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Gov Justice looking for grand bargain on natural gas drilling

The natural gas industry is West Virginia’s economic bird-in-the-hand for the future. The state is sitting on enormous reserves of natural gas that are now available because of the improved technology that allows producers to drill horizontally to reach those reserves and pump out the gas through fracking.

However, like any new and substantial economic opportunity, it’s critical that West Virginia get it right, and that brings us to the meetings last week at Governor Jim Justice’s office involving key stakeholders.

The meetings included officials from the three biggest drillers in West Virginia—Antero, EQT and Southwestern Energy—representatives of mineral rights and surface rights holders, legislative leaders, Governor Jim Justice and key staff members.

There are several major issues on the table including co-tenancy, lease integration, royalty transparency and protections for property owners.

Co-tenancy should be one of the easiest to resolve. Currently, drillers have to get permission from 100 percent of the mineral rights holders before they can drill. That’s often nearly impossible when those rights have been passed down for generations and repeatedly split among descendants.   For example, under current law one rights holder with a 1/750th share can hold things up.

The proposed legislation would grant permission for drilling with approval from a majority of rights holders rather than 100 percent.  The exact percentage still needs to be worked out, but the number most talked about is 75 percent.

Lease integration is a thornier issue. EQT is the driver behind a controversial proposal that would allow a driller that already has leases to all the necessary mineral rights to combine them into a single unit and access the gas through horizontal drilling.

Some of these leases are very old, and mineral rights owners argue they should be able to renegotiate with the driller since the original leases never contemplated the more large-scale hydraulic drilling.  EQT contends that since the lease does not prohibit pooling, it is allowed.

Royalty transparency concerns the information included in royalty checks to mineral rights holders.  Rights holders argue they should have detailed explanations about the drilling and shipping costs that are deducted from their checks.

And finally there is the tricky issue of surface rights holders.  What are the reasonable protections they should have for their property when the mineral rights beneath their property are owned by someone else?

Last week’s meetings did not produce any breakthroughs, but Governor Jim Justice is hopeful.  “What I’m trying to do is bring all parties together—bring the land owners, bring the gas companies and try to resolve and find a way that’s better for everybody—a better way for West Virginia, a better way for the private land owner and a better way for the gas company,” said Governor Justice.

The Governor’s hope of lumping all of the issues into one bill likely will not work—at least it hasn’t during previous legislative sessions. A better approach would be to tackle each of the issues in separate bills.  Pass what you can pass and keep working on the others.

The key is for the stakeholders and the people’s representatives to get it right. There is enough economic growth potential here for drillers, mineral rights holders and the state’s economy to benefit, while also protecting the surface owners and being environmentally responsible.

Last week’s meetings were a good start toward that goal.

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