by M. Ann Bradley, as published in IOGA of West Virginia newsletter, April 2011

The 2011 Regular Session of the West Virginia Legislature began and progressed in the midst of a frenzy of media attention focused on natural gas production activities in the Marcellus Shale formation and allegations of inadequate regulatory programs to assure proper State oversight of these operations. A survey of four major newspapers in West Virginia reveals over 250 articles addressing Marcellus Shale issues beginning January 1 of this year through the end of the session. All this attention should have been strong motivation for passage of significant legislation. And yet, at midnight on March 12 the session ended with no bill having received approval by both houses of the Legislature. This article offers one person’s perspective on this outcome.

Activity Leading Up to the 2011 Regular Session
Throughout 2010 both the Legislature and the West Virginia Department of Environmental Protection devoted significant time and resources to studying potential changes for the oil and gas regulatory program to address the Marcellus Shale and horizontal drilling operations.  
For the Legislature -  Subcomittee A of the Joint Judiciary Committee was charged with studying  during 2010 interim session meetings  “the environmental effects that oil and gas drilling (especially Marcellus drilling) has on the use and withdrawal of water from  the streams in West Virginia;” “whether the state should establish forced pooling requirements for all oil and gas drilling or just for horizontal wells in the Marcellus Shale;” and “surface owner rights, including . . . notice of drilling prior to entry, compensation for loss of timber  and . . road inspection prior to initiation of drilling operations to determine whether damage to . . .roads should be the responsibility of drilling operators.” Given this sizeable task, Subcommittee A held numerous sessions, with presentations by speakers from State agencies, academia, the oil and gas industry and private citizens presenting a variety of perspectives on natural gas drilling operations. This process led to the presentation of comprehensive draft legislation by counsel to the Subcommittee in November with limited discussion in the two subsequent meetings prior to the start of the 2011 Regular Session. Ultimately, the draft legislation failed to receive the endorsement of the Subcommittee.

For DEP - Secretary Randy Huffman announced in April of 2010 that the agency would hold a series of stakeholder meetings for the purpose of initiating a comprehensive review of the oil and gas program with emphasis on Marcellus Shale development activities but to also to consider all aspects of the program “including regulatory framework, funding, staffing, [and] policy,” among other issues. All interested persons were invited to participate. As this process unfolded it consisted primarily of a series of written and oral presentations from a variety of interest groups and individuals providing their perspective on what was right or wrong (mostly the latter) with the DEP’s oil and gas regulatory program. There was little organization to the presentations and almost no dialogue between the agency and the participants. Secretary Huffman stated at the outset of this process that there would be no attempt to obtain a consensus of needed changes but rather that he would be the ultimate decision maker on the revisions to the existing program, including proposed legislation, that would be pursued. Perhaps in response to comments received regarding the nature of this process, at the direction of Governor Manchin Sec. Huffman appointed a 9-member task force to advise the agency on possible legislation. After several meetings during which the subjects of pooling, surface owners issues, hydraulic fracturing, permit fees and funding were among the issues were discussed – generally without any consensus reached - the task force was presented in mid-November with a preliminary draft of legislation that contained major revisions to requirements applicable to conventional oil and gas operations as well as extensive new  requirements that would apply to horizontal drilling and hydraulic fracturing activities. DEP acknowledged that this legislation did not represent a consensus of the task force members, but rather it was DEP’s view of needed changes.

With all of this time spent on oil and gas issues leading up to the 2011 Regular Session by the DEP and the Legislature, how is it that the session ended without passage of a bill? Putting aside the temptation to discuss the merits –or lack thereof – of the various forms of legislation that were offered, I suggest that a major, if not the most significant a contributor to the defeat of legislation in this area was the process that was flawed in two primary aspects.

1.    DEP and the Legislature failed to coordinate their reviews and ended up proposing very different bills.

Although both the DEP and the Subcommittee A of the Joint Judiciary Committee were simultaneously undertaking a comprehensive review of oil and gas operations in West Virginia there was little or no dialogue between them regarding the direction their evaluation of the issues was leading, in terms of proposed legislation. Granted DEP staff were called to make presentations before Subcommittee A from time to time and legal counsel to Subcommittee A attended one or more of the DEP stakeholder sessions, no communication regarding the substance of the legislation that each was considering appears to have occurred. As a result DEP presented a bill that contained extensive changes of current oil and gas law, including the permitting process and enforcement provisions applicable to all types of oil and gas wells along with water use, water disposal and pooling provisions applicable only to wells drilled horizontally, while the Subcommittee A bill dealt exclusively with new provisions that would apply to horizontal drilling activities and hydraulic fracturing. Each bill contained major concepts that were wholly absent from the other – meaning that by focusing on one of the bills to the exclusion of its counterpart it was inevitable that the houses would be far apart when each turned to consider the action of the other.

2.    Delays in formally taking up the bills did not leave sufficient time for thoughtful deliberation.

The 2011 Regular Session began on January 12, 2011. A bill based upon the Subcommittee A draft legislation was not introduced until January 26 (as HB 2878 and SB 258) while the DEP bill was not introduced until February 4, 2011 (as HB 3042 and SB 424) – over a third of the way through the 60-day session. The House Judiciary Chairman appointed a subcommittee of __ members to work on HB 2878. The initial work of the subcommittee focused on pooling provisions. An informal stakeholders group of industry, surface owners, mineral owners and DEP staff was gathered to provide input to the subcommittee on pooling and other issues. After many hours of meetings a draft Committee Substitute (which largely mirrored the Subcommittee A interim bill) was unveiled on February 18, 2011. There followed further stakeholder and subcommittee meetings, with the predominant topic again being pooling. On Feb. 21 the subcommittee met and adopted a number of amendments to the draft Committee Substitute, including an amendment to strike the pooling provisions that had been so extensively debated. At the conclusion of this meeting a motion to report the draft Committee Substitute, as amended, to the full House Judiciary Committee passed.  However, on Feb. 23 a meeting of the subcommittee was again convened. After approving a motion to recall the bill that had been passed by the subcommittee two days previously, approximately a dozen additional amendments – generally targeted at expanding the requirements applicable to Marcellus operations – were considered, and the majority of them approved. At the conclusion of this meeting the subcommittee voted to report the draft Committee Substitute, as further amended, to the full Judiciary Committee. On February 25, the House Judiciary Committee passed the Committee Substitute for HB 2878 and it was read for a first time on the floor of the House on February 28. However, with only two days remaining before the deadline for bills to pass one house to be eligible for further consideration in the session, and with additional amendments pending on the floor of the house, no further action was taken on HB 2878.

On the Senate side the DEP bill, SB 424, had been referred to the Senate Energy, Industry and Mining Committee. It had been reported that there was an informal agreement between the houses that the Senate would take the lead on bills relating to taxation of oil and gas operations and economic development opportunities related to the Marcellus Shale play (these issues were primarily addressed in SB 465 – the Marcellus Gas and Manufacturing Development Act) and the House would take the lead on the oil and gas regulatory legislation. However, as the halfway mark of the session passed without a regulatory bill advancing in the House, the EIM committee began to address these issues. A subcommittee was appointed to review SB 424 and reported a proposed Committee Substitute to the full EIM Committee which was approved on February 24 and sent to the Senate Judiciary Committee. On February 28, the Committee Substitute for SB 424 was further amended by the Judiciary Committee and sent to the floor of the Senate. The bill was again amended on the floor and passed by the full Senate on March 2.

When the House received the Senate bill, it was referred to House Judiciary where, with no debate on the provisions of the Senate bill, its contents were stricken and replaced by the contents of HB 2878 and the revised bill was sent to the House floor on March 9. After being referred to the House Finance Committee where additional amendments were made and the bill was returned to the House floor on March 11. SB 424 as passed by the Senate and amended by committees in the House did not receive further consideration by the House and died on the last day of the session with a number of additional amendments pending on the House floor.

It is not unusual for a major piece of legislation to require more than one legislative session to obtain passage. Notably, legislation mandating coverage of autism under health insurance policies issues in this state was passed by the 2011 Legislature after being proposed and considered during at least four previous sessions. Regardless of this fact, given the amount of time spent addressing the issues related to the oil and gas regulatory program by both the DEP and the Legislature throughout most of 2010, it was not unreasonable to expect passage of some form to this legislation. For certain, there will be further attempts to do so.

For more information, please contact:
M. Ann Bradley
304.340.3882
abradley@spilmanlaw.com