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Introduced Version House Bill 3023 History

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Key: Green = existing Code. Red = new code to be enacted
H. B. 3023


(By Delegates Brown, Martin, Argento,

Paxton, M. Poling, D. Poling, Moye,

Moore, Fleischauer, Manypenny

and Rodighiero)


[Introduced January 13, 2010 ; referred to the

Committee on Energy, Industry and Labor, Economic Development and Small Business then the Judiciary .]


A BILL to amend the Code of West Virginia, 1931, as amended, by adding thereto a new article, designated §22-5A-1, §22-5A-2, §22-5A-3, §22-5A-4, §22-5A-5, §22-5A-6, §22-5A-7, §22-5A-8, §22-5A-9, §22-5A-10 and §22-5A-11; to amend and reenact §22-6-6 of said code; to amend and reenact §22-7-3, §22-7-5 and §22-7-7 of said code; and to amend said code by adding two new sections, designated §22-7-5a and §22-7-9 of said code; all relating to rights, administration and enforcement of oil and gas wells; and surface owner bill of rights.

Be it enacted by the Legislature of West Virginia:
That the Code of West Virginia, 1931, as amended, be amended by adding thereto a new article, designated §22-5A-1, §22-5A-2, §22-5A-3, §22-5A-4, §22-5A-5, §22-5A-6, §22-5A-7, §22-5A-8, §22-5A-9, §22-5A-10 and §22-5A-11; to amend and reenact §22-6-6 of said code; to amend and reenact §22-7-3, §22-7-5 and §22-7-7 of said code; and to amend said code by adding two new sections, designated §22-7-5a and §22-7-9 of said code, all to read as follows:

ARTICLE 5A. OIL AND GAS SURFACE OWNER'S BILL OF RIGHTS.



§22-5A-1. Findings and purpose.



(a) The Legislature finds that the owner of the surface of property where an oil or gas lease operator intends to drill a well in many cases does not also own the minerals or any right to the royalty or any other benefit from the drilling of the well on, or the production of oil or gas from under, the surface owner's property.
(b) Even where the surface owner also owns the minerals, the surface owner may have signed a "standard" lease that provides little or no means to have the surface owners rights recognized.
(c) The construction of an oil or gas well site, the construction of access road to the well site, the laying of a pipeline from wells on the surface owners land, and often neighboring lands, has an enormous impact on value, use and enjoyment of the surface owner's land.
(d) Under the common law, unless changed by the terms of a severance deed or a lease, the operator who intends to drill an oil or gas well on the surface owner's property only has the right to do what is "fairly necessary" in order to produce the oil or gas; the operator must give "due regard" to or "accommodate" the interest of the surface owner.
(e) The only notice to the surface owner required by state code when an operator plans to drill a well on a surface owner is the requirement that the operator give the surface owner a copy of the operator's application to the state for a permit to drill an oil or gas well on the surface owner's land. This notice is only required to be given to the surface owner at the time the application is filed and already contains a well site location and access road location that the operator has already chosen and surveyed, and for which the operator has already prepared a soil erosion and sediment control plan. The operator may come onto the land and even send surveyors to mark well sites and road locations to choose the well site and road locations to put in the permit without notifying or communicating with to the surface owner first.
(f) The surface owner has a right to comment on the permit application if he or she can get comments to the Office of Oil and Gas of the Department of Environmental Protection within fifteen days of filing the permit. However, the surface owner has no statutory right to a hearing on the surface owner's comments on the permit application.
(g) The surface owner's comments on the operator's drilling permit application cannot cause the state to change the road or well site location on the grounds that the operator is doing more surface disturbance and so onto the surface owner's land than is fairly necessary under the common law. The state can only change the permit for the reasons set out in the next subsection.
(h) The state can only change an operator's permit to drill an oil or gas well based on the surface owner's comments if the drilling activity proposed in the permit would cause erosion or sedimentation, if the down hole casing and tubing program would endanger water sources, if the drilling would be a safety hazard, if the drilling would damage public lands, or if the state has issued an actual "violation" against the operator for improper activity relating to other wells.
(i) The state cannot change the operator's permit to drill an oil or gas well because the operator's plans fail to recognize the surface owner's common law rights. If the plans set out in the permit do more than is fairly necessary, the surface owner's only recourse is to hire a lawyer and sue in circuit court, which may require the posting of a bond.
(j) As a result, many operators take advantage of surprise, plus the advantages of more knowledge and years of experience on the part of the operator compared to the surface owner who has never had a well drilled before, plus the operator's vast advantages of resources and lawyers compared to a citizen landowner. As a result of these advantages, many operators fail to give due regard to any preferences of the surface owners and they do more than is fairly necessary to the surface owner and his or her land.
(k) Although one statute provides that many surface owners are entitled to compensation for the use of their surface land, under that statute the surface owners are not entitled to their land's full market value or to the diminution in the value that the drilling causes to the lands adjacent to the well site, access road and pipeline, even though the surface owners are the ones who will continue to pay taxes on the disturbed land.
(l) Although the gas will be produced from under the surface owners land, and although the gas will be produced out of a well placed on their land and piped to market across their land, surface owners have no right to connect to the well or gathering pipelines for their domestic use of the gas - at any price.
(m) The Legislature therefore exercises its police and other powers to foster, protect, and control the exercise of the parties' common law rights by the enactment of this article.

§22-5A-2. Definitions.



For the purposes of this article the words or terms used in this article, and any variation of those words or terms required by the context, have the meanings ascribed to them in article six of this chapter unless a different meaning clearly appears from the context.

§22-5A-3. Notices.


The notices to the surface owner required by this article shall be given to the same persons or entities and in the same manner as set out for notice to surface owners of the application for a well work permit as provided in article six, section nine-a of this chapter.

§22-5A-4. Surface use and compensation agreement.


(a) A surface use agreement must be in writing or, if the surface owner agrees and has the ability to use it, in the form of an authenticated electronic record.
(b) A surface use agreement shall include:
(1) The name, physical address, telephone number of the operator, the surface owner and the mineral owner;
(2) Locations and dimensions of well sites, access roads, pipelines, land application sites and other uses set out in a format and in sufficient detail for the surface owner to be able to locate them on his or her property and determine and evaluate the effect of the operator's plan on the surface owner's interest, including what soil and timber or other vegetation will be disturbed;
(3) Specifications for construction of the well site, pits, disposal areas, access roads, pipelines, and other facilities or uses associated with the well work or for entry on to land by motorized equipment, including without limitation temporary soil erosion and sediment control, dimensions of all cut and fill locations, top soil banking and road grades expressed as a percent of slope, side slope, drainage structures and their frequency, and whether the specifications will require a waiver from the state;
(4) Specifications applicable for the life of the well including reclamation of the well site, pits, disposal areas, access roads, pipelines, and other facilities, uses or disturbances of the surface lands associated with the well work including without limitation erosion and sediment control for the life of the well;
(5) Specifications for the temporary and permanent revegetation of the well site, pits, disposal areas, access roads, pipelines, and other facilities or uses associated with the well work, road surfaces, soil preparation, seed species;
(6) Specifications for maintenance of well sites, pipelines and access roads, including frequency or indicators of need for maintenance including, without limitation, gating appliance specifications and gate and access control practices;
(7) Particular specifications for maintenance at all times of existing roads used by the surface owner that will also be utilized by the operator, including, without limitation, gating appliance specifications and gate practices;
(8) Compensation to the surface owner pursuant to article seven of this chapter or the common law including, without limitation, compensation for the value of the land disturbed by the operator pursuant to the activity for which the well work permit will be sought, the land foreseen for occupation of the land and used by the well site, access road and pipeline or other uses, the foreseen diminution in value of the adjacent land, and foreseen lost or damaged personal property, fixtures, timber and other crops and vegetation.
(c) A surface use and compensation agreement may include any other documents that will be included in the well permit application including those regarding casing and cementing and land application of pit waste.
(d) A surface use and compensation agreement may include a statement of no objection as provided in article twenty one, section twelve of this chapter.
(e) A surface use and compensation agreement may not waive damages for breach of the agreement, for pollution of water sources or supplies not identified in the agreement, for negligence or failure to perform tasks in a workmanlike manner, or for unforeseen damages.

§22-5A-5. Notice of initial entry upon surface lands.


(a) At least fifteen days before entering upon the surface land for inspection, measurements, surveying or other evaluation of proposed access routes and sites for either new well work or roads or other work requiring disturbance of the surface that has not been disturbed before by the operator of an oil or gas well, an operator shall provide notice of the fact that the operator is entering the surface land and of the general purposes for such entry. The fifteen days begins to run from the surface owner's actual receipt of the notice or refusal to accept the notice. The fifteen days notice before entry may be waived by a surface owner in writing. A surface use and compensation agreement is not valid unless it is finalized and signed at least fifteen days after receipt of the notice provided in this section.
(b) The notice shall include:
(1) The name, mailing address and physical address of the operator, and a land line telephone number if one exists, a cell phone number if one exists, and an e-mail address or other electronic contact information if any exist for the actual person or persons who may come onto the land representing the operator, the person with authority to make decisions regarding the access road, well site and pipelines, and their supervisors;
(2) The anticipated, approximate dates and times of entry onto the surface land;
(3) A copy of the West Virginia Oil and Gas Production Compensation Act;
(4)A copy of this article, and other statutes regarding the surface owner's rights to notice of, and to comment upon, the well work permit, together with any rules arising from those statutes;
(5) A copy of the soil erosion and sediment control manual of the Office of Oil and Gas of the State of West Virginia;
(6) A copy of an explanation of the surface owner's rights to challenge the real property tax assessment of their land after the drilling of the well. The use of a form prepared by an agency of state government shall be presumed to be proper notice of these rights; and
(7) An offer to meet with the surface owner either on the land or, at the option of the surface owner, at another mutually agreed location. The offer to meet shall be to meet prior to or at the time of the first entry.
(c) At the meeting the operator shall point out and explain his or her preference for locations of well sites, shall consider the surface owner's suggestions for alternate locations, and if the surface owner's suggestion cannot be used, shall state and make a record of the reasons it cannot be used. The surface owner shall state his or her preference for access roads and pipelines to the proposed sites and consider the operator's suggestions for alternative road locations, and if the surface owner's suggestion cannot be used, the operator shall state and make a record of the reasons it cannot be used.

§22-5A-6. Notice of planned surface use; mediation.


(a) This section does not apply if the operator and the surface owner have entered into an agreed surface use and compensation agreement in compliance with section six of this article that, by separate signature, waives the requirements of this section.
(b) Before filing an application for a well work permit the operator shall give the surface owner notice of the planned well work.
(c) The notice of the planned well work shall include:
(1) The name of the operator, the mailing and physical address of the operator and the name, land line telephone number if any, cell phone number if any, and e-mail or other electronic contact information if any of the individual with authority to negotiate a surface use and compensation agreement plus, at the option of the operator, any other individual working for the operator; and
(2) A proposed surface use and compensation agreement as set out in section seven of this article.
(d) The notice of planned well work shall include a statement that if the parties cannot agree to a surface use and compensation agreement, then either party may request that the parties enter into private mediation to attempt to reach an agreement not less than fifteen days nor more than thirty days from the receipt of the notice of planned well work by the surface owner, and a statement that the office of oil and gas may have an explanation of the agreed private mediation process.
(e) Either party may request that the parties enter into agreed private mediation not less than fifteen nor more than thirty days after the notice of planned well work is received. The mediator may be a person licensed as a real estate agent, a person licensed as a real estate appraiser, or a person licensed as a forester, and each of those licensing agencies is authorized within the limits of existing funding, but not required, to provide mediation training to its licensees, to charge the cost thereof, and to maintain a list of those who have completed the training available that is available to the public. A person who is a member of the West Virginia State Bar who has completed State Bar mediation training may also be a mediator. The parties may agree to the use of a mediator who does not meet these requirements. The office of oil and gas may, but is not required, to provide a brochure explaining the mediation process and possible sources of mediators. Any such brochure shall be provided to the surface owner by the operator when the operator requests the mediation, or in response to a surface owner's request for mediation. The office of oil and gas may create a written agreed private mediation form, but the form does not have to be used and the mediation agreement does not have to be in writing. The private mediation agreement shall include a method of sharing the cost. The private mediation agreement shall include an agreement on a mediator or on a person to select a mediator. The mediator shall schedule the mediation within twenty days of the agreement. The mediation shall follow standard mediation practices. Each party must send a person to the mediation with authority to enter into a surface use and compensation agreement. Parties may be represented by an attorney. The mediation shall be completed within thirty days of the request for agreed private mediation. The report of the mediation shall be documented in writing. Agreements reached through mediation are binding and enforceable. If the parties cannot come to a private mediation agreement on the mediator or other aspects of the process, then the mediation shall not proceed.
(f) Notwithstanding article six, chapter eleven of this code, unless the operator submits an agreed surface use and compensation agreement with the permit application that, by separate signature, waives the requirements of this section, no well work permit application shall be submitted to the office of oil and gas until forty-five days after the notice has been received by the surface owner. However, if a party makes a request for agreed private mediation within thirty days of receipt by the surface owner of the notice of planned well work, a permit application may not be submitted until sixty days after the service of the notice of planned surface use. The surface use agreement so submitted may also include a separately signed statement of no objections as provided in article six of this chapter.

§22-5A-7. Effect of surface use and compensation agreement; bond.


(a) If a statement of no objections is included in a surface use and compensation agreement as provided in article six of this chapter, the director may issue a permit at any time without waiting for any comment from the surface owner. However, the surface owner may still comment: (1) On any provision of the permit that was not supplied to the surface owner prior to signing the statement of no objection; and (2) on any documents that contains provisions inconsistent with the surface use and compensation agreement or documents included with the surface use and compensation agreement. The director shall deny or condition a permit if it is inconsistent with a surface use and compensation agreement or document included with the surface use and compensation agreement.
(b) If an agreed upon surface use and compensation agreement is not submitted with the permit application, no permit may issue pursuant to article six, chapter eleven of this code unless the operator submits proof that it has furnished a surety bond, letter of credit from a banking institution or a certificate of deposit for the benefit of the surface owner in the amount of $20,000 for each permitted well work. The surety bond, letter of credit, cash or certificate of deposit shall only be released by the surety company, financial institution or state if:
(1) The operator and the surface owner enter into an agreed surface use and compensation agreement before reclamation has been completed;
(2) The surface owner signs a release after reclamation has been completed regarding compensation for damages;
(3) The operator provides proof that it has paid an amount for surface owner compensation determined by binding arbitration pursuant to article seven of this chapter;
(4) The operator provides proof that it has paid a judgement in favor of the surface owner entered by a magistrate court or a circuit court of this state or a federal court; or
(5) As provided in article seven, section five-a of this chapter.

§22-5A-8. Purchase of gas by surface owners.



(a) Where the owner of the surface on which a gas well has been drilled is not entitled to or is not given free gas and does not have access to gas from a regulated utility, the surface owner shall have the option of connecting to the well or, at the option of the well operator, to another well or any gathering line to the well or another well in order to obtain gas service for one residence or farm, or residence and associated farm.
(b) The surface owner is responsible for all of the reasonable actual costs of making the connection.
(c) The operator may set reasonable conditions to assure the safety and integrity of its system in a surface use and compensation agreement or another agreement.
(d) The operator may require the surface owner to pay for the gas at a price no greater than that used to determine the royalty owner's payment and may set a maximum amount if the surface owner's use of a greater amount than the maximum would interfere with the operation of or production from the gas well.
(e) The operator has the duty to warn of known dangers relating to the surface owner's use of the gas, but is otherwise not liable for ordinary negligence.
(f) The operator may have reasonable rules for the safe and reliable purchase and use of the gas by the surface owner.
(g) Notwithstanding other statues or rules or case law, a person who receives well head or gathering line gas pursuant to this section is not a "residential customer" for the purpose of determining whether a natural gas producer is a public utility.

§22-5A-9. Options for surface use and revegetation.



(a) The office of oil and gas shall include in its soil erosion and sediment control manual alternatives for road construction that include the interests of the surface owner for a permanent road intended for regular travel through his or her property or a road that has minimal impacts upon the property, and alternatives for revegetation with fast growing, wildlife, or native seed species or other individually negotiated seed species subject to approval by the chief.
(b) Any requirement of the soil erosion and sediment control manual that can be waived by the inspector of the office of oil and gas can only be waived if the surface owner also agrees in writing. If the surface owner is a natural person or persons, the waiver must be in writing and separately signed from other waivers.
(c) "Daylighting", the practice of clearing woody material back from the roadway in an attempt to accelerate drying of the road surface, may only be used with the written consent of the surface owner.

§22-5A-10. Waiver.


Except as expressly provided, the provisions of this article may not be waived.

§22-5A-11. Effective dates.


Sections one, two, three, four, five, six, seven and nine shall apply to all permits issued more than ninety days from passage. Section eight shall take effect ninety days from passage. Subsections (b) and (c) of section nine take effect from passage. Subsection (a) of section nine takes effect September 1, 2009.

ARTICLE 6. OFFICE OF OIL AND GAS; OIL AND GAS WELLS; ADMINISTRATION; ENFORCEMENT.



§22-6-6. Permit required for well work; permit fee; application; soil erosion control plan.


(a) It is unlawful for any person to commence any well work, including site preparation work which involves any disturbance of land, without first securing from the director a well work permit. An application may propose and a permit may approve two or more activities defined as well work.
(b) The application for a well work permit shall be accompanied by applicable bond as prescribed by section twelve, fourteen or twenty-three of this article, and the applicable plat required by section twelve or fourteen of this article.
(c) Every permit application filed under this section shall be verified and shall contain the following:
(1) The names and addresses of: (i) The well operator; (ii) the agent required to be designated under subsection (e) of this section; and (iii) every person whom the applicant must notify under any section of this article together with a certification and evidence that a copy of the application and all other required documentation has been delivered to all such persons;
(2) The name and address of every coal operator operating coal seams under the tract of land on which the well is or may be located, and the coal seam owner of record and lessee of record required to be given notice by section twelve, if any, if said owner or lessee is not yet operating said coal seams;
(3) The number of the well or such other identification as the director may require;
(4) The type of well;
(5) The well work for which a permit is requested;
(6) The approximate depth to which the well is to be drilled or deepened, or the actual depth if the well has been drilled;
(7) Any permit application fee required by law;
(8) If the proposed well work will require casing or tubing to be set, the entire casing program for the well, including the size of each string of pipe, the starting point and depth to which each string is to be set, and the extent to which each such string is to be cemented;
(9) If the proposed well work is to convert an oil well or a combination well or to drill a new well for the purpose of introducing pressure for the recovery of oil as provided in section twenty-five of this article, specifications in accordance with the data requirements of section fourteen of this article;
(10) If the proposed well work is to plug or replug the well: (i) Specifications in accordance with the data requirements of section twenty-three of this article; (ii) a copy of all logs in the operator's possession as the director may require; and (iii) a work order showing in detail the proposed manner of plugging or unplugging the well, in order that a representative of the director and any interested persons may be present when the work is done. In the event of an application to drill, redrill or deepen a well, if the well work is unsuccessful so that the well must be plugged and abandoned, and if the well is one on which the well work has been continuously progressing pursuant to a permit, the operator may proceed to plug the well as soon as the operator has obtained the verbal permission of the director or the director's designated representative to plug and abandon the well, except that the operator shall make reasonable effort to notify as soon as practicable the surface owner and the coal owner, if any, of the land at the well location, and shall also timely file the plugging affidavit required by section twenty-three of this article;
(11) If the proposed well work is to stimulate an oil or gas well, specifications in accordance with the data requirements of section thirteen of this article;
(12) The erosion and sediment control plan required under subsection (d) of this section for applications for permits to drill; and
(13) Any other relevant information which the director may require by rule.
(d) An erosion and sediment control plan shall accompany each application for a well work permit. except for a well work permit to plug or replug any well Such plan shall contain methods of stabilization and drainage, including a map of the project area indicating the amount of acreage disturbed, including without limitation acreage disturbed for pipelines and the type and spacing of access road drainage structures. The erosion and sediment control plan shall meet the minimum requirements of the West Virginia erosion and sediment control manual as adopted and from time to time amended by the division, in consultation with the several soil conservation districts pursuant to the control program established in this state through section 208 of the federal Water Pollution Control Act Amendments of 1972 (33 U.S.C. 1288). The erosion and sediment control plan shall become part of the terms and conditions of a well work permit, except for a well work permit to plug or replug any well, which is issued and the provisions of the plan shall be carried out where applicable in the operation. The erosion and sediment control plan shall set out the proposed method of reclamation which shall comply with the requirements of section thirty of this article.
(e) The well operator named in such application shall designate the name and address of an agent for such operator who shall be the attorney-in-fact for the operator and who shall be a resident of the State of West Virginia upon whom notices, orders or other communications issued pursuant to this article or article eleven, chapter twenty-two, may be served, and upon whom process may be served. Every well operator required to designate an agent under this section shall within five days after the termination of such designation notify the director of such termination and designate a new agent.
(f) The well owner or operator shall install the permit number as issued by the director in a legible and permanent manner to the well upon completion of any permitted work. The dimensions, specifications and manner of installation shall be in accordance with the rules of the director.
(g) The director may waive the requirements of this section and sections nine, ten and eleven of this article in any emergency situation, if the director deems such action necessary. In such case the director may issue an emergency permit which would be effective for not more than thirty days, but which would be subject to reinsurance by the director.
(h) The director shall deny the issuance of a permit if the director determines that the applicant has committed a substantial violation of a previously issued permit, including the erosion and sediment control plan, or a substantial violation of one or more of the rules promulgated hereunder and whether or not a finding or order has been made pursuant to sections three and four of this article. If a finding or order has been made pursuant to sections three and four of this article, the permit shall not be denied unless the applicant has failed to abate or seek review of the violation within the time prescribed by the director pursuant to the provisions of sections three and four of this article and the rules promulgated hereunder, which time may not be unreasonable. Provided, That However, in the event that the director does find that a substantial violation has occurred and that the operator has failed to abate or seek review of the violation in the time prescribed, the director may suspend the permit on which said violation exists, after which suspension the operator shall forthwith cease all well work being conducted under the permit. Provided, however, That However, the director may reinstate the permit without further notice, at which time the well work may be continued. The director shall make written findings of any such determination and may enforce the same in the circuit courts of this state and the operator may appeal such suspension pursuant to the provisions of section forty of this article. The director shall make a written finding of any such determination.
(i) Any person who violates any provision of this section shall be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $5,000, or be imprisoned confined in the county jail not more than twelve months, or both fined and imprisoned confined.

ARTICLE 7. OIL AND GAS PRODUCTION DAMAGE COMPENSATION.



§22-7-3. Compensation of surface owners for drilling operations.



(a) The oil and gas developer shall be obligated to pay the surface owner compensation for:
(1) Lost income or expenses incurred as a result of being unable to dedicate land actually occupied by the driller's operation or to which access is prevented by such drilling operation to the uses to which it was dedicated prior to commencement of the activity for which a permit was obtained measured from the date the operator enters upon the land until the date reclamation is completed;
(2) The market value of crops destroyed, damaged or prevented from reaching market;
(3) Any damage to a water supply in use prior to the commencement of the permitted activity;
(4) The cost of repair of personal property up to the value of replacement by personal property of like age, wear and quality; and
(5) The diminution in value, if any, of the surface lands and other property after completion of the surface disturbance done pursuant to the activity for which the permit was issued determined according to the actual use made market value thereof by the surface owner immediately prior to the commencement of the permitted activity, including the surface lands actually disturbed, and any adjacent surface lands the market value of which is diminished by the presence of the well and the surface disturbance and other appurtenances.
The amount of damages may be determined by any formula mutually agreeable between the surface owner and the oil and gas developer.
(b) Any reservation or assignment of the compensation provided in this section apart from the surface estate except to a tenant of the surface estate is prohibited.
(c) In the case of surface lands owned by more than one person as tenants in common, joint tenants or other coownership, any claim for compensation under this article shall be for the benefit of all such coowners. The resolution of a claim for compensation provided in this article shall operate as a bar to the assertion of additional claims under this section arising out of the same drilling operations.

§22-7-5. Notification of claim.



Any surface owner, to receive compensation under section three of this article, shall notify the oil and gas developer of the damages sustained by the person within at any time after ninety days after the drilling rig is removed from the site, but no later than two years after the date that the oil and gas developer files notice that reclamation is commencing under section thirty, article six of this chapter. Such notice shall be given to surface owners, by delivering it in person, or by registered or certified mail, return receipt requested, and shall be complete upon mailing. If more than three tenants in common or other coowners hold interests in such lands, the developer may give such notice to the person described in the records of the sheriff required to be maintained pursuant to section eight, article one, chapter eleven-a of this code, or and to any other owner requesting a copy or if neither a current location for personal service nor a mailing address for registered or certified mail notice can be obtained after reasonable diligence, and no other owner has requested a copy publish in the county in which the well is located or to be located a Class II legal advertisement as described in section two, article three, chapter fifty-nine of this code, containing such notice and information as the director shall prescribe by rule.

§22-7-5a. Notification of claim by certain operators.


An operator who has posted a bond pursuant to section four, article seven-a, chapter twenty-two of this code that has not been released may make an offer of settlement to the surface owner by hand delivery in the same manner as provided in subdivision (2), subsection (a) and subsection (b), section nine, article six, chapter twenty-two of this code.
(1) If the surface owner accepts the offer and the compensation is paid, then the bond required by section four, article seven-a, chapter twenty-two of this code shall be released.
(2) If the surface owner rejects the offer and elects binding arbitration the bond shall be released at the end of the arbitration or one year from the election of arbitration, which ever is earlier.
(3) If the surface owner files an action for compensation in circuit court the bond shall be released when the action is dismissed or within two years of the filing of the action, whichever is earlier.
(4) If the surface owner neither elects arbitration nor files an action in circuit court the bond shall be released after the later of:
(A) The last day for the surface owner to elect arbitration under this section; or
(B) The last day upon which a surface owner may notify the oil and gas developer of the damages sustained as set out in section five of this article. However, in order for the bond to be released under this subdivision, the operator must have provided a notice to the surface owner not less than three calendar months nor more than one calendar year before the last day which states the last calendar day before the deadline passes and notifies the surface owner that that is the last day to notify the oil and gas developer of the damages sustained to begin a claim for damages pursuant to the oil and gas production damages compensation act.

§22-7-7. Rejection; legal action; arbitration; fees and costs.



(a) Unless the oil and gas developer has paid the surface owner a negotiated settlement of compensation within sixty days after the date the notification of claim was mailed under section five of this article, the surface owner may within eighty days after the notification mail date, either: (i) Bring an action for compensation pursuant to this article in the circuit court of the county in which the well is located within the statute of limitations for a common law damages action; or (ii) within one hundred twenty days after the notification mail date, elect instead, by written notice delivered by personal service or by certified mail, return receipt requested, to the designated agent named by the oil and gas developer under the provisions of section six, article six of this chapter, to have his or her compensation finally determined by binding arbitration pursuant to article ten, chapter fifty-five of this code. A surface owner may not proceed in circuit court after receiving an arbitration award pursuant to this article.
Settlement negotiations, offers and counter-offers between the surface owner and the oil and gas developer shall not be admissible as evidence in any arbitration or judicial proceeding authorized under this article, or in any proceeding resulting from the assertion of common law remedies.
(b) The compensation to be awarded to the surface owner shall be determined by a panel of three disinterested arbitrators. The first arbitrator shall be chosen by the surface owner in such party's notice of election under this section to the oil and gas developer; the second arbitrator shall be chosen by the oil and gas developer within ten days after receipt of the notice of election; and the third arbitrator shall be chosen jointly by the first two arbitrators within twenty days thereafter. If they are unable to agree upon the third arbitrator within twenty days, then the two arbitrators are hereby empowered to and shall forthwith submit the matter to the court under the provisions of section one, article ten, chapter fifty-five of this code, so that, among other things, the third arbitrator can be chosen by the judge of the circuit court of the county wherein the surface estate lies.
(c) The following persons shall be deemed interested and not be appointed as arbitrators: Any person who is personally interested in the land on which rotary drilling is being performed or has been performed, or in any interest or right therein, or in the compensation and any damages to be awarded therefor, or who is related by blood or marriage to any person having such personal interest, or who stands in the relation of guardian and ward, master and servant, principal and agent, or partner, real estate broker, or surety to any person having such personal interest, or who has enmity against or bias in favor of any person who has such personal interest or who is the owner of, or interested in, such land or the oil and gas development thereof. No person shall be deemed interested or incompetent to act as arbitrator by reason of being an inhabitant of the county, district or municipal corporation wherein the land is located, or holding an interest in any other land therein.
(d) The panel of arbitrators shall hold hearings and take such testimony and receive such exhibits as shall be necessary to determine the amount of compensation to be paid to the surface owner. However, no award of compensation shall be made to the surface owner unless the panel of arbitrators has first viewed the surface estate in question. A transcript of the evidence may be made but shall not be required.
(e) Each party shall pay the compensation of such party's arbitrator and one half of the compensation of the third arbitrator, or such party's own court costs as the case may be.

§22-7-9. Effective date of amendments.



The amendments to this article made by the regular session of the 2009 Legislature take effect for all well work for which a notice that the operator is commencing reclamation pursuant to section five of this article has not been sent.

NOTE: The purpose of this bill is to enhance the exercise of the state's police powers regarding the rights of surface owners and drillers when oil and gas wells are drilled on the surface owner's land by:

?Enacting procedures to encourage the recognition of the existing common law and statutory rights of surface owners as oil and gas well operators begin drilling new wells or performing other well work on the surface owners' land. The existing, statutory, waivable right of the surface owners to comment on how, but not where, the well sites, access roads etc. are built during the state permit application process remains waivable. If the surface owner and the operator enter into a "surface use and compensation agreement" determining where the well site and access road are built and other aspects of the driller's activity, the bill only adds a new fifteen day nonwaivable notice to the surface owners, and the surface owner's existing fifteen day right to comment on the well work permit can still be waived as part of the agreement. If the operator and surface owner cannot agree, the operator can limit the delay caused by the new procedures to sixty days.
?Enacting an option for the surface owners to purchase gas to heat their homes from the wells being drilled on the surface owners' property.

?Amending the Oil and Gas Production Compensation Act to require that surface owners be compensated for the loss of use of the surface owner's land for the well site and access road at its market value, and to require that surface owners be compensated for the decrease in market value of the surface owners' other land caused by the placement of a well site and access road on the surface owners' lands.

?Making other changes to current statutes.


§22-5A, §22-7-7a and §22-7-9 are new; therefore, strike-throughs and underscoring have been omitted.

[Actually they are underlined in this draft to make it easier to see the changes.]

Strike-throughs indicate language that would be stricken from the present law, and underscoring indicates new language that would be added.


Table of Contents




ARTICLE 5A. OIL AND GAS SURFACE OWNER'S BILL OF RIGHTS.1

22-5A-1. Findings and purpose.1

22-5A-2. Definitions.4

22-5A-3. Notices.4

22-5A-4. Surface use and compensation agreement.4

22-5A-5. Notice of initial entry upon surface lands.6

22-5A-6. Notice of planned surface use; mediation.8

22-5A-7. Effect of surface use and compensation agreement; bond.10

22-5A-8. Purchase of gas by surface owners.11

22-5A-9. Options for surface use and re-vegetation.12

22-5A-10. Waiver.13

22-5A-11. Effective dates.13


ARTICLE 6. OFFICE OF OIL AND GAS; OIL AND GAS WELLS; ADMINISTRATION; ENFORCEMENT.13

22-6-6. Permit required for well work; permit fee; application; soil erosion control plan.13


ARTICLE 7. OIL AND GAS PRODUCTION DAMAGE COMPENSATION.17

22-7-3. Compensation of surface owners for drilling operations.17

22-7-5. Notification of claim.18

22-7-5A. Notification of claim by certain operators.19

22-7-7. Rejection; legal action; arbitration; fees and costs.20

22-7-9. Effective date of amendments.22


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