H.B. 4270
Passed - March 10, 2018
Signed by Governor - March 27, 2018
Effective - June 8, 2018
 
The Information Reporting and Payments to Owners bill (H.B. 4270) is a companion bill to the Cotenancy Modernization bill. It is limited to horizontal wells, and the intent is to provide more detailed information to royalty owners, to provide incentives for oil and gas operators to comply with the reporting requirements, and to require quarterly reporting to the West Virginia Department of Environmental Protection's Office of Oil and Gas ("OOG") of production from horizontal wells.
 
H.B. 4270 imposes significant additional administrative burdens on operators and owners of oil and natural gas produced from horizontal wells. The information reporting likely will require operators to modify existing computer payment systems and may require some time to implement. Similarly, the quarterly reporting of production data instead of annual reporting may require computer system modifications. Because these requirements become effective on June 8, 2018, it is important for operators to become familiar with these requirements and take timely steps to ensure compliance once the law takes effect.
 

Section 1. Oil and natural gas production information reporting from horizontal wells.
 
This section is limited to horizontal wells governed by §22-6A-1 et seq. which is the Natural Gas Horizontal Well Control Act. Thus, horizontal wells drilled pursuant to a well work permit issued under §22-6-1 et seq. before the Natural Gas Horizontal Well Control Act took effect on December 14, 2011, are not subject to the new reporting obligations. Section 1 requires "the following information with each payment to all royalty and working interest owners receiving payments:"

1. A name, number, or combination of name and number, and the state issued American Petroleum Institute number that identifies each lease, property, unit, pad, and well, for which payment is being made, and the county in which the lease, property, and well are located;
2. Month and year of production;
3. Total barrels of oil; number of MCF, MMBTU, or DTH of natural gas; and volume of natural gas liquids produced from each well and sold;
4. Price received per unit of oil, natural gas, and natural gas liquids produced;
5. Gross value of the total proceeds from the sale of oil, natural gas, and natural gas liquids from each well less taxes and deductions set forth in §37B-1-1(a)(6) of this code;
6. Aggregate amounts for each category of deductions for each well which affect payment and are allowed by law, including without limitation those deductions provided for under the terms of the governing lease;
7. Interest owner’s interest in production from each well expressed as a decimal or fraction and reported pursuant to §37B-1-1(a)(1) of this code;
8. Interest owner’s ratable share of the total value of the proceeds of the sale of oil, natural gas, and natural gas liquids prior to the deduction of taxes, if applicable, and other deductions set forth in §37B-1-1(a)(6) of this code;
9. Interest owner’s ratable share of the proceeds from the sale of oil, natural gas, and natural gas liquids less the interest owner’s ratable share of taxes, if applicable, and other deductions set forth in §37B-1-1(a)(6) of this code; and
10. Contact information of the producer of the oil, natural gas, or natural gas liquids, including a mailing address and telephone number.

Section 1(b) also authorizes royalty and working interest owners to bring a civil action against the operator to enforce compliance with this information reporting and entitles a prevailing interest owner to recover reasonable attorneys' fees and court costs. However, the civil action may only be brought after the operator fails to provide the requested information within 60 days following its receipt of a written request for the information by certified mail. Thus, the operator must receive a written demand with a 60-day right to cure any deficiency in the information provided.
 
 
Section 2. Accumulation and payment of proceeds from production from horizontal wells.
 
This section applies to all horizontal wells (i.e., not limited to article 6A wells) and authorizes the operator to hold and accumulate royalty payments or proceeds until the proceeds payable exceed $100. However, regardless of amount accumulated, the operator must distribute the proceeds at least once per year and any time the production ceases or upon transfer of the payment responsibility to another party.
 
 
Section 3. Payments from horizontal wells to be made timely; interest penalties.
 
This section applies to all horizontal wells (i.e., not limited to article 6A wells) and requires operators to make payments within 120 days from the first date of sale is realized and within 60 days thereafter for each additional sale, "unless such failure to remit is due to lack of record title in the interest owner, a legal dispute concerning the interest, a missing or unlocatable owner of the interest, or due to conditions otherwise specified in this article." Such undistributed payments may be held in suspense pending the resolution of uncertainty about their recipients without interest penalty.  If the operator fails to timely remit payments to a known recipent, then a mandatory interest penalty is imposed (based upon the prime rate plus 2 percent, compounded quarterly) until payment is made.
 
In addition to the foregoing requirements, §22-6-22(f) is amended to require "quarterly report of the monthly volumes of oil, natural gas, and natural gas liquids produced from any horizontal well drilled" be filed with the OOG. The subpart also requires that "all reported data shall be made available to the public" through the OOG's web site and authorizes the promulgation of rules to require timely quarterly reporting and a process for collecting such data.
 
For additional information, please contact us.