Teachers’ strike impacted bill with threat of higher severance taxes

From the Gazette-Mail

WHEELING — After a long-awaited “co-tenancy” bill was signed into law, presenters at an oil and gas conference told industry players Wednesday to make sure the industry agrees internally on how to interpret the bill and to flag aspects of it that could cause issue.

“There’s going to be multiple ways of reading it, and I know our working group is really just trying to start at that place and make sure that we all internally agree on how it’s to be read, which is often why you get into lawsuits with things like this,” Anne Blankenship, executive director of the West Virginia Oil and Natural Gas Association, said of the bill during a panel at the organization’s 2018 spring meeting at the Oglebay Resort & Conference Center, in Wheeling.

House Bill 4268, referred to as the “co-tenancy bill” by the industry, allows gas companies to drill on unwilling or unlocatable owners’ land if 75 percent of ownership gives consent. Gov. Jim Justice signed it into law in March. Similar bills died during previous legislative sessions, although some of those featured “forced pooling” or “joint development” provisions.

Presenters framed the final co-tenancy bill signed into law as “a true idea of compromise and negotiation,” as Blankenship put it. “It’s a long time coming,” Blankenship said. “It’s a bill that’s not in its perfect form, but we have something.”

Bill came out of years of discussion: Antero’s Ellis

Kevin Ellis, vice president of government relations for the Denver-based energy company Antero Resources, said the bill was the result of years of discussions among the various stakeholders. He said the oil and gas industry was eager to get it passed because of the hassle drillers had to go through to find all the landowners for certain tracts, in addition to facing rejection even if a small percentage objected.

“What we’ve been looking for is flexibility in the way we operate,” Ellis said. “What we’ve had before now has been potentially a long time to wait to get the properties cleared up.”

Unexpected last minute hurdle: teachers’ strike sought higher severance tax as funding source for salary increases

The statewide teacher and school service personnel strike created an unexpected hurdle for advocates of the co-tenancy legislation, Ellis said.

The idea to increase the severance tax to go toward teacher pay raises started gaining momentum, with Gov. Jim Justice suggesting increasing industry taxes during a town hall meeting with teachers in Wheeling.

During the strike, Ellis said he had some “very uncomfortable nights” debating with his wife — a teacher of 27 years — about the effects of a severance tax hike.

“None of us ever anticipated we would be talking about severance taxes in relation to the teachers being upset about their pay,” Ellis said.

West Virginia’s 5 percent severance tax on the value of natural gas is higher than the equivalent taxes in neighboring Ohio and Pennsylvania, and hiking that further would scare off industry investors, according to Ellis.

“If all things being equal — capital is fungible, property is fungible — [an investor] would go somewhere else,” Ellis said.

The tax hike proposal didn’t last long following industry criticism — familiar territory for the state.

Roger Cutright, a Morgantown-based energy industry attorney, said drillers should be prepared for legal battles if the percentage of consenting landowners is close to the 75 percent threshold established by the bill.

“That’s not going to be that likely if you’re on a tract where you have 5 or 6 or 10 percent nonconsenting,” Cutright said. “If you’re in that 75 percent range, it would be something to think about and something to plan ahead on.”

Cutright also told attendees to watch for non-consenting landowners “expanding or contracting” their ownership stake, as the bill applies to tracts of land where seven or more landowners are involved.

“For example, on a particular day you have eight existing, non-consenting co-tenants,” he said. “Several weeks later, you find out four of them went through some transaction process and merged their interest into a single owner, a single entity, virtually taking away your ability to proceed under this particular aspect of the act.”

Carla Suszkowski, regulatory manager for the Texas-based natural gas company Southwestern Energy, said she heard from the state Department of Environmental Protection that changes to the permitting process due to the bill will likely be minimal.

However, the state Oil and Gas Conservation Commission, which regulates deep well drilling, “perhaps does not feel the same way,” she said, adding that she’ll have a better feel on that front after the commission meets later this month.

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