On February 1, 2012, the West Virginia Department of Environmental Protection (“DEP”) and its Office of Oil and Gas (“OOG”) conducted what it named the “Natural Gas Horizontal Well Control Act Industry Workshop” at the Marriott Town Center in Charleston, West Virginia (“Workshop”). For those of you who may have missed all or a portion of the Workshop, the following is a summary of the presentations by the various DEP speakers. This article is intended to provide an overview of the information presented at the Workshop, but the author does not necessarily agree with or endorse the comments made by the DEP representatives.

Randy Huffman, Cabinet Secretary Department of Environmental Protection

As Cabinet Secretary Randy Huffman explained in his introductory remarks, the Natural Gas Horizontal Well Control Act (“Article 6A” is DEP’s shorthand reference for the legislation) created a new regulatory scheme that is similar to requirements DEP has been imposing, but with some new areas of oversight. Mr. Huffman explained that DEP has been working hard to understand the legislation since it became effective on December 14, 2011. The Workshop provided an opportunity for DEP to explain its interpretations on Article 6A and the changes that the industry should expect. Mr. Huffman was quick to point out that DEP does not have all the answers and that decisions will be made on some issues as they arise. This Workshop should be considered the beginning of the learning process, not the end.

Mr. Huffman explained that 11 permit applications for vertical wells were pending as of February 1, of which 7 require more information from the applicant. DEP has attempted to continue to process applications for traditional vertical wells as it normally does without disruption due to Article 6A. Mr. Huffman also stated that as of December 14, 2011, 185 permit applications for horizontal wells were pending, which included a number of non-Marcellus wells. Of those permit applications over 50 permits were issued and 129 of the applications have been through an initial review. Of course, virtually all of those permit applications are pre-Article 6A and are subject to the DEP’s Emergency Rule that became effective on August 29, 2011.

Mr. Huffman responded to certain concerns that had been expressed to him by oil and gas industry members. He told the audience that there is not a moratorium on issuing permits for horizontal wells and there will not be. Further, the DEP has not been instructed to slow down permitting review and approval or any other work. Of course, the current staff is capable of only a certain amount of work and DEP has been working on adding staff since before Article 6A was enacted. Mr. Huffman explained that the average time between receiving a well work application for a horizontal well and the date a permit is issued is 104 days. While DEP is working and expects to reduce that time period, the wait will never go below 35 to 40 days due to the notice requirements established in Article 6A.

James Martin, Chief Office of Oil and Gas – Permit and Staff Update

Mr. Martin provided an overview of the staffing levels and workload of OOG. The Office has 33 full-time equivalent employees, including 17 inspector positions and 2 supervising inspector positions. At the time of the Workshop OOG had 7 open positions of which 2 were field positions, 4 were office technical positions and 1 was an office administrative position. Mr. Martin explained that the anticipated increased funding will allow OOG to fill 14 new positions, of which 7 will be field, 1 will be a field administrative, 4 will be office technical and 2 will be office administrative positions.

Mr. Martin stated that OOG is responsible for approximately 60,000 active wells and drilling activity related to 51 active drilling rigs in West Virginia. He presented a chart summarizing the permits issued for all wells, including well plugging, from 2005 through 2011. The first horizontal well permits were issued in 2005. The number of horizontal well permits grew from 383 in 2008, to 480 in 2009, declined to 430 in 2010 and increased to 542 in 2011. At the same time vertical well permits declined from a peak of 2,393 in 2007 to 277 in 2011. Mr. Martin stated that OOG issued 69 well permits in January 2012, without indicating the breakdown between vertical and horizontal wells.

Mr. Martin concluded by stating that the Emergency Rule is in effect and applies to the extent that there is no conflict with Article 6A and that he is not aware of any conflicts between the Emergency Rule and Article 6A.

Gene Smith -- Permitting

Mr. Smith explained that “we have been playing this permit game a long time” and the goal is to receive a quality permit that can be reviewed and approved efficiently. Mr. Smith noted that prior to Article 6A only one permit notice and certification was required, but under Article 6A there are separate notice requirements for seismic work, entry for plat survey, notice of intent to drill, planned operations, public notice through a Class II legal advertisement, notice of application and the related certifications.

Mr. Smith’s presentation included the various components of a permit application, such as well plans, bonding, drill cuttings, karst formation information and well location restrictions. Mr. Smith explained that (i) certain plans, such as the erosion and sediment control, and well site construction plans must be designed by a registered professional engineer, (ii) the water management plan must contain a listing of anticipated additives that may be used in completion water and identify public water intake locations within one mile downstream of a water withdrawal location. Mr. Smith emphasized that “all drill cuttings and associated mud shall be disposed of in an approved solid waste facility.” While Mr. Smith noted that if a surface owner consents to on-site disposal of well cuttings, the DEP Secretary may approve a manner for such disposal; but that obtaining surface owner consent will likely be easier than obtaining the Secretary’s approval to dispose of well cuttings on-site.
Mr. Smith reminded well work applicants to address Clean Water Act § 404 issues with the U. S. Army Corps of Engineers first because of the time required to obtain permits, if necessary. Similarly, applicants should be communicating with local flood plain coordinators concerning flood plain issues. Mr. Smith confirmed that OOG will be looking at flood plain issues in connection with well locations and related operations.

Mr. Smith clarified some points such as:

1. Applications should be sent to the main office where they will be subjected to an initial review and then sent to the field from the main office;
2. Produced water will be treated by OOG as occurring during 30 days after flowback begins or 50% of the flowback volume;
3. Water disposal records may be maintained at well location and need not be sent to OOG;
4. Pit liners should be removed and disposed of off-site along with well cuttings; and
5. There will be no more compartmentalized pits allowed.

Mr. Smith stated that Article 6A permit forms will be available on OOG’s website starting on February 2, 2012. In response to a question, Mr. Smith stated that a § 404 permit authorizing work within or near a stream or wetland will be accepted as an exception to the well location restrictions contained in Article 6A. Mr. Smith would like to see as part of a well work permit application the material sent to the U. S. Army Corp of Engineers for a § 404 permit approval.

Finally, in response to a question, Mr. Smith appeared to suggest that a one-time tax reimbursement payment of $2,500 will be required for each surface owner on which the well operations will be performed. Mr. Smith seemed to suggest that each joint owner will be entitled to the same $2,500 payment.

Kathy Cosco – Public Notice Requirements & Commenting

Ms. Cosco opened by stating that public notice is not new to DEP. In fact, the divisions of mining, air and water have public notice requirements related to certain permits. The public notice is designed to make the public aware of the proposed activity and give input in the process. Ms. Cosco reminded listeners that the first publication date of the Class II legal advertisement must be 10 days prior to submitting a well work application and that the newspaper will need at least a few days advance notice before the first publication date.

Ms. Cosco explained that Article 6A requires DEP to establish a website by March 13, 2012 dedicated to information about horizontal drilling and create a system by which persons may request e-mail notification of permit applications received and issued by county. Ms. Cosco also noted that Article 6A requires that comments to permit applications be made available on the DEP website.

Finally, Ms. Cosco mentioned that DEP is required to consider the comments received from the public when making decisions regarding an application and that the spirit of the language of Article 6A is to allow people to feel like they are being heard.

Brian Carr – Water Management Plans

 Mr. Carr opened by explaining that the DEP’s Water Use Section consists of 3 employees, plus 2 vacancies to be filled. The Water Use Section will be responsible for reviewing and approving the water management plans submitted as part of an Article 6A horizontal well work application.

Mr. Carr reviewed some of the water management plan (“WMP”) requirements and described the forms that are located on the OOG website under the heading “Water Management Plans” at http://www.dep.wv.gov/oil-and-gas/Water%20Management/Pages/default.aspx. Mr. Carr stated that the Water Use Section will identify the public intake locations and insert that information into the WMP application. Mr. Carr reminded the audience that the signage requirements at water withdrawal locations include the well permit number and that the notification to DEP of the water withdrawal need be made only once prior to the initial withdrawal at a specific location and that an e-mail address for providing such notice will be made available.

Mr. Carr also explained that once the Water Use Section receives a WMP then it will identify the withdrawal location and calculate flow thresholds which will be incorporated into the WMP approval conditions.

Rob Pichardo – Bonding and Notice Requirements

Mr. Pichardo is counsel to OOG and provided a brief overview of bond requirements and the various notice provisions. Mr. Pichardo stated the position that § 22-6A-15(f) requires an operator to furnish a new blanket bond in the increased amount of $250,000 to replace any existing blanket bond covering a horizontal well and that the failure to submit a new blanket bond within 60 days after receipt of a notice from the DEP will result in a forfeiture of the prior blanket bond. The author believes that DEP may not have the authority to demand a new blanket bond in the absence of filing a new well work application pursuant to Article 6A.

Mr. Pichardo summarized the notice requirements for seismic activity (at least 3 days in advance), entry for plat survey (at least 7 but not more than 45 days prior to entry), intent to drill (10 days prior to filing a permit application), public notice (Class II legal advertisement 10 days prior to filing a permit application), notice of application (no later than the filing date of a permit application), planned operation (no later than the filing date of a permit application) and well work or site preparation (no more than 7 and no less than 2 days prior to land disturbance). Mr. Pichardo reviewed a series of frequently asked questions and answers that should be made available on the OOG web site relatively soon.

Mr. Pichardo also stated that OOG wants upfront certification of the various required notices filed with the permit application, including proof of and certification of notice, and an affidavit of publication or newspaper clippings of actual legal advertisement. In response to a question, Mr. Pichardo responded that evidence of notice can include a return receipt card that has not been signed by the addressee.

David Belcher – Casing and Cementing Programs & Well Site Safety Plans

Mr. Belcher opened with a statement that the Emergency Rule that came out in August applies. He explained that the completion activities and production activities requirements for the well site safety plan are new and can be provided in a narrative form. Mr. Belcher described the purposes of a well site safety plan to include (1) prevention measures, (2) emergency preparedness and (3) response actions. Mr. Belcher requested that a “self-contained” well site safety plan be submitted as part of the well permit application. He did acknowledge that well site safety plans do not need to be prepared or certified by a professional engineer.

With regard to casing and cementing, Mr. Belcher again asserted that 35 CSR 8 applies. Mr. Belcher stated that inspectors may approve revisions to a casing and cementing program if it meets the established standards, is documented and initialed by the inspector and is filed with OOG.

Mr. Belcher provided an overview of the casing and cementing requirements with the use of a slide show presentation based upon § 22-6A-24 and the Emergency Rule. He emphasized that the 8 hour waiting time for cementing is new and applies to all cementing. He also strongly suggested contacting the WV Division of Air Quality prior to any extended gas flaring operations.

John Kearny – Impoundments and Pits

 Mr. Kearney discussed Article 6A § 9 governing approval of certificates for centralized impoundments and § 23 authorizing a study and legislative rulemaking for impoundments and pits.

Mr. Kearney first noted that § 9 does not govern impoundments associated with a specific well work permit and that there is no change in the permitting process and that the reclamation time frame will be the same as the well pad. Mr. Kearney also noted that farm ponds are exempted from compliance with § 9, but that there are standards for farm ponds and not all impoundments can be considered farm ponds.

Mr. Kearney stated that centralized impoundments will have more stringent design standards than impoundments permitted through individual well work applications, which standards include an impoundment monitoring plan and impoundment maintenance and emergency plans. Mr. Kearney explained that because centralized impoundments are not an oil and gas authorized activity, separate property rights are required.

Mr. Kearney referenced the new Design and Construction Standards for Centralized Pits and acknowledged that there has been no provision for public comments, but that comments will be accepted and he will consider comments, including alternatives that represent better ideas. Mr. Kearney explained that OOG is using the rules and standards that are in place now and that he is not sure when emergency or new rules will be developed.

Mr. Kearney emphasized that the new Standards for Centralized Pits requires the bottom of a pit to be 20 inches above the seasonal groundwater level and that a groundwater analysis will be required. The engineer certification required in the Emergency Rule will apply.

Mr. Kearney cautioned that an operator should be careful to not build a dam unless you intend to build a dam, so be aware of the definitions and requirements associated with dams.

Rick Campbell – Site Construction and Reclamation

Mr. Campell discussed the highlights of what he would like to see in site construction and erosion and sediment control plans. He requests a full set of plans to scale for engineering review that include all erosion and sediment control features, lists the acreage going into traps, dimensions on all sediment control and where the water is discharged. Mr. Campbell explained that the 100-foot distance restriction to perennial streams, wetlands, etc. is measured from the limits of disturbance and that erosion and sediment controls are within the limits of disturbance.

Mr. Campbell explained that the site construction plan and erosion and sediment control plan should be separately contained and submitted. Mr. Campbell indicated that OOG is recommending partial reclamation on an ongoing basis which should result in better final reclamation conditions. Also, OOG requests that operators only clear the amount of surface area that is needed for the site and avoid over clearing. Mr. Campbell recommends that topsoil should be stockpiled for use in reclamation.

James Martin – Closing Remarks

Mr. Martin invited questions and made the following closing observations:

• Drill cuttings are required to be taken offsite to an approved facility, unless the landowner consents to onsite disposal and a plan for onsite disposal is submitted and approved by DEP.
• All cuttings, not limited to Marcellus Shale cuttings, with regard to Article 6A wells must be disposed of offsite, unless approved by DEP with landowner consent.
• For well pads that disturb 3 acres or more of surface the site construction and erosion and sediment control plans must be certified by an engineer.
• The 500-foot distance requirement between centralized waste impoundments and a perennial stream will be measured from the nearest edge of the impoundment.
• OOG will deal with flood plain coordinators for locations in the 100 year flood plain.

Mr. Martin also indicated that more workshops may be scheduled in other areas of West Virginia if interest is strong enough and that more communication will be necessary.