WEST virginia Legislature

2016 regular session

Introduced

House Bill 4426

By Delegates Ireland, Anderson, Zatezalo,
D. Evans, Canterbury, R. Smith and Statler

[Introduced February 5, 2016; Referred
to the Committee on Energy.]

A BILL to amend and reenact §22C-9-1, §22C-9-2, §22C-9-3, §22C-9-4 and §22C-9-5 of the Code of West Virginia, 1931, as amended; and to amend said code by adding thereto a new section, designated §22C-9-7a, all relating to oil and gas conservation; providing for the unitization of interests in drilling units in connection with horizontal oil or gas wells generally; establishing prerequisites to filing of an application for a horizontal well unit order; setting forth application requirements; establishing the standard of review; providing for horizontal well unit orders and parameters thereof; requiring notice and timeliness; providing for hearings; permitting adjoining landowners to intervene in a horizontal well unit application proceeding in certain circumstances; addressing oil and gas produced from horizontal wells, vertical wells and unconventional reservoirs; requiring royalties be paid on all commercial marketable hydrocarbons produced from a horizontal unit well; providing for declaration of public policy and legislative findings; specifying applicability of article; limiting the liability of nonconsenting owners in certain circumstances; increasing the number of members of the Oil and Gas Conservation Commission; granting additional authority to the Oil and Gas Conservation Commission; providing for the award of unitization consideration in certain circumstances; providing alternative and deemed elections to nonconsenting owners in certain circumstances; providing for dispute resolution; providing for treatment of interests of unknown and unlocatable interest owners, including moneys payable thereto; providing for judicial review of commission orders; permitting the modification of horizontal well unit orders under certain circumstances; providing for the expiration of horizontal well unit orders under certain circumstances; requiring the filing of a summary of the prevailing economic terms of certain leases and the prevailing consideration paid for modification of certain leases prior to hearings; establishing procedures where certain information shall be deemed confidential; exempting certain information from disclosure; addressing additional drilling activity; providing that horizontal well unit orders do not grant surface rights; authorizing contemporaneous permit and unit applications; providing for reunification of interests of unknown and unlocatable interest owners with surface owners in certain circumstances and providing procedures therefor; providing for conflict resolution; providing for severability; adding new definitions; modifying existing definitions; providing a funding mechanism for the Oil and Gas Reclamation Fund; and establishing the Horizontal Well Unitization and Landowner Protection Act of 2016.

Be it enacted by the Legislature of West Virginia:

That §22C-9-1, §22C-9-2, §22C-9-3, §22C-9-4 and §22C-9-5 of the Code of West Virginia, 1931, as amended, be amended and reenacted; and that said code be amended by adding thereto a new section, designated §22C-9-7a, all to read as follows:

ARTICLE 9. OIL AND GAS CONSERVATION.

§22C-9-1. Declaration of public policy; legislative findings.

(a) It is hereby declared to be the public policy of this state and in the public interest to:

(1) Foster, encourage and promote exploration for and development, production, utilization and conservation of oil and gas resources;

(2) Prohibit waste of oil and gas resources and unnecessary surface loss of oil and gas and their constituents;

(3) Encourage the maximum recovery of oil and gas; and

(4) Safeguard, protect and enforce the correlative rights of operators and royalty owners in a pool of oil or gas to the end that each such operator and royalty owner may obtain his or her just and equitable share of production from such that pool, unit or unconventional reservoir of oil or gas.

(b) The Legislature hereby determines and finds that oil and natural gas found in West Virginia in shallow sands or strata have been produced continuously for more than one hundred years; that oil and gas deposits in such shallow sands or strata have geological and other characteristics different than those found in deeper formations; and that in order to encourage the maximum recovery of oil and gas from all productive formations in this state, it is not in the public interest, with the exception of shallow wells utilized in a secondary recovery program and oil and gas produced from horizontal wells, to enact statutory provisions relating to the exploration for or production from oil and gas from vertical shallow wells, as defined in section two of this article but that it is in the public interest to enact statutory provisions establishing regulatory procedures and principles to be applied to the exploration for or production of oil and gas from deep wells as defined in said section two and horizontal wells.

§22C-9-2. Definitions.

(a) As used in this article:

(1) ACommission@ means the Oil and Gas Conservation Commission and Acommissioner@ means the Oil and Gas Conservation Commissioner as provided for in section four of this article;

(2) ADirector@ means the Secretary of the Department of Environmental Protection and Achief@ means the Chief of the Office of Oil and Gas;

(3) APerson@ means any natural person, corporation, limited liability company, 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) AOperator@ 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 that person or for that 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 is the Aoperator@ to the extent of seven-eighths of the oil and gas in that portion of the pool underlying the tract owned by such the owner, and as Aroyalty 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 or unit is the Aoperator@ as to that pool or acreage included in a unit; the term operator includes owners of a working interest in a lease but does not include owners whose interest is limited to working interest in a wellbore only, overriding royalties, or net profits interests.  To the extent that this definition of “operator” conflicts with the definition of “working interest” contained within section seven-a of this article, the definition of “working interest” shall control;

(5) ARoyalty owner@ means any owner of oil and gas in place or oil and gas rights, to the extent that the owner is not an operator as defined in subdivision (4) of this section interest derived from the oil and gas in place. Royalty is not carved out of a leasehold interest. For example, if a fee owner of oil and gas executes a lease for oil and gas production and conveys to another the right to receive one half of the oil and gas when produced, both parties are royalty owners;

(6) AIndependent 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 July 1, 1997;

(7) AOil@ 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) AGas@ means all natural gas and all other fluid hydrocarbons not defined as oil in subdivision (7) of this section;

(9) APool@ means an underground accumulation of petroleum or gas in a single and separate 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) AWell@ means any shaft or hole sunk, drilled, bored or dug into the earth or underground strata for the extraction of oil or gas;

(11) AShallow well@ means any well other than a coalbed methane well, drilled no deeper than one hundred feet below the top of the AOnondaga Group@: Provided, That in no event may the AOnondaga Group@ formation or any formation below the AOnondaga Group@ be produced, perforated or stimulated in any manner;

(12) ADeep well@ means any well, other than a shallow well or coalbed methane well, drilled to a formation below the top of the uppermost member of the AOnondaga Group;@

(13) ADrilling unit@ or “unit” means the acreage on which one well or more wells may be drilled;

(14) AWaste@ 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 horizontal wells or deep wells than are reasonably required to recover efficiently and economically the maximum amount of oil and gas from a pool, unit, or an unconventional reservoir. 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, That this exclusion does not address ownership of the gas;

(15) ACorrelative rights@ means the reasonable opportunity of each person entitled thereto to recover and receive without waste the oil and gas in and under his or her tract or tracts within a unit or the equivalent thereof; and

(16) AJust 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 unit or unconventional reservoir underlying the person=s tract or tracts;

"Unconventional reservoir" means any geologic formation that contains or is otherwise productive of oil or natural gas that generally cannot be produced at economic flow rates or in economic volumes except by wells stimulated by multiple hydraulic fracture treatments, a horizontal wellbore, or by using multilateral wellbores or some other technique to expose more of the formation to the wellbore;

"Horizontal drilling" means a method of drilling a well for the production of oil and gas that is intended to maximize the length of wellbore that is exposed to the formation and in which the wellbore is initially vertical but is eventually curved to become horizontal, or nearly horizontal, to parallel one or more particular geologic formations; and

"Horizontal well" means an oil and gas well, other than a coalbed methane well, where a wellbore is drilled using a horizontal drilling method. A horizontal well may include multiple horizontal side laterals. A horizontal well may have completions into multiple formations from the same well. Multiple horizontal wells may be drilled from the same well pad.

(b) Unless the context clearly indicates otherwise, the use of the word Aand@ and the word Aor@ are interchangeable, as, for example, Aoil and gas@ means oil or gas or both.@

(c) A person with an interest in oil and gas in a unit formed under this article who does not consent to the unit shall have no liability in connection with well site preparation, drilling, completion, maintenance, reclamation, plugging, and other operations with respect to wells drilled in the unit unless the person elects Option 2 or Option 3 provided in subdivision (9), subsection (g), section seven-a of this article with respect to his working interest in the horizontal well unit.

§22C-9-3. Application of article; exclusions.

(a) Except as provided in subsection (b) of this section, the provisions of this article shall apply to all lands located in this state, however owned, including any lands owned or administered by any government or any agency or subdivision thereof, over which the state has jurisdiction under its police power. The provisions of this article are in addition to and not in derogation of or substitution for the provisions of article six, chapter twenty-two of this code.

(b) This article shall not apply to or affect:

(1) Shallow wells other than those utilized in secondary recovery programs as set forth in section eight of this article;

(2) Any well commenced or completed prior to March 9, 1972, unless such the well is, after completion (whether such completion is prior or subsequent to that date) drilling:

(A) Deepened subsequent to that date to a formation at or below the top of the uppermost member of the AOnondaga Group@; or

(B) Involved in secondary recovery operations for oil under an order of the commission entered pursuant to section eight of this article; or

            (C) Drilled laterally as a horizontal well at any depth.

(3) Gas storage operations or any well employed to inject gas into or withdraw gas from a gas storage reservoir or any well employed for storage observation; or

(4) Free gas rights; or

(5) Coalbed methane wells.

(c) The provisions of this article shall not be construed to grant to the commissioner or the commission authority or power to:

(1) Limit production or output, or prorate production of any oil or gas well, except as provided in subdivision (6), subsection (a), section seven of this article; or

(2) Fix prices of oil or gas.

(d) Nothing contained in either this chapter or chapter twenty-two of this code may be construed so as to require, prior to commencement of plugging operations, a lessee under a lease covering a well to give or sell the well to any person owning an interest in the well, including, but not limited to, a respective lessor, or agent of the lessor, nor shall the lessee be required to grant to a person owning an interest in the well, including, but not limited to, a respective lessor, or agent of a lessor, an opportunity to qualify under section twenty-six, article six, chapter twenty-two of this code to continue operation of the well.

§22C-9-4. Oil and gas conservation commissioner and commission; commission membership; qualifications of members; terms of members; vacancies on commission; meetings; compensation and expenses; appointment and qualifications of commissioner; general powers and duties.

(a) The "oil and gas conservation commission" shall be composed of five seven members. The director of the Division Secretary of the Department of Environmental Protection, and the chief of the office of oil and gas and the state geologist shall be members of the commission ex officio. The remaining three four members of the commission shall be appointed by the Governor, by and with the advice and consent of the Senate, and may not be employees of the Division Department of Environmental Protection. Each of the four members appointed by the Governor shall be a resident of this state. Of the three four members appointed by the Governor, one the first shall be an independent oil and gas producer. and at least one shall be a public member not engaged in an activity under the jurisdiction of the Public Service Commission or the federal energy regulatory commission The second appointee shall be an individual who has significant experience in the agricultural industry and who is engaged in the business of farming in this state. When this member is to be appointed, the Governor shall request from the primary trade association representing the agriculture and forestry industries in this state a list of three nominees for the member to be appointed.  The third appointee shall be an owner of minerals in this state who is not affiliated with an operator of oil and gas wells, or an oil or gas transmission company.  The term "affiliated" as used in the preceding sentence means someone who either directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, an operator of oil and gas wells by virtue of the power to direct or cause the direction of the management and policies of that operator or transmission company, whether through the ownership of voting shares, by contract or otherwise.  When this member is to be appointed, the Governor shall request from the primary trade association representing mineral owners in this state a list of three nominees from which a member shall be appointed. The third fourth appointee shall possess a degree from an accredited college or university in petroleum engineering or geology and must be a registered professional engineer as registered by the West Virginia State Board of Registration for Professional Engineers, with who possesses particular knowledge and experience in the oil and gas industry and shall serve as commissioner and he or she shall serve as chair of the commission.

(b) The members of the commission appointed by the Governor shall be appointed for overlapping terms of six years each, except that the original appointments shall be for terms of two, four, five and six years, respectively. Each member appointed by the Governor shall serve until the members successor has been appointed and qualified. Members may be appointed by the Governor to serve any number of terms. The members of the commission appointed by the Governor, before performing any duty hereunder, shall take and subscribe to the oath required by section 5, article IV of the Constitution of West Virginia. Vacancies in the membership appointed by the Governor shall be filled by appointment by the Governor for the unexpired term of the member whose office is vacant and such the appointment shall be made by the Governor within sixty days of the occurrence of such the vacancy. Any member appointed by the Governor may be removed by the Governor in case of incompetency, neglect of duty, gross immorality or malfeasance in office. A commission member=s appointment shall be terminated as a matter of law if that member fails to attend three consecutive meetings. The Governor shall appoint a replacement within thirty sixty days of the termination.

(c) The commission shall meet at such times and places as shall be are designated by the chair. The chair may call a meeting of the commission at any time, and shall call a meeting of the commission upon the written request of two members or upon the written request of the oil and gas conservation commissioner or the chief of the office of oil and gas. Notification of each meeting shall be given in writing to each member by the chair at least fourteen calendar days in advance of the meeting. Three Four members of the commission, at least two of whom are appointed members, shall constitute a quorum for the transaction of any business.

(d) The commission shall pay each member the same compensation as is paid to members of the Legislature for their interim duties as recommended by the citizens legislative compensation commission and authorized by law for each day or portion thereof engaged in the discharge of official duties and shall reimburse each member for actual and necessary expenses incurred in the discharge of official duties.

(e) The commission is hereby empowered and it is the commission=s duty to execute and carry out, administer and enforce the provisions of this article in the manner provided herein. Subject to the provisions of section three of this article, the commission has jurisdiction and authority over all persons and property necessary therefor. The commission is authorized to make such investigation of records and facilities as the commission deems proper. In the event of a conflict between the duty to prevent waste and the duty to protect correlative rights, the commission=s duty to prevent waste shall be is paramount.

(f) Without limiting the commission=s general authority, the commission shall have specific authority to:

(1) Regulate the spacing of deep wells;

(2) Issue horizontal well unit orders;

(2) (3) Make and enforce reasonable rules and orders reasonably necessary to prevent waste, protect correlative rights, govern the practice and procedure before the commission and otherwise administer the provisions of this article;

(3) (4) Issue subpoenas for the attendance of witnesses and subpoenas duces tecum for the production of any books, records, maps, charts, diagrams and other pertinent documents, and administer oaths and affirmations to such the witnesses, whenever, in the judgment of the commission, it is necessary to do so for the effective discharge of the commission=s duties under the provisions of this article; and

(4) (5) Serve as technical advisor regarding oil and gas to the Legislature, its members and committees, to the chief of office of oil and gas, to the Division Department of Environmental Protection and to any other agency of state government having responsibility related to the oil and gas industry.

(g) The commission may delegate to the commission staff the authority to approve or deny an application for new well permits, to establish drilling units or special field rules if:

(1) The application conforms to the rules of the commission; and

(2) No request for hearing has been received.

(h) The commission may not delegate its authority to:

(1) Propose legislative rules;

(2) Approve or deny an application for new well permits, to establish drilling units or special field rules if the conditions set forth in subsection (g) of this section are not met; or

(3) Approve or deny an application for the pooling of interests within a drilling unit.

(i) Any exception to the field rules or the spacing of wells which does not conform to the rules of the commission, and any application for the pooling of interests within a drilling unit, must be presented to and heard before the commission.

§22C-9-5. Rules; notice requirements.

(a) The commission may propose rules for legislative approval in accordance with the provisions of article three, chapter twenty-nine-a of this code, to implement and make effective the provisions of this article and the powers and authority conferred and the duties imposed upon the commission under the provisions of this article.

(b) Notwithstanding the provisions of section two, article seven, chapter twenty-nine-a of this code, any notice required under the provisions of this article shall be given at the direction of the commission by personal or substituted service or by certified United States mail, addressed, postage prepaid, to the last-known mailing address, if any, of the person being served, with the direction that the same be delivered to addressee only, return receipt requested. In the case of providing notice upon the filing of an application with the commission, the commission shall cause notice within fourteen days of the filing of an application, submit for publication notice of the application to be published as a Class II legal advertisement in compliance with the provisions of article three, chapter fifty-nine of this code, and the publication area for such the publication shall be the county or counties wherein any land which may be affected by such the order is situate.

In addition, the commission shall mail a copy of such the notice to all other persons who have specified to the commission an address to which all such notices may be mailed. The notice shall issue in the name of the state, shall be signed by the one of the commission members, shall specify the style and number of the proceeding, the time and place of any hearing and shall briefly state the purpose of the proceeding. Each notice of a hearing must be provided no fewer than twenty days preceding the hearing date. Personal or substituted service and proof thereof may be made by an officer authorized to serve process or by an agent of the commission in the same manner as is now provided by the AWest Virginia Rules of Civil Procedure” for Trial Courts of Record@ for service of process in civil actions in the various courts of this state.

A certified copy of any pooling or unit order entered under the provisions of this article shall be presented by the commission to the clerk of the county commission of each county wherein all or any portion of the pooled or unit tract is located, for recordation in the record book of such the county in which oil and gas leases are normally recorded. The recording of the order from the time noted thereon by such the clerk shall be notice of the order to all persons.

§22C-9-7a. Unitization of interests in horizontal well drilling units.

(a) Declaration of public policy; legislative findings regarding unitization for all horizontal wells. -- The Legislature finds that horizontal drilling is a technique that effectively and efficiently recovers natural resources and should be encouraged as a means of production of oil and gas and it is hereby declared to be the public policy of this state and in the public interest to:

(1) Foster, encourage and promote exploration for and development, production, utilization and conservation of oil and gas resources by horizontal drilling in deep and shallow formations;

(2) Prohibit waste of oil and gas resources and unnecessary surface loss of oil and gas and their constituents;

(3) Encourage the maximum recovery of oil and gas;

(4) Safeguard, protect and enforce the correlative rights of operators and royalty owners of oil and gas in a horizontal well unit to the end that each such operator and royalty owner may obtain his or her just and equitable share of production from that pool, horizontal well unit or unconventional reservoir of oil or gas;

(5) Safeguard, protect and enforce the private property rights of mineral owners in this state to the greatest extent practical while ensuring that private property owners who wish to develop their property have an opportunity to do so; and

(6) Provide for increased protections for the state’s surface owners by limiting the occurrences of land encroachment by oil and gas operators where compulsory pooling is being utilized.

(b) Horizontal Well Unitization and Landowner Protection Act of 2016. -- Therefore, in order to encourage conservation of oil and gas resources, and in order to encourage maximum recovery of oil and gas, the Legislature enacts the Horizontal Well Unitization and Landowner Protection Act of 2016, and it is collectively comprised of the following:

(1) This section; and

(2) Amendments to:

(A) Section one of this article regarding public policy and legislative findings with respect to this article;

(B) Section two of this article providing certain definitions;

(C) Section three of this article regarding the application of this article 9;

(D) Section four of this article regarding the Oil and Gas Conservation Commission; and

(E) Section five of this article regarding rules and notice under this article.

(c) Definitions. -- Unless the context in which used clearly requires a different meaning, as used in this section, the term:

"Bonded operator" means a person that has posted a bond under article six or six-a, chapter twenty-two of this code; is registered as an oil and gas well operator with the West Virginia Department of Environmental Protection, Office of Oil and Gas; and operates eight or more oil and gas wells, as defined in articles six and six-a of chapter twenty-two of this code, in West Virginia that are active, producing oil and gas wells.

"Executive interest" and "executory interest" means the interest entitling the owner to lease the oil and gas estate or amend an existing oil and gas lease. For purposes of this section, the owner of the executive interest is considered to be the royalty owner and interested party for purposes of notice and participation in proceedings under this article, and all horizontal well unit orders are binding on the owners of executive interests and nonexecutive interests in a horizontal well unit. The owners of the executive interest and the associated nonexecutive interest owners are considered to be the same interest for purposes of computing percentages pursuant to paragraph (A), subdivision (2), subsection (d) of this section.

"Horizontal well unit" means the area in which horizontal drilling may occur, and that is designated for the allocation of production from one or more horizontal wells drilled in the unit to all oil and gas tracts, or portions of tracts, included in the unit for production of oil and gas and payment of royalty and proceeds of production regardless of the tract or tracts in which the horizontal well is drilled or completed, and the corresponding authorization to drill and produce oil and gas from that area as a unit, notwithstanding the lack of adequate consensual rights allowing pooling or unitization of oil and gas or allowing drilling horizontally across tract lines. When a horizontal well unit is formed, the portion of the production allocated to each tract or portion of the tract or tracts included in the horizontal well unit shall, when produced, be considered for all purposes to have been actually produced from the tract by an oil and gas well drilled, completed and producing on the tract.

“Interested Party” means owners of the executive interest in the oil and gas in the target formation within the horizontal well unit in the tracts, or portions of the tracts, to be included in the proposed horizontal well unit, including owners of leased and unleased oil and gas to be included in the horizontal well unit; operators of all target formation acreage in the horizontal well unit, and operators of all oil and gas wells located in the unit that have been drilled to or through the target formation.  

"Lateral" means the portion of a well bore that deviates from approximate vertical orientation to approximate horizontal orientation and all wellbore beyond the initial deviation to total depth or terminus of the wellbore.

"Overriding royalty" means an interest carved out of the leasehold or out of the working interest and is not included within the meaning of royalty.

"Target formation" means the primary geologic formation from which oil or gas is intended to be produced from a horizontal drilling operation and, where completions can reasonably be expected to produce from formations above or below the target formation, includes the formations from which production can reasonably be expected.

"Unitization" means the combination of two or more tracts of oil and gas or portions thereof, and leases or other agreements related to oil and gas, for drilling of horizontal wells and production of oil and gas from the unit with allocation of production to the net acreage of each tract included in the unit to operate as a consolidated horizontal well unit.

"Unitization consideration" means consideration provided as set forth in subsection (g) of this section. Unitization consideration relates to the net acreage of the nonconsenting royalty owner included in a horizontal well unit and is as determined to be just and reasonable by the commission.

"Unknown and unlocatable interest owner" means a royalty owner, operator or other person vested with an interest in oil and gas in the target formation to be included in a horizontal well unit, whose present identity or location, or both, cannot be  determined from:

(A) A reasonable review of the records of the clerk of the county commission for the county or counties where the oil and gas is located;

(B) Diligent inquiry to known interest owners in the same tract;

(C) Inquiry to the sheriff’s and assessor's offices of the county or counties in which the oil and gas interest is located;

(D) A reasonable inquiry utilizing available Internet resources that could reasonably lead to the identification of the person; and

(E) A mailing to the last known address, if available, of the person as reflected in the records of the sheriff’s or assessor's office, and includes the unknown heirs, representatives, successors and assigns of the person.

"Working Interest" means the right to develop, operate and produce oil and gas and to appropriate the oil and gas produced therefrom, either for that person or for that 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 an owner of a "working interest" to the extent of a portion of the oil and gas owned by the owner, and as "royalty owner" as to a portion of 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 unit shall be considered the "working interest" owner as to that acreage included in a unit; the term working interest does not include owners whose interest is limited to working interest in a wellbore only, overriding royalties, or net profits interests.

(d) Applicability. --

(1) For all horizontal wells, including shallow and deep horizontal wells, the commission may unitize tracts, or portions of tracts, in a horizontal well unit established under this section upon the filing of an application with the commission by a person that controls the horizontal well unit and upon the issuance of a horizontal well unit order pursuant to this section.

(2) Before filing an application under this section, an applicant must have:

(A) With respect to the royalty interest, obtained by ownership, lease, lease amendment, assignment, farmout, contract or other agreement the right, consent or agreement to pool or unitize the acreage to be included in the horizontal well unit from executory interest royalty owners of eighty percent or more of the net acreage proposed to be included in the horizontal well unit, as provided and determined in subdivision (3) of this subsection; and

(B) With respect to the working interest, obtained by ownership, lease, lease amendment, assignment, farmout, contract, or other agreement, the right, consent or agreement to pool or unitize as to eighty percent or more of the net acreage proposed to be included in the horizontal well unit owned, leased, or operated by bonded operators and the applicant, collectively, by ownership, lease, farmout, assignment, contract or other agreement; and

(C) Made good faith offers to consent or agree to unitization to, and has negotiated in good faith with, all known and locatable royalty owners having executory interests in the oil and gas in the target formation within the acreage to be included in the proposed horizontal well unit who have not previously consented or agreed to the pooling or unitization of the interests, and made good faith offers to participate or consent or agree to the proposed horizontal well unit to, and has negotiated in good faith with, all known and locatable working interest owners who have not previously agreed to participate or consent or agree to pooling and unitization of the acreage to be included in a proposed horizontal well unit.

A person who satisfies the conditions of paragraphs (A) through (C) of this subdivision is referred to in this section as a person that controls the horizontal well unit.

(3) For purposes of determining whether a person has obtained the requisite control of the proposed horizontal well unit, the commission may not include overriding royalty owners, nonexecutive interest royalty owners, acreage owned or otherwise held by working interest owners, operators who are not bonded operators, or acreage owned or otherwise held by unknown and unlocatable interest owners, except any acreage made subject to a lease or other agreement with pooling or unitization rights either voluntarily or under article twelve-a, chapter fifty-five of this code shall be included for such determination. Furthermore, for purposes of determining whether a person has the requisite control of the proposed horizontal well unit, the identity and rights of royalty owners and bonded operators shall be determined as of the date on which the application for a horizontal well unit is filed.

(4) If the applicant has not met all the provisions of this subsection, the application shall be dismissed without prejudice.

(5) If the applicant meets all of the provisions of this subsection, the commission shall authorize unitization of tracts, or portions of tracts, as to all interests in oil and gas in the target formation acreage proposed to be unitized for horizontal drilling, including interests of unknown and unlocatable interest owners, for production of oil and gas from the target formation as a horizontal well unit, and shall issue a horizontal well unit order in accordance with this section.

(e) Application requirements. -- 

(1) An applicant who is a person that controls the horizontal well unit proposed for a horizontal well unit order and has drilled or plans to drill one or more horizontal wells in the proposed horizontal well unit may file an application with the commission for a horizontal well unit order. The application must contain:

(A) A description of the proposed horizontal well unit and identification of the target formation or formations;

(B) A statement of the nature of the operations contemplated;

(C) A plat that depicts the boundaries and acreage of the proposed horizontal well unit, the tracts in the horizontal well unit, the surface tax map and parcel numbers of the tracts to be included in the horizontal well unit in accordance with county assessor’s records, and the district(s) and county or counties where the proposed horizontal well unit is located. The plat shall show the surface location of the vertical borehole of the horizontal well(s) to be included in the proposed horizontal well unit determined by survey, the courses and distances of the surface location from two permanent points or landmarks on those tracts, the deviation from vertical, and also the proposed horizontal lateral portion of each proposed horizontal well to be included in the proposed horizontal well unit. The plat shall show the proposed horizontal well unit name, the proposed horizontal well names, the well number, if any, of each horizontal well to be drilled in the horizontal well unit, and the other oil and gas wells within the horizontal unit to the extent depicted on the publicly available maps of the West Virginia Department of Environmental Protection, Office of Oil and Gas;

(D) A listing of all oil and gas tracts, or portions thereof, within the proposed horizontal well unit, the size of each tract, and the extent to which each tract is leased;

(E) The names and last known addresses of royalty owners of the target formation of each tract within the proposed horizontal well unit, specifying:

(i) Which, if any, of them are unknown and unlocatable;

(ii) Which of them hold executive rights; and

(iii) With respect to owners of an executory interest, whether they have consented to pooling or unitization of the acreage proposed to be included in the horizontal well unit.

(F) The names and last known addresses of working interest owners of proposed horizontal well unit target formation acreage whose interest is of record in the county where the property is located, specifying:

(i) Which, if any, of them are unknown and unlocatable; and

(ii) Which, if any of them, are bonded operators, and if a bonded operator, whether he or she has consented to pooling or unitization as to the acreage proposed to be included in the horizontal well unit;

(G) Information regarding the applicant's actions to identify and locate unknown and unlocatable interest owners of target formation acreage to be included in the horizontal well unit.

(H) The percentage of the net acreage in the proposed horizontal well unit owned by executory interest target formation royalty owners who have consented to pooling or unitization;

(I) The percentage of the net acreage in the proposed horizontal well unit held by bonded operators and the applicant, collectively, as to which consent or agreement to pooling or unitization has been granted;

(J) A percentage allocation to the separately owned tracts, or portions thereof, in the proposed horizontal well unit of the oil and gas that will be produced from the horizontal well unit as determined by the proportion that each tract's net acreage within the horizontal well unit bears to the total net acreage in the horizontal well unit;

(K) A certification that the applicant meets the requirements of subsection (c) of this section with respect to the proposed horizontal well unit, a list of the instruments  granting the control and a certification that the applicant has mailed a copy of the  application to all known and locatable interested parties by United States certified mail, return receipt requested, to their last known address and to the most current address filed  with the West Virginia Department of Environmental Protection, Office of Oil and Gas, if any; and

(L) A statement whether the applicant has submitted, either previously or contemporaneously with the application filed pursuant to this section, an application for a well work permit with the Department of Environmental Protection for one or more  horizontal wells to be completed within the boundaries of the proposed horizontal well unit.

(2) Upon the filing of an application for a horizontal well unit order, the commission shall provide notice of a hearing to all interested parties, as defined in this section, in accordance with section five of this article and subsection (d) of this section.

(f) Standard of review. --

(1) The commission shall evaluate the application and shall consider:

(A) The ownership and control of the tracts, or portions of the tracts, in the proposed horizontal well unit;

(B) Whether the tracts, or portions of the tracts, proposed to be made subject to a horizontal well unit order are owned, in whole or in part, by unknown and unlocatable interest owners;

(C) Information regarding the applicant's actions to locate unknown and unlocatable interest owners for the tracts, or portions of the tracts, sought to be included in the horizontal well unit;

(D) The percentage of executory interest royalty owner target formation acreage to be included in the horizontal well unit as to which consent or agreement for pooling or unitization has been granted;

(E) The percentage of proposed horizontal well unit target formation acreage held, collectively, by the applicant and bonded operators who have consented or agreed to the unit in accordance with subsection (d) of this section;

(F) Whether the applicant is a person that controls the horizontal well unit proposed for unitization;

(G) The area to be drained by well(s) completed or to be completed in the horizontal well unit;

(H) Correlative rights;

(I) The extent to which the application will prevent waste;

(J) Whether the applicant has complied with subsection (d) of this section; and

(K) Whether notice has been provided in accordance with this section.

(2) The commission may not issue a horizontal well unit order pursuant to this section unless it finds that the applicant has before the filing of the application met the requirements of subsection (d) of this section.

(3) The commission may not change the operator of an existing well drilled in the proposed horizontal well unit, or a well actually being drilled within the proposed horizontal well unit as of the date the application is filed under this section, and shall consider and protect the interests of owners of such wells when issuing a horizontal well unit order.

(g) Horizontal Well Unit Orders. -

(1)_Regarding Specifications of Unit Order. A horizontal well unit order under this section shall specify:

(A) The size and boundaries of the horizontal well unit giving due regard for maximization of the amount of oil and gas produced to prevent waste and protect correlative rights: Provided, That a horizontal well unit's size may not exceed six hundred forty acres: Provided, however, That the commission may exceed the acreage limitation by ten percent if the applicant demonstrates that the proposed horizontal well unit area would be drained efficiently and economically by a larger horizontal well unit;

(B) The horizontal wells which may be drilled in the horizontal well unit, and whether the horizontal wells to be drilled are shallow or deep;

(C) If there are vertical wells completed in the target formation in the horizontal well unit, the area where a horizontal well may not be completed;

(D) The target formation or target formations to which the horizontal well unit applies; and

(E) Any unitization consideration due.

(2)_Regarding Identification of Unknown and Unlocatable Owners._A horizontal well unit order authorizing unitization of tracts with unknown and unlocatable interest owners shall contain a finding that identifies the persons as unknown and unlocatable interest owners.

(3)_Regarding Unit Tract Allocation._A horizontal well unit order shall specify that the allocation of the percentage of production of the horizontal wells drilled in the horizontal well unit to the separately owned tracts, or portions of the tracts, included within the horizontal well unit shall be in the proportion that each tract's net acreage within the horizontal well unit bears to the total net acreage within the horizontal well unit.

(4)_Regarding Effect of a Unit Order._A horizontal well unit order shall authorize and perfect unitization of all interests in the target formation as to the tracts, or portions of the tracts, or leases, or portions of leases, included in the horizontal well unit.

(5)_Regarding Unit Formation._If the applicant is a person that controls the horizontal well unit proposed for a horizontal well unit order under this section, the commission shall form a horizontal well unit pursuant to this section and authorize the drilling and operation of one or more horizontal wells in the unit for the production of oil or gas from the target formation from any tract within the horizontal well unit.

(6)_Regarding Voluntary Agreements.  Unitization consideration shall not be ordered to be paid to any royalty owner who has consented or agreed to pooling or unitization by virtue of the terms contained in an oil and gas lease, pooling or unitization agreement, contract, or other agreement which permits pooling or unitization.

(7)_Regarding Existing Leases Without Unitization Rights._With respect to any royalty owners of leased tracts who have not consented to pooling or unitization at the time of the hearing, the commission shall require in a horizontal well unit order that unitization consideration be provided to such executive interest royalty owners equivalent to just and reasonable consideration for the modification of rights under a lease.  Further, if an award of unitization consideration differs from the rights under a bona fide arms-length lease, the applicant, all associated royalty owners, owners of leasehold, working interest, overriding royalty interest and other interests in the oil and gas are bound by the order: Provided, That if the applicable lease is a bona fide arms-length lease, the terms of any unitization consideration shall be no less favorable than the economic terms contained in such applicable lease on the date the application for the unit order was filed with the commission: Provided, however, That if the applicable lease is not a bona fide arms-length lease the commission may make such order as is just and reasonable. Unitization consideration shall be provided by the participating working interest owners, including the applicant, to the extent of their interest in the horizontal well unit.

(8)_Regarding Unleased Oil and Gas._With respect to interests in oil and gas as to which there is no lease in existence:

(A) Any owner of unleased oil and gas included in the horizontal well unit may elect to surrender the target formation oil and gas underlying the unleased tract to the participating working interest owners, including the applicant, to the extent of their interest in the horizontal well unit for consideration, which if not agreed upon, shall be just and reasonable as determined by the commission; or

(B) Executive interest owners of unleased oil and gas may make an election for unitization consideration, which, if not agreed upon by the applicant and such owner, shall be just and reasonable as determined by the commission.  If the executive interest owner elects unitization consideration, the interests of the electing executive interest owner and the associated nonexecutive interest owners shall be deemed leased to the participating working interest owners including the applicant to the extent of their interest in the horizontal well unit, on terms determined by the commission, which shall stipulate that the production royalty shall not be reduced by production or post-production expenses and shall be just and reasonable and set forth in the horizontal well unit order.  Following an election by the executive interest owners to receive unitization consideration under this paragraph (B), the participating working interest owners, including the applicant, to the extent of their interest in the horizontal well unit, will provide the unitization consideration and will be the working interest owners of the oil and gas with respect to the interest as to which an election of unitization consideration has been made.

(C) This paragraph does not apply if an owner’s property is deemed leased.  This paragraph does not change the legal ownership of oil and gas. Owners of oil and gas interests as to which there is no lease in existence who do not elect paragraph (A) or (B) of this subdivision shall be deemed to be a royalty owner with respect to a portion of their ownership interest in that tract, and a working interest owner with respect to a portion of their ownership interest, but shall not receive unitization consideration.  In the event the proportion of royalty and working interest is not agreed upon, the proportion shall be just and reasonable as determined by the commission considering relevant evidence: Provided, That the production royalty as to a tract shall not be less than twelve and one-half percent, and may, where warranted by the commission’s review of the relevant evidence, exceed twelve and one-half percent, and in that event the proportion of working interest shall be reduced accordingly, and in the event the ownership interest is less than all of the oil and gas in that tract, the royalty and working interest shall be proportionately reduced; The royalty interest determined by the commission shall not be reduced by production or post-production expenses and shall be just and reasonable. With respect to the working interest portion of the unleased oil and gas, regardless of whether the proportion of royalty and working interest is agreed by the applicant and the royalty owner or is determined by the commission, the owner of the working interest in oil and gas as to which there is no lease in existence may elect Option 1, Option 2 or Option 3 set forth in subdivision (9) of this subsection, but only as to the working interest portion.

(9)_Regarding Participation in a Horizontal Well Unit. When the commission issues a horizontal well unit order pursuant to this section, the commission shall permit all working interest owners to participate in the risk and expense of drilling, completing, equipping and operating the horizontal wells in the horizontal unit and share in the production revenue to the extent of their working interest in the horizontal well unit.  The commission shall permit each working interest owner who does not elect to participate in the risk and cost of drilling in the horizontal well unit to choose from the following options with respect to their working interest:

(A) Option 1. To surrender the working interest or a portion thereof to the participating owners on a reasonable basis and for a just and reasonable consideration, which, if not agreed upon, shall be determined by the commission.

(B) Option 2. To participate to the extent of the working interest in the drilling, completion and operations in the horizontal well unit on a limited or carried basis on terms and conditions which, if not agreed upon, shall be determined by the commission to be just and reasonable.

(C) Option 3. To enter into a farmout agreement, sublease, or other contract to permit drilling, completion, operation and unitization with respect to the working interest for consideration and on terms and conditions which, if not agreed upon, shall be determined by the commission to be just and reasonable.

(10)_Regarding Election of a Carried Interest._If a nonconsenting working interest owner elects Option 2 identified in subdivision (9) of this subsection, and an owner of any working interest in any portion of the horizontal well unit drills and operates, or pays the costs of drilling, completing, equipping and operating a horizontal well for the benefit of the nonparticipating owner as provided in the horizontal well unit order, then the working interest owners in the horizontal well unit are entitled to the share of production from the tracts or portions thereof subject to the horizontal well unit order accruing to the working interest of the nonparticipating owner, exclusive of any unitization consideration, royalty, overriding royalty, and burdens reserved in any deeds, leases, assignments thereof or agreements relating thereto, of the tracts or portions of the tracts included in the horizontal well unit, until the market value of the nonparticipating owner's share of the production, exclusive of the unitization consideration, royalty, overriding royalty, and burdens equals double the share of the costs payable by or charged to the interest of the nonparticipating owner.  Working interest owners pay the costs of drilling, completing, equipping and operating the horizontal well unit and all horizontal wells drilled in the horizontal well unit. 

(11)_Regarding Cost Disputes._If a dispute arises as to the costs of drilling, completing, equipping and operating a horizontal well in a horizontal well unit formed pursuant to this section, the commission shall determine and apportion the costs, within ninety days from the date of written notification to the commission of the existence of the dispute.

(12)_Regarding Unit Modification Request by Applicant When Unit Not Fully Developed.  If the horizontal well unit approved by the commission is not fully developed as approved in the order, the applicant shall file a request to modify the horizontal well unit with the commission within sixty days from the later of: completion of all drilling and completion activities within the horizontal well unit; or the date that is five years after the date the last drilling and completion in the horizontal well unit occurred.

(13)_Regarding Modification by Interested Party if Unit is Not Fully Developed._An interested party may, within five years after the latter of either the drilling and completion of the initial horizontal well in the horizontal well unit or the drilling and completion of the most recent horizontal well within the horizontal well unit file a request to modify the horizontal well unit, and the commission may modify the horizontal well unit.  

(14)_Regarding Distributions in the Event of Unit Modification._Upon the modification of a horizontal well unit, the commission shall recalculate the allocation of production from the tracts in the modified horizontal well unit from and after the modification order date and the modification order shall be binding on the property subject to the horizontal well unit order, and all owners thereof, their heirs, representatives, successors and assigns for so long as the horizontal well unit order remains in effect. 

(15)_Regarding the Effect of a Horizontal Well Unit Order._All operations, including, but not limited to, the commencement, drilling, or operation of a horizontal well upon any portion of a horizontal well unit for which a unit order has been entered pursuant to this section, shall be considered for all purposes the conduct of the operations upon each separate tract or portion of the tract in the horizontal well unit. That portion of the production allocated to each tract or portion of the tract included in a horizontal well unit shall, when produced, be considered for all purposes to have been actually produced from the tract by an oil and gas well drilled, completed and producing on the tract, or portion of the tract included in the horizontal well unit.

(16)_Regarding Unit Modification by the Applicant._The applicant may file a request to modify a horizontal well unit order at any time.

(17)_Regarding Unit Order Modification for Clerical Errors._Any interested party may file an application to correct a clerical error in a horizontal well unit order at any time.

(18)_Regarding Expiration of a Horizontal Well Unit._A horizontal well unit order under this section shall expire if a horizontal well has not been drilled in the horizontal well unit within three years of the date the order is final and not appealable, unless the commission extends the order for good cause, and if a well has been drilled within said three years, or within any extension period granted by the commission, the horizontal well unit shall continue in force and effect until all wells in the horizontal well unit are no longer capable of producing oil, gas, natural gas liquids or other substances emitted from the borehole and marketed off the premises.

(19)_Regarding Escrow for Unknown and Unlocatable Owners._Where the commission finds that the interest of one or more unknown and unlocatable interest owners are included in the horizontal well unit, the horizontal well unit operator shall hold the moneys payable to the owner in an escrow account paying a market rate of interest, to be held, administered and disbursed in accordance with an order of the commission and subsection (q) of this section.

(20)_Regarding Just and Reasonable._For purposes of this section, the commission shall determine what is "just and reasonable" based on relevant evidence adduced at a hearing including but not limited to amounts paid or consideration given in arm's length transactions in the vicinity of the horizontal well unit and within a reasonable time prior to the hearing for transactions of the same nature and involving similar geologic conditions as that transaction being considered by the commission.  When determining a production royalty rate, the commission may consider all material terms of the relevant leases.

(21)_Regarding Binding Effect of a Horizontal Well Unit._When the commission issues a horizontal well unit order, the applicant and all oil and gas well operators, royalty owners and owners of leasehold, working interest, overriding royalty interest and other interests in the oil and gas in the horizontal well unit shall be bound by the order.  So long as the order remains in force and effect as provided in this section, a horizontal well unit order shall be binding on the property subject to the horizontal well order and all owners of the property and their heirs, representatives, successors and assigns.

(22)_Regarding Production Royalty.  Any royalty payable under a horizontal well unit order shall be calculated and paid on all oil, natural gas, natural gas liquids, and all other substances emitted from the borehole and marketed off the premises.

(h) Notice, timelines, hearings and orders. --

(1) Interested parties shall be provided with notice of the filing of an application for a horizontal well unit in accordance with the provisions of section five of this article.

(2) Owners and others with executive interests in target formation oil and gas property not within the horizontal well unit but located within five hundred feet of a proposed horizontal well unit boundary need not be given notice of the horizontal well unit application by certified mail in accordance with section five of this article, but may, before the approval of an application as to which no objection has been filed, or at any time before the hearing if an objection is filed, intervene in the horizontal well unit application proceeding, and upon intervention will be an interested party and may participate in the hearing.

(3) Each notice issued in accordance with section five of this article shall describe the area for which a horizontal well unit order is proposed in recognizable, narrative terms, include a map or plat which identifies the location of the proposed horizontal well unit, and contain such other information as is essential to the giving of proper notice, including the time and date and place of a hearing. As soon as practicable the commission shall establish a website. Within three business days of the filing of an application under this section, the commission shall publish on its website a copy of: (A) The horizontal well unit application notice required to be published pursuant to section five of this article; and (B) the proposed horizontal well unit plat filed with the application.  The horizontal well unit application and plat shall be indexed on the commission’s website by each county and district where acreage to be included in the proposed horizontal well unit is located. Timely publication on the website for a period of ten business days or completion of newspaper publication shall be notice to all working interest owners.

(4) Upon request of any interested party or the commission, the commission shall conduct a hearing and receive evidence regarding the application. All interested parties may participate in any hearing. If a hearing has been held regarding an application, the order shall be a final order.  If no hearing has been requested by the commission or an interested party within fifteen days after notice of the application is posted on the commission website in accordance with subdivision (2) of this subsection, the commission may issue a proposed order and provide a copy of the proposed order, together with notice of the right to appeal to the commission and request a hearing, to all interested parties. Any interested party aggrieved by the proposed order may appeal the proposed order to the commission and request a hearing. Notice of appeal and request for hearing shall be made within fifteen days of entry of the proposed order. If no appeal and request for hearing has been received within fifteen days, the proposed order shall become final.  If a hearing is requested, the hearing shall commence within forty five days of issuance of the initial notice. The commission may, upon written request, extend the date for the hearing: Provided, That the hearing must be convened within forty five days of the initial notice issued by the commission. The commission shall, within twenty days of the hearing, enter an order authorizing the unit, dismiss the application or for good cause continue the process.

(5) At least ten days prior to a hearing to consider an application for a horizontal well unit order, the applicant shall file with the commission a summary of:

(A) The prevailing economic terms of the leases of the oil and gas property within the proposed horizontal well unit and the prevailing economic terms of the leases by the applicant of the oil and gas property adjoining the proposed horizontal well unit, including the bonus payment per net acre, production royalty rate, whether the production royalty under such leases is subject to reduction for post-production expenses and any other common conditions or terms of the leases; and

(B) The prevailing consideration paid by the applicant to the executive interest royalty owners for the modification of oil and gas leases within the proposed horizontal well unit to allow the lessee to pool or unitize the leased tract with other tracts for purposes of drilling horizontal wells and, as to oil and gas leases adjoining the property within the proposed horizontal well unit, the prevailing consideration paid to the executive interest royalty owners for the modification of oil and gas leases to allow the lessee to pool or unitize the leased tract with other tracts for purposes of horizontal drilling.

The applicant may mark the summary of the prevailing economic terms of leases and consideration paid for lease modifications filed with the commission, and any associated documents or information, as "CONFIDENTIAL" if the documents contain confidential, commercial information. Any information marked "CONFIDENTIAL" may only be used for the purpose of the underlying hearing and may only be reviewed at the offices of the commission for purposes of preparing for the underlying hearing by interested parties who are either executive interest owners of unleased tracts or executive interest royalty owners of leased tracts within the proposed unit who have not consented or agreed to pooling or unitization, and for no other purpose. Prior to an executive interest owner of an unleased tract or an executive interest owner of a leased tract within the proposed unit who has not consented to pooling or unitization disclosing any document or other material marked as "CONFIDENTIAL," or any information contained therein, to an attorney, expert witness, consultant or other person assisting the owner with a hearing under this section, the party making the disclosure must first inform the person that he or she is bound by the duty of confidentiality established under this subdivision and the person to whom disclosure is to be made shall sign an acknowledgment that the information is and shall remain at all times confidential, and that the person agrees to abide by the duty of confidentiality established by this subdivision and to refrain from using the information for any purpose other than the applicable hearing. All information marked "CONFIDENTIAL" pursuant to this subdivision shall retain that character in any court of competent jurisdiction on appeal, and the applicant may file a motion with the court seeking to have the documents sealed and withheld from the public record throughout the appeal from a final order of the commission pertaining to a horizontal well unit order. Furthermore, any information marked "CONFIDENTIAL" pursuant to this subdivision is exempt from disclosure under article one, chapter twenty-nine-b of this code.

(6) An order establishing a horizontal well drilling unit or dismissing an application shall be a final order.  Any interested party aggrieved by the order may seek judicial review pursuant to section eleven of this article, and must, notwithstanding the provisions of subsection b, section four, article five, chapter twenty-nine-a of this code to the contrary, be commenced by filing a petition in a circuit court with jurisdiction within fifteen days after the date upon which the horizontal well unit order being appealed was entered.  If no petition for review has been filed in a circuit court with jurisdiction within the fifteen day period, the horizontal well unit order shall be final and not appealable.

(i) A unit order does not grant surface rights. -- A horizontal well unit order under this section does not grant surface use rights.  If a tract was made subject to a horizontal well unit order without the consent of the executive interest owner of the oil and gas, then no horizontal well unit drilling site shall be constructed or other horizontal well unit surface disturbance occur upon the surface of that tract unless the surface owner consents to such construction or disturbance.

(j) Commission approval required for certain additional drilling. -- After the filing of an application for a horizontal well unit order but before the horizontal well unit order requested by the application is entered, no well may be drilled or completed  to or through the target formation of the proposed horizontal well unit unless authorized by the commission. After a horizontal well unit order is entered, no well shall be completed in the horizontal well unit in the target formations of the horizontal well unit unless authorized by the commission.  This subsection addresses the times at which oil and gas wells may be drilled and does not limit the ability of a lessor to lease oil and gas. 

(k) Contemporaneous unit and permit applications authorized. -- Notwithstanding anything to the contrary in article six-a, chapter twenty-two of this code, upon the filing of an application for a horizontal well unit order pursuant to this section, an applicant may file an application for a well work permit under article six-a, chapter twenty-two of this code for any proposed development within the horizontal well unit for which the unit order is sought.

(l) A party may appear in person. -- At any hearing an interested party may represent themselves or be represented by a duly licensed attorney-at-law.

(m) Post production expenses are not deductible with respect to royalty determined by commission. -- The provisions of this section regarding post production expenses are unique to this section and to interests included within a horizontal well unit without the consent of the interest owner.  Nothing in this section expresses any legislative finding or policy regarding the deduction of post-production expenses in contexts outside of administrative hearings before the commission conducted pursuant to this section or the appeal of horizontal well unit orders pursuant to this section.

(n) Unknown and unlocatable interest owners. -- Notwithstanding the existence of unknown and unlocatable interest owners, a horizontal well unit order may be entered and development, drilling and production may occur in the horizontal well unit. Unknown and unlocatable interest owners of target formation oil and gas not subject to lease shall be deemed to have leased such interest to the applicant and the participating working interest owners on terms determined by the commission to be just and reasonable, which shall be set forth in the horizontal well unit order and, with respect to such interest, shall be entitled to receive unitization consideration as determined by the commission in accordance with paragraph (B), subdivision (8), subsection (g) of this section.  Unknown and unlocatable interest owners of working interest in target formation oil and gas subject to lease when the application is filed who are entitled to make an election under this section shall be deemed to have elected Option 3 with respect to such interest, and the commission shall determine whether such interest is thereafter subject to a farmout, sublease, or other arrangement and the terms of such arrangement, which shall be just and reasonable as determined by the commission.  Any funds payable to unknown and unlocatable interest owners under the horizontal well unit order shall be deposited in the interest bearing escrow account provided for in this section.

(o) Owners who are not unknown and unlocatable declining to make an election. –

(1) If an owner is not an unknown and unlocatable interest owner, but is an owner of an executive interest in proposed horizontal well unit target formation oil and gas not subject to oil and gas lease at the time a horizontal well unit application encompassing such oil and gas is filed, and the owner is entitled to make an election under this section but does not do so, then such owner shall be deemed to have leased such interest to the applicant and participating working interest owners on terms determined by the commission to be just and reasonable and, with respect to such interest, shall be entitled to receive unitization consideration as determined by the commission in accordance with paragraph (B), subdivision (8), subsection (g) of this section.  The commission shall send notice of the unitization consideration determined to such known and locatable owner at the address shown in the application.  Thereafter, the applicant shall tender to such owner the unitization consideration determined by the commission.

(2) If an owner is not an unknown and unlocatable interest owner, but is, by virtue of a lease, assignment, contract or other agreement, an owner of a working interest in target formation oil and gas within the proposed horizontal well unit at the time the application is filed, and such owner is entitled to make an election under this section but does not do so, then such owner shall be deemed to have elected Option 3 identified in subdivision (9), subsection (g) of this section with respect to such interest on terms determined by the commission to be just and reasonable.  The horizontal well unit order shall set forth the commission’s determination, and the commission shall send a copy of the horizontal well unit order to such known and locatable owner at the address shown in the application. 

Notwithstanding the refusal or failure of any owner to make any election permitted by this section, a horizontal well unit order shall be binding on the property subject to the horizontal well order and all owners of all interests in such property and their heirs, representatives, successors and assigns.

(p) Opportunity of surface owners to acquire interests of unknown and unlocatable interest owners in oil and gas underlying their surface tract. --

(1) When the interests of unknown and unlocatable interest owners' property is included in a horizontal well unit, if the applicant has not filed a proceeding pursuant to article twelve-a, chapter fifty-five of this code (entitled Lease and Conveyance of Mineral Interests Owned by Missing or Unknown Owners or Abandoning Owners) with respect to the interest of an unknown and unlocatable interest owner in the horizontal well unit, and taxes on the unknown and unlocatable interest owners' property are not delinquent, then within three months after a horizontal well unit order is entered by the commission and is final and not appealable, the applicant shall inform the party or parties with an assessed interest in the surface overlying such portion of the oil and gas included in the horizontal well unit at the address maintained in the tax records of the sheriff (the “Tax-Paying Surface Owner” or "TSO") that the surface owner or owners may acquire the underlying interest of the unknown and unlocatable interest oil and gas owners in the oil and gas of the unknown and unlocatable interest owner underlying the surface of the TSO’s surface property pursuant to this subsection (the “TSO notice”), but only the oil and gas interest within the target formation made subject to the commission’s unit order.  Upon written request to the applicant by any TSO, the applicant shall, to the extent practicable under the circumstances, furnish the requesting TSO the following information: Provided, That applicant is not required to  provide confidential, trade secret, attorney-client communications or attorney work product:

(A) An identification of the last known owner, and information in the possession of the applicant regarding the last known identity and address of, the interest in the horizontal well unit believed to be held by unknown and unlocatable interest owners,

(B) The efforts to locate such unknown and unlocatable interest owners,

(C) Such other information known to the applicant which might be helpful in identifying or locating the present owners of the oil and gas interests in the horizontal well unit of unknown and unlocatable interest owners, and

(D) A copy of the most recent recorded instrument embracing the interest of the unknown and unlocatable interest owners in the horizontal well unit as necessary to show the vesting of title to the oil and gas minerals in the last record owner of the title to the oil and gas minerals.

(2) When an unknown and unlocatable interest in oil and gas is included in a horizontal well unit, the owners of the surface overlying such interest may, within two years of the horizontal unit well order becomes final and not appealable, file a verified petition with respect to all the interests of unknown and unlocatable interest owners’ oil and gas interests underlying the surface of the property underlying the surface owner's property subject to the horizontal well unit order.  The circuit court in which the majority of the property subject to the petition authorized by this subsection is located has jurisdiction of the proceeding.  The petition shall refer to this subsection and identify the surface tract and all oil and gas property subject to the petition.  The prayer in any such petition shall be for the court to order, in the case of any defendant or heir, successor or assign of any defendant who does not appear to claim ownership of the defendant’s interest for five years after the date the petition is filed, a conveyance of the defendants' oil and gas mineral interest under this subsection, subject to the terms of the horizontal well unit order approved by the commission, to the petitioners.

(3) The proceeding authorized by this subsection does not authorize review of any unit order.  In any proceeding authorized in this subsection the circuit court in which the petition is filed shall consider the property within the horizontal well unit fully subject to the horizontal well unit order.

(4) The person filing a petition under this subsection shall join as defendants to the action all unknown and unlocatable interest owners having record title to the particular oil and gas minerals subject to the petition, and the unknown heirs, successors and assigns of all such owners not known to be alive.  The court may appoint a guardian ad litem.  All persons not in being who might have some contingent or future interest therein, and all persons whether in being or not in being, having any interest, present, future or contingent, in the oil and gas mineral interests subject to  the petition, shall be fully bound by the proceedings under this subsection.

(5) Any owner of the overlying surface tract may join as a petitioner in the proceeding. Any person purporting to be the unknown and unlocatable interest owner, or any heir, successor or assign of an unknown and unlocatable interest owner, may appear as a matter of right at any time prior to the entry of judgment confirming the deed authorized by this subsection, for the purpose of establishing his or her title to the oil and gas mineral interest subject to the petition. If the appearing unknown and unlocatable interest owner's claim is established to the satisfaction of the court, the court shall dismiss the action as to the appearing owner's interest without cost, fees or damages: Provided, That if the appearance of the formerly unknown and unlocatable interest owner was as a result of the filing of the petition by the surface owner pursuant to this subsection, then the court may order the petitioner’s reasonable attorneys’ fees and costs to be paid to the petitioner out of the amounts payable to the formerly unknown and unlocatable interest owner.

(6) The court may appoint a special commissioner at any time to deliver a deed to the petitioners in the form provided herein five years after the petition is filed.  The special commissioner shall be an attorney duly admitted to practice before the West Virginia Supreme Court of Appeals and in good standing, but may not be required to give bond.  If the petitioners do not agree as to the interest each is to acquire by the deed contemplated herein, or the division of any moneys associated therewith, the court shall equitably determine the interests of the petitioners.

(7) In any action under this subdivision, if personal service of process is possible, shall be made as provided by the West Virginia Rules of Civil Procedure.  In addition, immediately upon the filing of the petition, the petitioner shall: (A) Publish a Class III  legal advertisement in compliance with the provisions of article three, chapter fifty-nine of this code, and in the county wherein the larger part of the oil and gas mineral estate described in the petition lies; and (B) no later than the first day of publication, file a lis pendens notice in the county clerk's office of the county where the petition is filed and the county wherein the larger part of the oil and gas mineral estate described in the petition lies.  Both the advertisement and the lis pendens notice shall set forth: (A) The names of the petitioner and the defendants, as they are known to be by the exercise of reasonable diligence by the petitioner, and their last known addresses; (B) the date and record data of the instrument or other conveyance which immediately created the oil and gas mineral interest; (C) an adequate description of the oil and gas mineral interest and the surface; (D) the source of title of the last known owners of the oil and gas mineral interests; and (E) a statement that the action is brought for the purpose of authorizing payments from a horizontal well unit and thereafter, in the case of any defendant or heir, successor or assign of any defendant who does not appear to claim ownership of the defendant's interest within five years after the date the petition is filed, for the court to order a conveyance of the defendants’ oil and gas mineral interest under this subsection, subject to the horizontal well unit order and other instruments in the record chain of title to such oil and gas, to the  owner of the surface overlying the oil and gas mineral interest.  In addition, the petitioner shall send notice by certified mail, return receipt requested, to the last known address, if there is one, of all named defendants. In addition, the court may order advertisement elsewhere or by additional means if there is reason to believe that additional advertisement might result in identifying and locating the unknown and unlocatable interest owners.

(8) Upon a finding by the court of the present ownership of the petitioners of the surface estate, the court order the special commissioner to convey to the proven surface owners, fully subject to the horizontal well unit order and other instruments in the record chain of title to such oil and gas, the oil and gas mineral interest specified in the petition authorized herein and approved by the court, by a deed substantially in the form as follows:

This deed, made the ___ day of, __________________________ 20__, between

_________________________________, special commissioner, grantor, to convey the oil and gas mineral interests of _________________________________ to ______________, grantee.

Witnesseth, that whereas, grantor, in pursuance of the authority vested in him or her by

an order of the circuit court of _________________County, West Virginia, entered on the

______ day of ___________________, 20__, in Civil Action No. ______therein pending, to convey the oil and gas mineral interest more particularly described below to the grantee.

Now, therefore, this deed witnesseth: That grantor grants unto grantee, subject to the provisions of the horizontal well unit order of the Oil and Gas Conservation Commission in_______________ and lease terms provided therein, and further subject to all other liens and encumbrances of record, that certain oil and gas mineral interest in ________________________ County, West Virginia, more particularly described in the cited order of the circuit court as follows: (here insert the description in the order).

Witness the following signature.

___________________________

Special Commissioner

(9) In any proceeding authorized by this subdivision, the petitioners shall bear their own costs and attorneys' fees.

(10) The applicant may not be joined as a party, but shall be served with copies of all pleadings and other papers filed in the proceeding, and may intervene at any time.

(11) After the recording of the special commissioner's deed, no action may be brought by any unknown and unlocatable interest owner or any heir, successor or assign thereof either to recover any past or future proceeds accrued or to be accrued from the property subject to the deed, or to recover any right, title or interest in and to the mineral interest subject to the deed.

(12) If any unknown and unlocatable interest owner or heir, successor or assign thereof appears in the proceeding in circuit court later than three years after the proceeding is filed, the unknown and unlocatable interest owner, if he or she establishes his or her claim to the satisfaction of the circuit court, shall except as provided herein be entitled to receive amounts payable to them in connection with the horizontal well unit or production therefrom. Further, the participating working interest owners, including the applicant, and the petitioning surface owners shall have no liability to the unknown and unlocatable interest owner or their heirs, successors or assigns for any amount paid with respect to the unknown and unlocatable interest or the horizontal well unit or production therefrom paid in accordance with this subsection.

(q)  Disbursement of Escrow. --

(1) The escrow account established pursuant to subdivision (19), subsection (g) of this section shall continue for a period of at least three years after the horizontal well unit order is entered unless an unknown and unlocatable owner establishes ownership prior to the end of the three year period. 

(2) If a TSO does not file a petition pursuant to this subsection within two years  after a horizontal well unit order becomes final and not appealable, escrowed and other amounts payable with respect to the unknown and unlocatable interest owners' interests included in a horizontal well unit shall be paid to the Oil and Gas Reclamation Fund established pursuant to section twenty-nine, article six, chapter twenty-two of this code, the escrow account may be closed and paid to the Oil and Gas Reclamation Fund. Payment to the Oil and Gas Reclamation Fund shall relieve the participating working interest owners including the applicant, of all liability of the participating working interest owners, including the applicant, with respect to the horizontal well unit and all operations therein and production therefrom to any unknown and unlocatable interest owners, their heirs, successors and assigns and to any owners of surface overlying the unknown and unlocatable interest owners' interest, their heirs, successors and assigns, with respect to the payment.

(3) If a petition by a TSO to acquire the oil and gas pursuant to this subsection is filed within two years after the date a horizontal well unit order becomes final and not appealable, then the money deposited in escrow attributable to the interests subject to the petition shall remain in escrow until the petition case is final and not appealable.  If the petition case does not result in a deed to the surface owner, the escrow account may be closed and paid to the Oil and Gas Reclamation Fund and additional amounts payable to the unknown and unlocatable owners shall be paid to the Oil and Gas Reclamation Fund and payment shall relieve the participating working interest owners, including the applicant, of all liability of the participating working interest owners with respect to the horizontal well unit and all operations therein and production therefrom to any unknown and unlocatable interest owners, their heirs, successors and assigns and to any owners of surface overlying the unknown and unlocatable interest owners' interest, their heirs, successors and assigns, with respect to the payment.

(4) If a special commissioner delivers the deed authorized herein, the grantee shall deliver a copy of the deed to the applicant and record the deed in the office of the clerk of the county commission of the county in which the property described in the deed is located.  Upon the delivery and recording of the special commissioner's deed, the surface owner grantee in the special commissioner’s deed is entitled to receive all proceeds due and payable under a horizontal well unit order that are attributable to the oil and gas mineral interests specified in the special commissioner's deed and that become due after three years from the date the horizontal well unit order becomes final and not appealable.  The balance of the escrow shall be paid to the Oil and Gas Reclamation Fund established pursuant to section twenty-nine, article six, chapter twenty-two of this code.  Payment to the grantee of the deed and to the Oil and Gas Reclamation Fund as provided herein shall relieve the participating working interest owners including the applicant of all liability of the participating working interest owners including the applicant with respect to the horizontal well unit and all operations therein and production therefrom to any unknown and unlocatable interest owners, their heirs, successors and assigns and to any owners of surface overlying the unknown and unlocatable interest owners' interest, their heirs, successors and assigns, with respect to the payments. 

(r) Severable provisions. -- If any part of this section is adjudged to be unconstitutional or invalid, the invalidation shall not affect the validity of the remaining parts of this section; and to this end, the provisions of this section are hereby declared to be severable.  The titles used in this section are for ease of reference only and should not be considered when construing this section. 

(s) Conflict resolution. -- After the effective date of this section, all applications requesting unitization for horizontal wells shall be filed pursuant to this section. Deep well horizontal unit applications filed before the effective date of this section shall continue to proceed under and be governed by the provisions of section seven of this article. With respect to horizontal well unit applications filed after the effective date of this section, if this section conflicts with section seven of this article, the provisions of this section shall prevail. When considering an application pursuant to this section, rules regarding deep wells promulgated before the effective date of this section do not apply. The commission may modify any special field rules, spacing orders, and deep well units  in connection with horizontal well unit orders under this section as necessary to protect correlative  rights, prevent waste, or ensure that working interest owners and royalty owners receive their just and equitable share of production. The commission’s existing deep well regulations requiring notification of offset operators when applying for a deep horizontal well drilling permit, and the commission’s requirement to seek distance limitation exceptions or waivers regarding the location of deep horizontal wells, are hereafter of no force or effect with respect to horizontal wells.

 

 NOTE: The purpose of this bill is to establish the Horizontal Well Unitization and Landowner Protection Act of 2016.  The bill provides for the unitization of interests in drilling units in connection with all horizontal oil or gas wells. The bill creates key landowner protections. The bill sets forth unit application requirements. The bill establishes the standard of review. The bill provides for shallow horizontal well orders. The bill requires notice and timeliness. The bill provides for hearings. The bill adds new definitions. The bill modifies existing definitions. The bill provides a method for the reunification of surface and subsurface estates. The bill provides an alternate mechanism for funding the Oil and Gas Reclamation Fund.

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