H. B. 216
(By Mr. Speaker, Mr. Thompson)
[By Request of the Executive]
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[Introduced August 19, 2007; referred to the Committee on the
Judiciary then Finance.]
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A BILL to amend and reenact §11-13A-3a, §11-13A-3d, §11-13A-10 and
§11-13A-17 of the Code of West Virginia, 1931, as amended, to
amend said code by adding thereto a new section, designated
§11-13A-3f; to amend said code by adding thereto two new
sections, designated
§11-13V-4a and §11-13V-4b
; to amend and
reenact §22-6-1 of said code; to amend said code by adding
thereto a new article, designated §22-7A-1, §22-7A-2, §22-7A-
3, §22-7A-4, §22-7A-5, and §22-7A-6; to amend and reenact
§22C-8-2 of said code; and to amend and reenact §22C-9-2 of
said code, all relating to oil and gas production; relating to
the Severance and Business Privilege Tax Act and the Workers'
Compensation Debt Reduction Act; deleting superannuated
language; specifying collection and remittance of the
severance tax on production of natural gas or oil by the first
person to purchase the natural gas or oil after it has been
severed, or in the event that the natural gas or oil has been
severed and processed before the first sale, the first person to purchase natural gas or oil after it has been severed and
processed; specifying purchaser liability for failure to
collect or remit the tax; specifying due dates and payment
requirements; specifying exceptions to the requirement that
the purchaser collect and remit the tax; specifying persons
subject to applicable bonding requirements; eliminating the
five hundred dollar per taxpayer credit for oil and gas
severance tax and eliminating other tax credits against
natural gas severance taxes and oil severance taxes;
authorizing issuance of emergency rules and other rules by the
tax commissioner; specifying severance tax rate on natural gas
and on oil; eliminating the severance tax exemption for
natural gas or oil produced from any well placed back into
production which has not produced marketable quantities of
natural gas or oil for five consecutive prior years;
specifying application of exemptions and exceptions and use of
direct severance payment authorization number; specifying
termination of the severance and business privilege tax
exemption for production of coalbed methane and specifying
that coalbed methane is taxed as natural gas for purposes of
the Severance and Business Privilege Tax Act and for purposes
of the taxes imposed by the Workers' Compensation Debt
Reduction Act; defining shallow wells; relating to oil and
natural gas production royalty payments; and the calculation
of production royalty payments.
Be it enacted by the Legislature of West Virginia:
That §11-13A-3a, §11-13A-3d, §11-13A-10 and §11-13A-17 of the
Code of West Virginia, 1931, as amended, be amended and reenacted;
that said code be amended by adding thereto a new section,
designated §11-13A-3f; that said code be amended by adding thereto
two new sections, designated §11-13V-4a and §11-13V-4b; that
§22-6-
1 of said code be amended and reenacted; that said code be amended
by adding thereto a new article, designated §22-7A-1, §22-7A-2,
§22-7A-3, §22-7A-4, §22-7A-5 and §22-7A-6; that §22C-8-2 of said
code be amended and reenacted; and that §22C-9-2 of said code be
amended and reenacted, all to read as follows:
CHAPTER 11. TAXATION.
ARTICLE 13A. SEVERANCE AND BUSINESS PRIVILEGE TAX ACT.
§11-13A-3a. Imposition of tax on privilege of severing natural
gas or oil.
(a)
Imposition of tax.
(1) For the privilege of engaging or continuing within this
state in the business of severing natural gas or oil for sale,
profit or commercial use, there is hereby levied and shall be
collected from every person exercising such privilege an annual
privilege tax: Provided, That effective for all taxable periods
beginning on or after the first day of January, two thousand, there
is an exemption from the imposition of the tax provided in this
article on the following:
(1) (A) Free natural gas provided to any surface owner;
(2) (B) natural gas produced from any well which produced an average of less than five thousand cubic feet of natural gas per
day during the calendar year immediately preceding a given taxable
period;
(3) (C) oil produced from any oil well which produced an
average of less than one-half barrel of oil per day during the
calendar year immediately preceding a given taxable period; and
(4) (D) for a maximum period of ten years, all natural gas or
oil produced from any well which has not produced marketable
quantities of natural gas or oil for five consecutive years
immediately preceding the year in which a well is placed back into
production and thereafter produces marketable quantities of natural
gas or oil.
(2) On and after the first day of January, two thousand eight,
the exemptions set forth in paragraphs (C) and (D) of subdivision
(1) of this subsection are null and void and of no force or effect:
Provided, That the exemption set forth in paragraph (B),
subdivision (1) of this subsection shall apply to the tax imposed
by this article only on natural gas from a well that is the source
of free natural gas and that also produced an average of less than
five thousand cubic feet of natural gas per day during the calendar
year immediately preceding a given taxable period for a taxpayer.
The severer shall assert this exemption either by giving the
purchaser a direct severance payment authorization number or by filing a request for refund with the tax commissioner on such form
and pursuant to such procedures as the tax commissioner may
require. This provision shall not be interpreted to impose the
severance tax on free natural gas, and shall not be interpreted as
authorizing a refund of tax for or relating to free natural gas
produced.
(b)
Rate and measure of tax.
The tax imposed in subsection (a) of this section shall be
five percent of the gross value of the natural gas or oil produced,
as shown by the gross proceeds derived from the sale thereof by the
producer, except as otherwise provided in this article: Provided,
That on and after the first day of January, two thousand eight, the
tax imposed in subsection (a) of this section shall be four and
eight tenths of one percent of the gross value of the natural gas
or oil produced, as shown by the gross proceeds derived from the
sale thereof by the producer, except as otherwise provided in this
article.
(c)
Tax in addition to other taxes.
The tax imposed by this section shall apply to all persons
severing gas or oil in this state, and shall be in addition to all
other taxes imposed by law.
(d)(1) The Legislature finds that in addition to the
production reports and financial records which must be filed by oil and gas producers with the State Tax Commissioner in order to
comply with this section, oil and gas producers are required to
file other production reports with other agencies, including, but
not limited to, the office of oil and gas, the Public Service
Commission and county assessors. The reports required to be filed
are largely duplicative, the compiling of the information in
different formats is unnecessarily time consuming and costly, and
the filing of one report or the sharing of information by agencies
of government would reduce the cost of compliance for oil and gas
producers.
(2) On or before the first day of July, two thousand three,
the Tax Commissioner shall design a common form that may be used
for each of the reports regarding production that are required to
be filed by oil and gas producers, which form shall readily permit
a filing without financial information when such information is
unnecessary. The commissioner shall also design such forms so as to
permit filings in different formats, including, but not limited to,
electronic formats.
(3) Effective the first day of July, two thousand six, this
subsection shall have no force or effect.
(d) Purchaser of natural gas or oil to withhold tax.
Remittance of withheld tax by purchaser. -- On or after the first
day of January, two-thousand eight, the first person to purchase the natural gas or oil after it has been severed, or in the event
that the natural gas or oil has been severed and processed before
the first sale, the first person to purchase natural gas or oil
after it has been severed and processed, shall be liable for the
collection of the taxes imposed by this article from the person
severing (or severing and processing) the natural gas or oil, and
shall remit the taxes to the tax commissioner. Taxes so collected
by the purchaser are held in trust for the State, and the purchaser
is liable for any failure to collect or remit the tax, in
accordance with the provisions of articles nine and ten of this
chapter.
(1) No profit shall accrue to any person as a result of the
collection of the tax levied by this article notwithstanding the
total amount of the taxes collected may be in excess of the amount
for which the severer would be liable by the application of the
rate of tax levied by this article. The total amount of all taxes
collected by the purchaser shall be returned and remitted to the
tax commissioner as provided in this article.
(2) If any severer refuses to pay or otherwise does not pay to
the purchaser the tax imposed by this article, or a severer refuses
to present to the purchaser a valid direct severance payment
authorization number indicating that the purchaser is not required
to collect and remit the taxes imposed by this article, or presents to the purchaser a false direct severance payment authorization
number or a false document, the severer shall be personally liable
for the amount of tax applicable, and the purchaser shall not be
liable for such tax.
(3) Nothing in this section relieves any severer who owes the
tax and who has not paid the tax imposed by this article from
liability for payment of the tax. In those cases the tax
commissioner has authority to make an assessment against the
severer, based upon any information within his or her possession or
that may come into his or her possession. This assessment and
notice thereof shall be made and given in accordance with article
ten of this chapter. The severer shall not be liable for tax
withheld by the purchaser, but not remitted to this State by the
purchaser.
(4) The due dates and payment requirements of this article
apply to the payment and remittance of tax by purchasers of natural
gas or oil under this section.
(5) Exceptions. The requirement that the purchaser shall
withhold and remit the tax imposed by this article on production of
natural gas or oil shall not apply:
(A) Where the person severing (or severing and processing) the
natural gas or oil sells the gas or oil to the ultimate consumer,
the person so severing (or severing and processing) the natural gas or oil shall be liable for the taxes imposed by this article; or
(B) Where the tax commissioner determines that the collection
of the taxes due under this article or article thirteen-v of this
chapter, or both, from the person severing the natural gas or oil,
or severing and processing the natural gas or oil would be
accomplished in a more efficient and effective manner through the
severer (or severer and processor) remitting the taxes, the tax
commissioner shall set out his or her determination in writing,
stating his or her reasons for so finding, and so advise the
severer (or severer and processor) at least fifteen days in advance
of the first reporting period for which the commissioner's
determination is effective.
(6) Notwithstanding the provisions of this section, the person
severing the natural gas or oil is the taxpayer for purposes of
this article and is liable for the tax imposed by this article.
The first purchaser that is responsible for withholding and
remittance of the tax is subject to the bonding requirements as
applicable under section sixteen of this article, and severers from
whom the tax is withheld shall not be subject to the bond specified
in section sixteen of this article. However, a severer who has been
issued a direct severance payment authorization number or who is
otherwise subject to a requirement to pay the oil or gas severance
tax directly to the State rather than through withholding by the first purchaser, is subject to the bonding requirements as
applicable under section sixteen of this article. This article
shall not be interpreted to relieve any person of a bonding
requirement other than the bonding requirement set forth in section
sixteen of this article, and shall not be interpreted as addressing
any bonding requirement other than the bonding requirement set
forth in section sixteen of this article.
(7) Severers that pay the tax directly on production of oil or
natural gas pursuant to the provisions of this section shall
deliver to the purchaser a direct severance payment authorization
number, issued by the tax commissioner. The purchaser shall not
withhold and remit the tax imposed by this article on production of
natural gas or oil sold to a severer who delivers to the purchaser
a direct severance payment authorization number.
(8) The tax commissioner may promulgate emergency rules
addressing collection and remittance of the severance tax by the
first purchaser or the severer or both, taxation of oil and natural
gas and coal bed methane and such administrative matters as may
relate to the filing, reporting and payment of the tax imposed by
this article and by article thirteen-v of this chapter, and such
interpretive and legislative rules as the tax commissioner may find
appropriate relating thereto.
(9) Notwithstanding other provisions of this code the the contrary, if the tax commissioner determines that a transaction
between a first purchaser and a severer is not an arm's length
transaction or is otherwise a transaction for which price
manipulation appears to have affected the amount of tax collected
or remitted under this article, the tax commissioner may determine
the applicable tax base on which such tax should have been imposed
and issue an assessment of tax accordingly.
§11-13A-3d. Imposition of tax on privilege of severing coalbed
methane.
(a) The Legislature hereby finds and declares the following:
(1) That coalbed methane is underdeveloped and an under-
utilized resource within this state which, where practicable,
should be captured and not be vented or wasted;
(2) The health and safety of persons engaged in coal mining is
a paramount concern to the state. The Legislature intends to
preserve coal seams for future safe mining, to facilitate the
expeditious, safe evacuation of coalbed methane from the coalbeds
of this state, and to ensure the safety of miners by encouraging
the advance removal of coalbed methane;
(3) The United States environmental protection agency's
coalbed methane outreach program encourages United States coal
mines in the United States to remove and use methane that is
otherwise wasted during mining. These projects have important economic benefits for the mines and their local economies while
they also reduce emissions of methane; and
(4) The initial costs of development of coalbed methane wells
can be large in comparison to conventional wells and deoxygenation
and water removal increase development expenditures.
The Legislature, therefore, concludes that an incentive to coalbed
methane development should be implemented to encourage capture of
methane gas that would otherwise be vented to the atmosphere.
(b) Imposition of tax. -- In lieu of the annual privilege tax
imposed on the severance of natural gas or oil pursuant to section
three-a, article thirteen-a, for the privilege of engaging or
continuing within this state in the business of severing coalbed
methane for sale, profit or commercial use, there is hereby levied
and shall be collected from every person exercising such privilege
an annual privilege tax: Provided, That effective for taxable years
beginning on or after the first day of January, two thousand one,
there is an exemption from the imposition of the tax provided for
in this article for a maximum period of five years for all coalbed
methane produced from any coalbed methane well placed in service
after the first day of January, two thousand. For purposes of this
section, the terms "coalbed methane" and "coalbed methane well"
have the meaning ascribed to them in section two, article twenty-
one, chapter twenty-two of this code. The exemption from tax provided by this section is applicable to any coalbed methane well
placed in service before the first day of January, two thousand
eleven.
(c) Rate and measure of tax. -- The tax imposed on subsection
(b) of this section is five percent of the gross value of the
coalbed methane produced, as shown by the gross proceeds derived
from the sale thereof by the producer, except as otherwise provided
in this article.
(d) Tax in addition to other taxes. -- The tax imposed by this
section applies to all persons severing coalbed methane in this
state, and is in addition to all other taxes imposed by law.
(e) Except as specifically provided in this section,
application of the provisions of this article apply to coalbed
methane in the same manner and with like effect as the provisions
apply to natural gas.
(f) Notwithstanding any other provision of this code to the
contrary, on and after the first day of January, two thousand
eight, the provisions of this section are null and void and of no
force or effect: Provided, That all coalbed methane produced from
any coalbed methane well on which drilling commenced before the
first day of September, two thousand seven that was placed in
service after the first day of January, two thousand shall be
entitled to the exemption set forth in this section for the remainder of the five year original exemption period applicable to
the coalbed methane produced from that well.
§11-13A-3f. Imposition of tax on privilege of severing coalbed
methane On and after January 1, 2008.
(a) On and after the first day of January two-thousand eight,
coalbed methane and methane produced from or by a coalbed methane
well is taxable as natural gas for purposes of the taxes imposed by
this article and the taxes imposed by article thirteen-v of this
chapter.
(b) For purposes of this section, the terms "coalbed methane"
and "coalbed methane well" have the meaning ascribed to them in
section two, article twenty-one, chapter twenty-two of this code.
§ 11-13A-10. Paying tax; annual tax credit.
Every taxpayer subject to any tax imposed under this article
shall be allowed one annual credit of five hundred dollars against
the taxes due under this article, to be applied at the rate of
forty-one dollars and sixty-seven cents per month for each month
the taxpayer was engaged in business in this state during the
taxable year exercising a privilege taxable under this article.
Persons providing health care items or services who become subject
to the tax imposed by section three of this article beginning the
first day of June, one thousand nine hundred ninety-three, shall be
allowed a proportional credit under this section based on the number of months in their tax year that begin on or after the first
day of June, one thousand nine hundred ninety-three.
Notwithstanding any other provision of this code to the contrary,
on and after the first day of January, two thousand eight, the
credit authorized under this section and under articles thirteen-d,
and thirteen-s of this chapter, or under any other provision of
this code shall not be allowed or applied against for tax due under
sections three-a or three-f of this article.
§ 11-13A-17. Collection of tax; agreement for processor to pay
tax due from severer.
(a) General.
In the case of natural resources, other than natural gas and
oil, where the tax commissioner finds that it would facilitate and
expedite the collection of the taxes imposed under this article,
the tax commissioner may authorize the taxpayer processing the
natural resource to report and pay the tax which would be due from
the taxpayer severing the natural resources. The agreement shall be
in such form as the tax commissioner may prescribe. The agreement
must be signed: by the owners, if the taxpayers are natural
persons; in the case of a partnership or association, by a partner
or member; in the case of a corporation, by an executive officer or
some person specifically authorized by the corporation to sign the
application. The agreement may be terminated by any party to the agreement upon giving thirty days' written notice to the other
parties to the agreement: Provided, That the tax commissioner may
terminate the agreement immediately upon written notice to the
other parties when either the taxpayer processing the natural
resource or the taxpayer severing the natural resource fails to
comply with the terms of the agreement.
(b) Natural gas and oil.
(1) In the case of natural gas and oil, except for those
cases:
(A) Where the person severing (or both severing and
processing) the natural gas will sell the gas to the ultimate
consumer, or
(B) Where the tax commissioner determines that the collection
of taxes due under this article would be accomplished in a more
efficient and effective manner through the severor, or severor and
processor, remitting the taxes; the first person to purchase the
natural gas after it has been severed, or in the event that the
natural gas has been severed and processed before the first sale,
the first person to purchase the natural gas after it has been
severed and processed, shall be liable for the collection of the
taxes imposed by this article. He shall collect the taxes imposed
from the person severing (or severing and processing) the natural
gas, and he shall remit the taxes to the tax commissioner. In those cases where the person severing (or severing and processing) the
natural gas sells the gas to the ultimate consumer, the person so
severing (or severing and processing) the natural gas shall be
liable for the taxes imposed by this article. In those cases where
the tax commissioner determines that the collection of the taxes
due under this article from the severance (or severance and
processing) of natural gas would be accomplished in a more
efficient and effective manner through the severor (or severor and
processor) remitting the taxes, the tax commissioner shall set out
his determination in writing, stating his reasons for so finding,
and so advise the severor (or severor and processor) at least
fifteen days in advance of the first reporting period for which
such action would be effective.
(2) On on or before the last day of the month following each
taxable calendar month, each person first purchasing natural gas or
oil as described in section three-a and three-f of this article and
this subdivision (1) above, shall report the purchases of natural
gas and the purchases of oil during the taxable month, showing the
quantities of gas purchased, the quantities of oil purchased, the
price paid, the date of purchase, and any other information deemed
necessary by the tax commissioner for the administration of the tax
imposed by this article, and shall pay the amount of tax due, on
forms prescribed by the tax commissioner.
(c) Interpretation. The provisions of this article shall be
construed without reference to the provisions of article seven-a,
chapter twenty-two of this code
regarding royalty payments.
ARTICLE 13V. WORKERS' COMPENSATION DEBT REDUCTION ACT.
§11-13V-4a. Coalbed Methane.
(a) On and after the first day of January two-thousand eight,
coalbed methane and methane produced from or by a coalbed methane
well is taxable as natural gas for purposes of the taxes imposed by
this article and the taxes imposed by article thirteen-a of this
chapter: Provided, That all coalbed methane produced from any
coalbed methane well on which drilling commenced before the first
day of September, two thousand seven that was placed in service
after the first day of January, two thousand shall be entitled to
the exemption set forth in section three-d, article thirteen-a of
this chapter for the remainder of the five year original exemption
period applicable to the coalbed methane produced from that well.
(b) For purposes of this section, the terms "coalbed methane"
and "coalbed methane well" have the meaning ascribed to them in
section two, article twenty-one, chapter twenty-two of this code.
§11-13V-4b. Purchaser of natural gas to withhold tax.
(a)Remittance of withheld tax by purchaser. -- On or after
the first day of January, two-thousand eight, the first person to
purchase the natural gas after it has been severed, or in the event that the natural gas has been severed and processed before the
first sale, the first person to purchase natural gas after it has
been severed and processed, shall be liable for the collection of
the taxes imposed by this article from the person severing (or
severing and processing) the natural gas, and shall remit the taxes
to the tax commissioner. Taxes so collected by the purchaser are
held in trust for the State, and the purchaser is liable for any
failure to collect or remit the tax, in accordance with the
provisions of articles nine and ten of this chapter. The severer
shall not be liable for tax withheld by the purchaser, but not
remitted to this State by the purchaser.
(1) No profit shall accrue to any person as a result of the
collection of the tax levied by this article notwithstanding the
total amount of the taxes collected may be in excess of the amount
for which the severer would be liable by the application of the
rate of tax levied by this article. The total amount of all taxes
collected by the purchaser shall be returned and remitted to the
tax commissioner as provided in this article.
(2) If any severer refuses to pay or otherwise does not pay to
the purchaser the tax imposed by this article, or a severer refuses
to present to the purchaser a valid direct severance payment
authorization number indicating that the purchaser is not required
to collect and remit the taxes imposed by this article, or presents
to the purchaser a false direct severance payment authorization number or a false document, the severer shall be personally liable
for the amount of tax applicable, and the purchaser shall not be
liable for such tax.
(3) Nothing in this section relieves any severer who owes the
tax and who has not paid the tax imposed by this article from
liability for payment of the tax. In those cases the tax
commissioner has authority to make an assessment against the
severer, based upon any information within his or her possession or
that may come into his or her possession. This assessment and
notice thereof shall be made and given in accordance with article
ten of this chapter. The severer shall not be liable for tax
withheld by the purchaser, but not remitted to this State by the
purchaser.
(4) The due dates and payment requirements of this article
apply to the payment and remittance of tax by purchasers of natural
gas under this section.
(5) Exceptions. The requirement that the purchaser shall
withhold and remit the tax imposed by this article on production of
natural gas shall not apply:
(A) Where the person severing (or severing and processing) the
natural gas sells the gas or oil to the ultimate consumer, the
person so severing (or severing and processing) the natural gas
shall be liable for the taxes imposed by this article; or
(B) Where the tax commissioner determines that the collection of the taxes due under this article or article thirteen-a of this
chapter, or both, from the person severing the natural gas or oil,
or severing and processing the natural gas would be accomplished in
a more efficient and effective manner through the severer (or
severer and processor) remitting the taxes, the tax commissioner
shall set out his or her determination in writing, stating his or
her reasons for so finding, and so advise the severer (or severer
and processor) at least fifteen days in advance of the first
reporting period for which the commissioner's determination is
effective.
(6) Notwithstanding the provisions of this section, the person
severing the natural gas is the taxpayer for purposes of this
article and is liable for the tax imposed by this article. The
taxpayer is subject to the bonding requirements as applicable under
section thirteen of this article. The first purchaser that is
responsible for withholding and remittance of the tax is subject
to the bonding requirements as applicable under section thirteen of
this article, and severers from whom the tax is withheld shall not
be subject to the bond specified in section thirteen of this
article. However, a severer who has been issued a direct severance
payment authorization number or who is otherwise subject to a
requirement to pay the tax imposed by this article directly to the
State rather than through withholding by the first purchaser, is
subject to the bonding requirements as applicable under section thirteen of this article. This article shall not be interpreted to
relieve any person of a bonding requirement other than the bonding
requirement set forth in section thirteen of this article, and
shall not be interpreted as addressing any bonding requirement
other than the bonding requirement set forth in section thirteen of
this article.
(7) On or before the last day of the month following each
taxable calendar month, each person first purchasing natural gas as
described in this section shall report the purchases of natural gas
during the taxable month, showing the quantities of gas purchased,
the price paid, the date of purchase, and any other information
deemed necessary by the tax commissioner for the administration of
the tax imposed by this article, and shall pay the amount of tax
due, on forms prescribed by the tax commissioner.
(b)Interpretation. The provisions of this article shall be
construed without reference to the provisions of article seven-a,
chapter twenty-two of this code
regarding royalty payments.
CHAPTER 22. ENVIRONMENTAL RESOURCES.
ARTICLE 6. OFFICE OF OIL AND GAS; OIL AND GAS WELLS;
ADMINISTRATION; ENFORCEMENT.
º22-6-1. Definitions.
Unless the context in which used clearly requires a different
meaning, as used in this article:
(a) "Casing" means a string or strings of pipe commonly placed
in wells drilled for natural gas or petroleum or both;
(b) "Cement" means hydraulic cement properly mixed with water;
(c) "Chair" means the chair of the West Virginia shallow gas
well review board as provided for in section four, article eight,
chapter twenty-two-c of this code;
(d) "Coal operator" means any person or persons, firm,
partnership, partnership association or corporation that proposes
to or does operate a coal mine;
(e) "Coal seam" and "workable coal bed" are interchangeable
terms and mean any seam of coal twenty inches or more in thickness,
unless a seam of less thickness is being commercially worked, or
can in the judgment of the department foreseeably be commercially
worked and will require protection if wells are drilled through it;
(f) "Director" means the director of the division of
environmental protection as established in article one of this
chapter or such other person to whom the director has delegated
authority or duties pursuant to sections six or eight, article one
of this chapter.
(g) "Deep well" means any well other than a shallow well,
drilled and completed in a formation at or below the top of the
uppermost member of the "Onondaga Group";
(h) "Expanding cement" means any cement approved by the office
of oil and gas which expands during the hardening process, including, but not limited to, regular oil field cements with the
proper additives;
(i) "Facility" means any facility utilized in the oil and gas
industry in this state and specifically named or referred to in
this article or in article eight or nine of this chapter, other
than a well or well site;
(j) "Gas" means all natural gas and all other fluid
hydrocarbons not defined as oil in this section;
(k) "Oil" means natural crude oil or petroleum and other
hydrocarbons, regardless of gravity, which are produced at the well
in liquid form by ordinary production methods and which are not the
result of condensation of gas after it leaves the underground
reservoirs;
(l) "Owner" when used with reference to any well, shall
include any person or persons, firm, partnership, partnership
association or corporation that owns, manages, operates, controls
or possesses such well as principal, or as lessee or contractor,
employee or agent of such principal;
(m) "Owner" when used with reference to any coal seam, shall
include any person or persons who own, lease or operate such coal
seam;
(n) "Person" means any natural person, corporation, firm,
partnership, partnership association, venture, receiver, trustee,
executor, administrator, guardian, fiduciary or other representative of any kind, and includes any government or any
political subdivision or any agency thereof;
(o) "Plat" means a map, drawing or print showing the location
of a well or wells as herein defined;
(p) "Review board" means the West Virginia shallow gas well
review board as provided for in section four, article eight,
chapter twenty-two-c of this code;
(q) "Safe mining through of a well" means the mining of coal
in a workable coal bed up to a well which penetrates such workable
coal bed and through such well so that the casing or plug in the
well bore where the well penetrates the workable coal bed is
severed;
(r) "Shallow well" means any gas well, drilled and completed
in a formation above the top of the uppermost member of the
"Onondaga Group": Provided, That in drilling a shallow well the
operator may penetrate into no more then seventy-five feet below
the top of the uppermost member of the "Onondaga Group" to a
reasonable depth, not in excess of twenty feet, in order to allow
for logging and completion operations, but in no event may any
formation below the top of the uppermost member of the "Onondaga
Group" formation be otherwise produced, perforated or stimulated in
any manner;
(s) "Stimulate" means any action taken by a well operator to
increase the inherent productivity of an oil or gas well, including, but not limited to, fracturing, shooting or acidizing,
but excluding cleaning out, bailing or workover operations;
(t) "Waste" means (i) physical waste, as the term is generally
understood in the oil and gas industry; (ii) the locating,
drilling, equipping, operating or producing of any oil or gas well
in a manner that causes, or tends to cause a substantial reduction
in the quantity of oil or gas ultimately recoverable from a pool
under prudent and proper operations, or that causes or tends to
cause a substantial or unnecessary or excessive surface loss of oil
or gas; or (iii) the drilling of more deep wells than are
reasonably required to recover efficiently and economically the
maximum amount of oil and gas from a pool; (iv) substantially
inefficient, excessive or improper use, or the substantially
unnecessary dissipation of, reservoir energy, it being understood
that nothing in this chapter shall be construed to authorize any
agency of the state to impose mandatory spacing of shallow wells
except for the provisions of section eight, article nine, chapter
twenty-two-c of this code and the provisions of article eight,
chapter twenty-two-c of this code; (v) inefficient storing of oil
or gas: Provided, That storage in accordance with a certificate of
public convenience issued by the federal energy regulatory
commission shall be conclusively presumed to be efficient and (vi)
other underground or surface waste in the production or storage of
oil, gas or condensate, however caused. Waste does not include gas vented or released from any mine areas as defined in section two,
article one, chapter twenty-two-a of this code or from adjacent
coal seams which are the subject of a current permit issued under
article two of chapter twenty-two-a of this code:
Provided,
however, That nothing in this exclusion is intended to address
ownership of the gas;
(u) "Well" means any shaft or hole sunk, drilled, bored or dug
into the earth or into underground strata for the extraction or
injection or placement of any liquid or gas, or any shaft or hole
sunk or used in conjunction with such extraction or injection or
placement. The term "well" does not include any shaft or hole sunk,
drilled, bored or dug into the earth for the sole purpose of core
drilling or pumping or extracting therefrom potable, fresh or
usable water for household, domestic, industrial, agricultural or
public use;
(v) "Well work" means the drilling, redrilling, deepening,
stimulating, pressuring by injection of any fluid, converting from
one type of well to another, combining or physically changing to
allow the migration of fluid from one formation to another or
plugging or replugging of any well;
(w) "Well operator" or "operator" means any person or persons,
firm, partnership, partnership association or corporation that
proposes to or does locate, drill, operate or abandon any well as
herein defined;
(x) "Pollutant" shall have the same meaning as provided in
subsection (17), section three, article eleven, chapter twenty-two
of this code; and
(y) "Waters of this state" shall have the same meaning as the
term "waters" as provided in subsection (23), section three,
article eleven, chapter twenty-two of this code.
ARTICLE 7A. OIL AND NATURAL GAS PRODUCTION ROYALTY PAYMENTS.
§22-7A-1. Legislative findings and declarations.
The Legislature hereby finds and declares:
(1) That the exploration for, and the development of, oil and
gas reserves in this state attracts capital investment, generates
revenue for local royalty owners, producers, and others, provides
employment to a significant number of West Virginians;
(2) That the development of oil and gas reserves is frequently
conducted pursuant to leases or other continuing contractual
agreements whereby the owners of such oil and natural gas are paid
a royalty or other fee related to the volume of oil and gas
produced or marketed;
(3) That such royalty arrangements typically provide for the
royalty owner to receive a share of the proceeds derived from the
sale of oil and natural gas, or a share of the value of the oil and
gas produced;
(4) That prior to federal regulatory changes beginning in
nineteen ninety-two, integrated interstate pipeline companies operated in all segments of the natural gas business, acting as
major producers of natural gas that also marketed the gas and
provided the pipeline, compression, processing and other services
to deliver the gas to consumers and commercial interests in the
marketplace;
(5) As a part of their business, integrated interstate
pipeline companies secured leases from mineral owners that granted
the right to drill for and produce natural gas in exchange for
royalty payments, typically a percentage payment of one-eighth of
the value of the gas as produced;
(6) That because integrated interstate pipeline companies
were both producers and marketers, the value of the gas or oil for
the purpose of calculating royalties could be calculated at any
point in the process from the point of extraction from the ground
to the point of sale; and in many oil and gas leases, it was agreed
that the value of the natural gas for the calculation of royalties
would be determined "at the wellhead" or "in the field", meaning
that the value of the natural gas for the purposes of calculating
royalty would be the price for which the gas was sold by the
integrated interstate pipeline company, minus the costs of
delivering the gas to market, sometimes known as post-production
costs or expenses, which included the cost of operating pipelines,
compression facilities, dehydrating facilities, marketing,
distribution and other costs necessary to deliver the gas to markets such as distant city gates, industrial users, commercial
establishments, and even city home burner tips;
(7) That, in addition to producing and marketing their own
natural gas, integrated interstate pipeline companies also
purchased gas produced by independent producers at the point the
gas entered the pipeline of the integrated interstate pipeline
company, and resold that gas in various markets; and in these
arrangements, independent producers and royalty owners valued
natural gas for the purposes of calculating royalty at the price
independent producers were paid by the integrated interstate
pipeline company;
(8)That integrated interstate pipeline companies
traditionally provided a bundled sales service for producers that
included the cost of the gas produced and all post-production
services necessary to deliver natural gas to the consumer,
including the costs of gathering, processing, dehydration,
compression, fuel, transportation, line loss, storage, and
distribution;
(9) That the price typically paid by integrated interstate
pipeline companies to independent producers reflected the pipeline
companies' post-production responsibilities and included deductions
for the costs of gathering, processing, compression, and line loss
borne by the pipeline companies;
(10)That substantially all of the costs of services provided by integrated interstate pipeline companies, including the purchase
of natural gas from independent producers, was regulated by federal
authorities;
(11) That such post-production expenses incurred downstream
from the wellhead ultimately enhance the quality of the gas and
increase the proceeds derived from the sale thereof;
(12) That on the eighth day of April, one thousand nine
hundred ninety-two, the Federal Energy Regulatory Commission issued
Order No. 636, which ultimately required interstate pipeline
companies to unbundle, or separate, their sales and transportation
services, ensuring that the gas of other suppliers could receive
the same quality of transportation services previously enjoyed by
a pipeline company's own gas sales, thereby increasing competition
among the various gas sellers;
(13) That, as a result of unbundling and other regulatory
changes, integrated interstate pipeline companies tended to
disaggregate the functions they provided and often established
separate operating units or affiliated companies to perform
different services, such as exploration for and production of
natural gas, gathering of natural gas before it entered an
interstate pipeline, transportation of natural gas through
pipelines in interstate commerce, and the marketing and
distribution of natural gas to consumers;
(14) That as a result of this and other regulatory changes, lessees/producers, both those affiliated with major pipeline
companies and independent producers, now contract with marketers
for the sale of the gas and arrange separately for the post-
production services necessary to market the gas;
(15)That due to these fundamental changes in the federal
regulatory scheme governing the oil and gas industry, uncertainty
has developed regarding the treatment of post-production expenses
in existing oil and gas leases, many of which were executed years
before the aforementioned regulatory changes could have been
contemplated;
(16) That these regulatory changes have created uncertainty
regarding whether certain post-production expenses are properly
deductible when calculating royalty payable to the royalty owner,
often centering on whether lease provisions providing that the
royalty owner's royalty is calculated "at the well," "at the
wellhead," or other similar language, are sufficient to indicate
that a lessee/producer may exclude post-production expenses from
the royalty calculation;
(17) That such uncertainty has given rise to litigation,
carrying with it significant costs to the involved parties,
creating risk to the investment and revenue generated by the
production of oil and gas reserves, and resulting in a division
among our sister states on the effect of "at the wellhead"-type
language on the allocation of post-production expenses;
(18) That the Supreme Court of Appeals recently concluded that
lease language providing that a royalty owner's royalty is to be
calculated "at the well," "at the wellhead," or other similar
language "is ambiguous and, accordingly, is not effective to permit
the lessee to deduct . . . any portion of the costs incurred
between the wellhead and the point of sale." Syl. Pt. 8, Tawney v.
Columbia Natural Resources, 219 W. Va. 266 (2006);
(19) That it is in this state's interest to promote a stable
business environment and to ensure that changes in federal
regulations and unsettled law do not impede development of the West
Virginia oil and natural gas industry and do not lead to
uncertainty and expensive litigation of existing business
relationships;
(20) That the Legislature has previously exercised the police
powers of this state to alter the common law in an effort provide
greater certainty regarding the payment of oil and natural gas
production royalties, to promote development, and to discourage
expensive litigation by, inter alia:
(i) proscribing new wells for the production and development
of oil and gas pursuant to annual flat well royalty leases, in
which the royalty is based solely on the existence of a producing
well and thus is not inherently related to the volume of the oil
and gas produced or marketed, while permitting continuation of flat
rate royalty payments for wells then existing, see W. Va. Code §22-6-8;
(ii) providing statutory relief to surface owners in the form
of compensation and damages irrespective of provisions in existing
deeds, leases or other contracts, see W. Va. Code §22-7-1, et seq.;
and
(iii) creating a statutory presumption regarding the
cancellation of oil and gas leases regardless of the terms and
conditions of such leases, see W. Va. Code §36-4-9a; and
(21) That while being fully cognizant that the provisions of
section ten, article one of the United States Constitution and of
section four, article three of the Constitution of West Virginia,
which proscribe the enactment of any law impairing the obligation
of a contract, the Legislature further finds that:
(i) The Supreme Court has recognized that section ten, article
one of the United States Constitution must be accommodated to the
inherent police power of the State "to safeguard the vital
interests of its people." Home Bldg. & Loan Ass'n v. Blaisdell, 290
U.S. 398, 434 (1934). Likewise, the Supreme Court of Appeals has
noted that "[s]tates can preserve community order, health, safety,
morals and economic well-being, even though contracts are
affected." Security Nat'l Bank & Trust Co. v. First W.Va. Bancorp,
Inc., 166 W.Va. 775, 780 (1981);
(ii) In determining whether a Contract Clause violation has occurred, courts utilize a three-step test. The initial inquiry is
whether the statute has substantially impaired the contractual
rights of the parties. If a substantial impairment is shown, the
second step of the test is to determine whether there is a
significant and legitimate public purpose behind the legislation.
Finally, if a legitimate public purpose is demonstrated, the court
must determine whether the adjustment of the rights and
responsibilities of contracting parties is based upon reasonable
conditions and is of a character appropriate to the public purpose
justifying the legislation's adoption.
See Syl. Pt. 4,
Shell v.
Metropolitan Life Ins. Co., 181 W. Va. 16 (1989); and
(iii) Although total destruction of contractual expectations
is not necessary for a finding of substantial impairment, state
regulation that restricts a party to gains it reasonably expected
from the contract does not necessarily constitute a substantial
impairment. See Energy Reserves Group, Inc. v. Kansas Power &
Light Co., 459 U.S. 400, 410 (1983);
(22) That it is a valid exercise of the police powers of this
state and in the interest of the State of West Virginia and in
furtherance of the welfare of its citizens, to eliminate expensive,
burdensome and wasteful litigation and to promote investment in
West Virginia by establishing statutory presumptions regarding the
calculation of oil and natural gas royalties and the allocation of
production and post-production expenses; and
(23) That the establishment of the statutory presumptions
provided in this article are consistent with the contemplation of
parties to leases or other continuing contractual agreements prior
to and after the aforementioned federal regulatory changes and
simply restrict the parties to the gains that they reasonably
expected from the lease or other continuing contractual agreements
at the time such leases and/or contracts were entered into; thus,
these presumptions do not substantially impair contractual rights
and are based on a significant and legitimate public purpose.
§22-7A-2. Definitions.
As used in this article, unless otherwise specified, the
following terms have the following definitions:
(1) "Public access pipeline" means a pipeline that either
transports natural gas for others for compensation or is obligated
to do so by law, rule, regulation or order.
(2) "At the well," "at the wellhead," "well head," "wellhead,"
"at the mouth of the well," "in the field," "on the lease," "at the
well mouth," "at the mouth of the well" or other similar language
in a lease or other continuing contractual agreement related to oil
or natural gas, means the point and place where oil or natural gas
is first delivered into a public access pipeline.
(3) "Post-production expenses" means the costs and expenses
for transportation, gathering, processing, dehydration, storage,
compression, line loss, lost and unaccounted for gas, and the like incurred after natural gas is first delivered into a public access
pipeline.
§22-7A-3. Implied covenants in oil & natural gas leases and
calculation of production royalty.
(a) Production and post-production expenses may be allocated
between the parties by contract.
(b) Unless a written agreement clearly provides otherwise,
there shall be a presumption in all leases and agreements related
to payment of oil and natural gas royalty that expenses for
transportation, gathering, processing, dehydration, compression and
the like incurred before natural gas is first delivered into a
public access pipeline shall not be deducted from sales proceeds
when calculating the amount due as royalty.
(c) Unless a written agreement clearly provides otherwise,
there shall be a presumption in all leases and agreements related
to payment of oil and natural gas royalty and overriding royalty
that reasonable post-production expenses incurred shall be excluded
from sales proceeds when calculating royalty and overriding
royalty. Unless a written agreement clearly provides otherwise,
leases and continuing contractual agreements that refer to royalty
at the well, at the wellhead or similar language contemplate
deduction of reasonable post-production expenses when calculating
royalty.
(d) Unless a written agreement clearly provides otherwise, reasonable post-production expenses shall be excluded from sales
proceeds when calculating royalty with respect to leases and other
contractual agreements that provide that a production royalty is
due with reference to "amount realized," "amount received," "amount
paid," "proceeds," "net proceeds," "receipts," "net receipts,"
"wholesale price," "gross receipts" or similar terms related to, or
calculated or payable with reference to, terms such as "at the
well," "at the well head," "at the well mouth," "in the field," "on
the lease," "at the mouth of the well," "free of costs," "in the
pipeline," or similar language. It shall be presumed that
reasonable post-production expenses may be excluded from proceeds
when the lease or agreement does not specify the place or manner of
calculation of royalty or overriding royalty.
(e) Unless a written agreement clearly provides otherwise,
leases and other contractual agreements which provide that a
natural gas royalty or overriding royalty is due or payable with
reference to "market value," "market price," "wholesale market
value," "wholesale price," "average prevailing price," "field price
at the well," "prevailing price in the field," "value," or similar
terms, contemplate and provide for the calculation of price and
value by excluding post-production expenses from sales receipts, or
if the gas in not sold, then by excluding post-production expenses
from a generally accepted measure of market value, such as the
first of the month Inside FERC monthly Index (or if not available, a similar measure of market value) on the interstate pipeline into
which the gas is, or may be, delivered.
(f) The value, market value, amount realized, proceeds and
amount received for natural gas sold by a producer pursuant to a
short or long-term contract is the price provided in the contract
where: (i) the contract was entered into in good faith by a willing
buyer and a willing seller in an arm's length transaction without
undue influence from third parties; (ii) the price was not
adversely affected by the time or method of payment; and (iii) the
contract was commercially reasonable at the time the contract was
formed. For purposes of calculation and payment of royalty, the
value, market value, proceeds, amount realized, and amount received
for natural gas sold by a producer pursuant to a short or long-term
contract transaction that does not meet the forgoing criteria shall
be deemed to be the Inside FERC monthly Index price for the
appropriate region (or if not available, a similar measure of
market value) on the interstate pipeline into which the gas is, or
may be, delivered, less reasonable post-production expenses as
defined herein, for gas sold each month under said contract during
the term of said contract.
(g) Any implied covenants to market or develop oil and natural
gas production shall not be applied or construed in contravention
of this article.
(h) Charges for post-production expenses determined in connection with proceedings of federal and/or state regulatory
agencies or amounts not exceeding amounts approved by federal
and/or state regulatory agencies for materially comparable services
in the region shall be deemed reasonable, but in no event shall
reasonable post-production expenses exceed the amount of costs
incurred therefore.
§22-7A-4. Third Party Costs and Gas Used.
(a) Unless a written agreement clearly provides otherwise, it
shall be presumed that royalty or overriding royalty shall not be
due or payable on reasonable amounts actually charged by non-
affiliated third parties for gathering, line loss and unaccounted-
for gas, fuel, processing, compression, transportation,
distribution or storage in connection with the sale or delivery of
natural gas.
(b) Unless a written agreement clearly provides otherwise, it
shall be presumed that production royalty and overriding royalty
shall not be due or payable with respect to natural gas not sold
because the natural gas is:
(i) used or consumed by the producer producing, gathering,
transporting, treating, dehydrating, storing, processing or
compressing natural gas; or
(ii) lost or unaccounted for by the producer during normal
operations:
Provided, That the total amount of producer used, lost
or unaccounted-for gas that may be excluded from payment of royalty shall not exceed amounts equal to maximum amounts approved by
regulatory agencies for similar services.
§22-7A-5. Application.
The provisions of this article, other than the provisions of
section six of this article, are remedial in nature and shall be
applied retroactively to all matters in which a jury verdict has
not been returned or a final decision or judgment by a court of
competent jurisdiction has not been rendered prior to the effective
date of this article.
§22-7A-6. Production royalty reporting requirements.
(a) As soon as is practicable, but no later than two hundred
seventy days after the effective date of this article, the
following information shall be furnished to the royalty owner with,
or as part of, any royalty statement:
(1) Identification by name and date of the lease(s) and
well(s) that are the subject of the royalty statement and the
production period covered by the royalty statement;
(2) Volume of gas actually sold during the production period
in mcf or decatherm, identified as mcf or decatherm;
(3) The payee's royalty interest expressed in the form of a
decimal; and
(4) A statement as to whether any costs or expenses have been
deducted from the sales price when the royalty was calculated or
paid. If any such costs or expenses were deducted, a detailed explanation of the manner or method of calculation of royalty shall
be provided at least annually, and each time such manner or method
changes.
(b) If the amount due as royalty is less than one hundred
dollars per annum, producers shall provide the information required
by this section annually.
(c) Upon the effective date of the enactment of this article,
producers shall make reasonable efforts to respond within thirty
days to any written inquiry by a royalty owner regarding royalty
statements, the calculation of royalties and the costs and expenses
deducted from the sales price paid to the producer.
(d) In the event the producer fails to reasonably respond to
written inquiries from a royalty owner as required in subsection
(c) of this section, the royalty owner may file a written complaint
with the West Virginia Oil and Gas Conservation Commission. If the
Commission determines that a producer failed to respond to a
reasonable written inquiry in accordance with this subsection, the
Commission may award the royalty owner five hundred dollars for
each such failure to respond, and may also impose reasonable costs
on the producer for the cost of reviewing the complaint.
CHAPTER 22C. ENVIRONMENTAL RESOURCES; BOARDS, AUTHORITIES,
COMMISSIONS AND COMPACTS.
ARTICLE 8. SHALLOW GAS WELL REVIEW BOARD.
§22C-8-2. Definitions.
Unless the context in which used clearly requires a different
meaning, as used in this article:
(1) "Board" means the shallow gas well review board provided
for in section four of this article;
(2) "Chair" means the chair of the shallow gas well review
board provided for in section four of this article;
(3) "Coal operator" means any person who proposes to or does
operate a coal mine;
(4) "Coal seam" and "workable coal bed" are interchangeable
terms and mean any seam of coal twenty inches or more in thickness,
unless a seam of less thickness is being commercially worked, or
can in the judgment of the division foreseeably be commercially
worked and will require protection if wells are drilled through it;
(5) "Commission" means the oil and gas conservation commission
provided for in section four, article nine of this chapter;
(6) "Commissioner" means the oil and gas conservation
commissioner provided for in section four, article nine of this
chapter;
(7) "Correlative rights" means the reasonable opportunity of
each person entitled thereto to recover and receive without waste
the gas in and under a tract or tracts, or the equivalent thereof;
(8) "Deep well" means any well other than a shallow well,
drilled and completed in a formation at or below the top of the uppermost member of the "Onondaga Group";
(9) "Division" means the state division of environmental
protection provided for in chapter twenty-two of this code;
(10) "Director" means the director of the division of
environmental protection as established in article one, chapter
twenty-two of this code or such other person to whom the director
delegates authority or duties pursuant to sections six or eight,
article one, chapter twenty-two of this code;
(11) "Drilling unit" means the acreage on which the board
decides one well may be drilled under section ten of this article;
(12) "Gas" means all natural gas and all other fluid
hydrocarbons not defined as oil in subdivision (15) of this
section;
(13) "Gas operator" means any person who owns or has the right
to develop, operate and produce gas from a pool and to appropriate
the gas produced therefrom either for such person or for such
person and others. In the event that there is no gas lease in
existence with respect to the tract in question, the person who
owns or has the gas rights therein shall be considered a "gas
operator" to the extent of seven eighths of the gas in that portion
of the pool underlying the tract owned by such person, and a
"royalty owner" to the extent of one eighth of such gas;
(14) "Just and equitable share of production" means, as to
each person, an amount of gas in the same proportion to the total gas production from a well as that person's acreage bears to the
total acreage in the drilling unit;
(15) "Oil" means natural crude oil or petroleum and other
hydrocarbons, regardless of gravity, which are produced at the well
in liquid form by ordinary production methods and which are not the
result of condensation of gas after it leaves the underground
reservoir;
(16) "Owner" when used with reference to any coal seam, shall
include any person or persons who own, lease or operate such coal
seam;
(17) "Person" means any natural person, corporation, firm,
partnership, partnership association, venture, receiver, trustee,
executor, administrator, guardian, fiduciary or other
representative of any kind, and includes any government or any
political subdivision or any agency thereof;
(18) "Plat" means a map, drawing or print showing the location
of one or more wells or a drilling unit;
(19) "Pool" means an underground accumulation of gas in a
single and separate natural reservoir (ordinarily a porous
sandstone or limestone). It is characterized by a single natural-
pressure system so that production of gas from one part of the
pooltends to or does affect the reservoir pressure throughout its
extent. A pool is bounded by geologic barriers in all directions,
such as geologic structural conditions, impermeable strata, and water in the formation, so that it is effectively separated from
any other pools which may be present in the same district or in the
same geologic structure;
(20) "Royalty owner" means any owner of gas in place, or gas
rights, to the extent that such owner is not a gas operator as
defined in subdivision (13) of this section;
(21) "Shallow well" means any gas well, drilled and completed
in a formation above the top of the uppermost member of the
"Onondaga Group":
Provided, That in drilling a shallow well the
well operator may penetrate into
no more then seventy-five feet
below the top of the uppermost member of the "Onondaga Group"
to a
reasonable depth, not in excess of twenty feet, in order to allow
for logging and completion operations, but in no event may
any
formation below the top of the uppermost member of the "Onondaga
Group" formation be
otherwise produced, perforated or stimulated in
any manner;
(22) "Tracts comprising a drilling unit" means that all
separately owned tracts or portions thereof which are included
within the boundary of a drilling unit;
(23) "Well" means any shaft or hole sunk, drilled, bored or
dug into the earth or into underground strata for the extraction,
injection or placement of any liquid or gas, or any shaft or hole
sunk or used in conjunction with such extraction, injection or
placement. The term "well" does not include any shaft or hole sunk, drilled, bored or dug into the earth for the sole purpose of core
drilling or pumping or extracting therefrom potable, fresh or
usable water for household, domestic, industrial, agricultural or
public use; and
(24) "Well operator" means any person who proposes to or does
locate, drill, operate or abandon any well.
ARTICLE 9. OIL AND GAS CONSERVATION.
§ 22C-9-2. Definitions.
(a) Unless the context in which used clearly requires a
different meaning, as used in this article:
(1) "Commission" means the oil and gas conservation commission
and "commissioner" means the oil and gas conservation commissioner
as provided for in section four of this article;
(2) "Director" means the director of the division of
environmental protection and "chief" means the chief of the office
of oil and gas;
(3) "Person" means any natural person, corporation,
partnership, receiver, trustee, executor, administrator, guardian,
fiduciary or other representative of any kind, and includes any
government or any political subdivision or any agency thereof;
(4) "Operator" means any owner of the right to develop,
operate and produce oil and gas from a pool and to appropriate the
oil and gas produced therefrom, either for such person or for such
person and others; in the event that there is no oil and gas lease in existence with respect to the tract in question, the owner of
the oil and gas rights therein shall be considered as "operator" to
the extent of seven eighths of the oil and gas in that portion of
the pool underlying the tract owned by such owner, and as "royalty
owner" as to one-eighth interest in such oil and gas; and in the
event the oil is owned separately from the gas, the owner of the
substance being produced or sought to be produced from the pool
shall be considered as "operator" as to such pool;
(5) "Royalty owner" means any owner of oil and gas in place,
or oil and gas rights, to the extent that such owner is not an
operator as defined in subdivision (4) of this section;
(6) "Independent producer" means a producer of crude oil or
natural gas whose allowance for depletion is determined under
Section 613A of the federal Internal Revenue Code in effect on the
first day of July, one thousand nine hundred ninety-seven;
(7) "Oil" means natural crude oil or petroleum and other
hydrocarbons, regardless of gravity, which are produced at the well
in liquid form by ordinary production methods and which are not the
result of condensation of gas after it leaves the underground
reservoir;
(8) "Gas" means all natural gas and all other fluid
hydrocarbons not defined as oil in subdivision (7) of this section;
(9) "Pool" means an underground accumulation of petroleum or
gas in a single and separate natural reservoir (ordinarily a porous sandstone or limestone). It is characterized by a single natural-
pressure system so that production of petroleum or gas from one
part of the pool affects the reservoir pressure throughout its
extent. A pool is bounded by geologic barriers in all directions,
such as geologic structural conditions, impermeable strata, and
water in the formations, so that it is effectively separated from
any other pools that may be presented in the same district or on
the same geologic structure;
(10) "Well" means any shaft or hole sunk, drilled, bored or
dug into the earth or underground strata for the extraction of oil
or gas;
(11) "Shallow well" means any
gas well, drilled and completed
in a formation above the top of the uppermost member of the
"Onondaga Group":
Provided, That in drilling a shallow well the
well operator may penetrate into
no more then seventy-five feet
below the top of the uppermost member of the "Onondaga Group"
to a
reasonable depth, not in excess of twenty feet, in order to allow
for logging and completion operations, but in no event may
any
formation below the top of the uppermost member of the "Onondaga
Group" formation be
otherwise produced, perforated or stimulated in
any manner;
(12) "Deep well" means any well other than a shallow well,
drilled and completed in a formation at or below the top of the
uppermost member of the "Onondaga Group";
(13) "Drilling unit" means the acreage on which one well may
be drilled;
(14) "Waste" means and includes:
(A) Physical waste, as that term is generally understood in
the oil and gas industry;
(B) The locating, drilling, equipping, operating or producing
of any oil or gas well in a manner that causes, or tends to cause,
a reduction in the quantity of oil or gas ultimately recoverable
from a pool under prudent and proper operations, or that causes or
tends to cause unnecessary or excessive surface loss of oil or gas;
or
(C) The drilling of more deep wells than are reasonably
required to recover efficiently and economically the maximum amount
of oil and gas from a pool. Waste does not include gas vented or
released from any mine areas as defined in section two, article
one, chapter twenty-two-a of this code or from adjacent coal seams
which are the subject of a current permit issued under article two
of chapter twentytwoa of this code: Provided, That nothing in this
exclusion is intended to address ownership of the gas;
(15) "Correlative rights" means the reasonable opportunity of
each person entitled thereto to recover and receive without waste
the oil and gas in and under his tract or tracts, or the equivalent
thereof; and
(16) "Just and equitable share of production" means, as to each person, an amount of oil or gas or both substantially equal to
the amount of recoverable oil and gas in that part of a pool
underlying such person's tract or tracts.
(b) Unless the context clearly indicates otherwise, the use of
the word "and" and the word "or" shall be interchangeable, as, for
example, "oil and gas" shall mean oil or gas or both.
Note:The purpose of this bill is to simplify the taxation
and clarify the regulation and treatment under the law of the
production, marketing and delivery of natural gas and oil.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would
be added. §11-13A-3f, §11-13V-4a, §11-13V-4a, §22-7A-1, §22-7A-2,
§22-7A-3, §22-7A-4, §22-7A-5 and §22-7A-6are new, therefore,
strike-throughs and underscoring have been omitted.
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