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.”