley, D-Harrison, said the bill is a balance of the elements lawmakers and interest groups have wanted.

"You get some of what you want, you don't get some of what you want," Miley said. "You just compromise given the competing interests that are involved with something like this."

An Unfavored Bill

Despite, or perhaps because of, promises to draw input from all sides of the natural gas drilling debate, legislators have ended up with a bill that doesn't seem to be please any of the affected parties.

Don Garvin, legislative coordinator for the West Virginia Environmental Council, took issue with the bill, calling the efforts of the DEP and lawmakers a "disappointment."

"We feel the governor's bill falls short," Garvin said. "I'm really disappointed that the governor doesn't believe the public deserves notice and comment periods. These are huge operations, a lot more than the surface tract that is being disturbed."

The West Virginia Surface Owners Rights Organization was also unhappy about the bill. Among the group's many concerns were the fact that the governor's bill only includes horizontal wells and not conventional wells. Horizontal wells using less than 210,000 gallons of water and disturbing less than three acres of land are exempt.

WVSORO co-founder Dave McMahon said the 625-feet buffer zone between homes and well pads was insufficient.

"If a well is 625 feet from your residence you will not be able to sleep at night," McMahon said.

The gas industry also remains in opposition to the bill, but representatives of the industry largely concluded that they would support the bill in exchange for the predictability.

"I guess we've got some major problems," said Nicholas "Corky" DeMarco of the West Virginia Oil and Natural Gas Association, citing his group's concerns about setbacks.

"We will agree to support the governor's bill, in lieu of that, because the potential we have economically in this state to go on past where we are today requires certainty," DeMarco said. "I think this bill will provide that certainty. Again, we don't like it. We don't think we got anything out of it."

DeMarco said the bill does not allow West Virginia to be competitive with other states because of severance taxes and other elements of regulation of gas in West Virginia.

"We will grin and bear it because we don't want to lost the opportunity," DeMarco said. "We don't want to see rigs go to Ohio, we don't want to see rigs go to Pennsylvania. We want to develop gas in the state."