Senate Bill No. 2008

(By Senator Tomblin, Mr. President, and Caruth,

By Request of the Executive)

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[Introduced August 19, 2007;

referred to the Committee on the Judiciary; and then to the Committee on Finance.]

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A BILL to amend and reenact §11-13A-3a, §11-13A-3d, §11-13A-10 and §11-13A-17 of the Code of West Virginia, 1931, as amended; to amend said code by adding thereto a new section, designated §11-13A-3f; to amend said code by adding thereto two new sections, designated §11-13V-4a and §11-13V-4b ; to amend and reenact §22-6-1 of said code; to amend said code by adding thereto a new article, designated §22-7A-1, §22-7A-2, §22-7A- 3, §22-7A-4, §22-7A-5 and §22-7A-6; to amend and reenact §22C- 8-2 of said code; and to amend and reenact §22C-9-2 of said code, all relating to oil and gas production; Severance and Business Privilege Tax Act and the Workers' Compensation Debt Reduction Act; deleting superannuated language; specifying collection and remittance of the severance tax on production of natural gas or oil by the first person to purchase the natural gas or oil after it has been severed or, in the event that the natural gas or oil has been severed and processed before the first sale, the first person to purchase natural gas or oil after it has been severed and processed; specifying purchaser liability for failure to collect or remit the tax; specifying due dates and payment requirements; specifying exceptions to the requirement that the purchaser collect and remit the tax; specifying persons subject to applicable bonding requirements; eliminating the five hundred dollar per taxpayer credit for oil and gas severance tax and eliminating other tax credits against natural gas severance taxes and oil severance taxes; authorizing issuance of emergency rules and other rules by the Tax Commissioner; specifying severance tax rate on natural gas and on oil; eliminating the severance tax exemption for natural gas or oil produced from any well placed back into production which has not produced marketable quantities of natural gas or oil for five consecutive prior years; specifying application of exemptions and exceptions and use of direct severance payment authorization number; specifying termination of the severance and business privilege tax exemption for production of coalbed methane and specifying that coalbed methane is taxed as natural gas for purposes of the Severance and Business Privilege Tax Act and for purposes of the taxes imposed by the Workers' Compensation Debt Reduction Act; defining "shallow wells"; oil and natural gas production royalty payments; and calculating production royalty payments.

Be it enacted by the Legislature of West Virginia:
 That §11-13A-3a, §11-13A-3d, §11-13A-10 and §11-13A-17 of the Code of West Virginia, 1931, as amended, be amended and reenacted; that said code be amended by adding thereto a new section, designated §11-13A-3f; that said code be amended by adding thereto two new sections, designated §11-13V-4a and §11-13V-4b; that §22-6- 1 of said code be amended and reenacted; that said code be amended by adding thereto a new article, designated §22-7A-1, §22-7A-2, §22-7A-3, §22-7A-4, §22-7A-5 and §22-7A-6; that §22C-8-2 of said code be amended and reenacted; and that §22C-9-2 of said code be amended and reenacted, all to read as follows:
CHAPTER 11. TAXATION.

 ARTICLE 13A. SEVERANCE AND BUSINESS PRIVILEGE TAX ACT.
§11-13A-3a. Imposition of tax on privilege of severing natural gas or oil.
(a) Imposition of tax.

(1) For the privilege of engaging or continuing within this state in the business of severing natural gas or oil for sale, profit or commercial use, there is hereby levied and shall be collected from every person exercising such privilege an annual privilege tax: Provided, That effective for all taxable periods beginning on or after the first day of January, two thousand, there is an exemption from the imposition of the tax provided in this article on the following:
(1) (A) Free natural gas provided to any surface owner;
(2) (B) natural gas produced from any well which produced an average of less than five thousand cubic feet of natural gas per day during the calendar year immediately preceding a given taxable period;
(3) (C) oil produced from any oil well which produced an average of less than one-half barrel of oil per day during the calendar year immediately preceding a given taxable period; and
(4) (D) for a maximum period of ten years, all natural gas or oil produced from any well which has not produced marketable quantities of natural gas or oil for five consecutive years immediately preceding the year in which a well is placed back into production and thereafter produces marketable quantities of natural gas or oil.
(2) On and after the first day of January, two thousand eight, the exemptions set forth in paragraphs (C) and (D) of subdivision (1) of this subsection are null and void and of no force or effect: Provided, That the exemption set forth in paragraph (B), subdivision (1) of this subsection shall apply to the tax imposed by this article only on natural gas from a well that is the source of free natural gas and that also produced an average of less than five thousand cubic feet of natural gas per day during the calendar year immediately preceding a given taxable period for a taxpayer. The severer shall assert this exemption either by giving the purchaser a direct severance payment authorization number or by filing a request for refund with the tax commissioner on such form and pursuant to such procedures as the tax commissioner may require. This provision shall not be interpreted to impose the severance tax on free natural gas, and shall not be interpreted as authorizing a refund of tax for or relating to free natural gas produced.
(b) Rate and measure of tax.

The tax imposed in subsection (a) of this section shall be five percent of the gross value of the natural gas or oil produced, as shown by the gross proceeds derived from the sale thereof by the producer, except as otherwise provided in this article: Provided, That on and after the first day of January, two thousand eight, the tax imposed in subsection (a) of this section shall be four and eight tenths of one percent of the gross value of the natural gas or oil produced, as shown by the gross proceeds derived from the sale thereof by the producer, except as otherwise provided in this article.
(c) Tax in addition to other taxes.

The tax imposed by this section shall apply to all persons severing gas or oil in this state, and shall be in addition to all other taxes imposed by law.
(d)(1) The Legislature finds that in addition to the production reports and financial records which must be filed by oil and gas producers with the State Tax Commissioner in order to comply with this section, oil and gas producers are required to file other production reports with other agencies, including, but not limited to, the office of oil and gas, the Public Service Commission and county assessors. The reports required to be filed are largely duplicative, the compiling of the information in different formats is unnecessarily time consuming and costly, and the filing of one report or the sharing of information by agencies of government would reduce the cost of compliance for oil and gas producers.
(2) On or before the first day of July, two thousand three, the Tax Commissioner shall design a common form that may be used for each of the reports regarding production that are required to be filed by oil and gas producers, which form shall readily permit a filing without financial information when such information is unnecessary. The commissioner shall also design such forms so as to permit filings in different formats, including, but not limited to, electronic formats.
(3) Effective the first day of July, two thousand six, this subsection shall have no force or effect.
(d) Purchaser of natural gas or oil to withhold tax. Remittance of withheld tax by purchaser. -- On or after the first day of January, two-thousand eight, the first person to purchase the natural gas or oil after it has been severed, or in the event that the natural gas or oil has been severed and processed before the first sale, the first person to purchase natural gas or oil after it has been severed and processed, shall be liable for the collection of the taxes imposed by this article from the person severing (or severing and processing) the natural gas or oil, and shall remit the taxes to the tax commissioner. Taxes so collected by the purchaser are held in trust for the State, and the purchaser is liable for any failure to collect or remit the tax, in accordance with the provisions of articles nine and ten of this chapter.
(1) No profit shall accrue to any person as a result of the collection of the tax levied by this article notwithstanding the total amount of the taxes collected may be in excess of the amount for which the severer would be liable by the application of the rate of tax levied by this article. The total amount of all taxes collected by the purchaser shall be returned and remitted to the tax commissioner as provided in this article.
(2) If any severer refuses to pay or otherwise does not pay to the purchaser the tax imposed by this article, or a severer refuses to present to the purchaser a valid direct severance payment authorization number indicating that the purchaser is not required to collect and remit the taxes imposed by this article, or presents to the purchaser a false direct severance payment authorization number or a false document, the severer shall be personally liable for the amount of tax applicable, and the purchaser shall not be liable for such tax.
(3) Nothing in this section relieves any severer who owes the tax and who has not paid the tax imposed by this article from liability for payment of the tax. In those cases the tax commissioner has authority to make an assessment against the severer, based upon any information within his or her possession or that may come into his or her possession. This assessment and notice thereof shall be made and given in accordance with article ten of this chapter. The severer shall not be liable for tax withheld by the purchaser, but not remitted to this State by the purchaser.
(4) The due dates and payment requirements of this article apply to the payment and remittance of tax by purchasers of natural gas or oil under this section.
(5) Exceptions. The requirement that the purchaser shall withhold and remit the tax imposed by this article on production of natural gas or oil shall not apply:
(A) Where the person severing (or severing and processing) the natural gas or oil sells the gas or oil to the ultimate consumer, the person so severing (or severing and processing) the natural gas or oil shall be liable for the taxes imposed by this article; or
(B) Where the tax commissioner determines that the collection of the taxes due under this article or article thirteen-v of this chapter, or both, from the person severing the natural gas or oil, or severing and processing the natural gas or oil would be accomplished in a more efficient and effective manner through the severer (or severer and processor) remitting the taxes, the tax commissioner shall set out his or her determination in writing, stating his or her reasons for so finding, and so advise the severer (or severer and processor) at least fifteen days in advance of the first reporting period for which the commissioner's determination is effective.
(6) Notwithstanding the provisions of this section, the person severing the natural gas or oil is the taxpayer for purposes of this article and is liable for the tax imposed by this article. The first purchaser that is responsible for withholding and remittance of the tax is subject to the bonding requirements as applicable under section sixteen of this article, and severers from whom the tax is withheld shall not be subject to the bond specified in section sixteen of this article. However, a severer who has been issued a direct severance payment authorization number or who is otherwise subject to a requirement to pay the oil or gas severance tax directly to the State rather than through withholding by the first purchaser, is subject to the bonding requirements as applicable under section sixteen of this article. This article shall not be interpreted to relieve any person of a bonding requirement other than the bonding requirement set forth in section sixteen of this article, and shall not be interpreted as addressing any bonding requirement other than the bonding requirement set forth in section sixteen of this article.
(7) Severers that pay the tax directly on production of oil or natural gas pursuant to the provisions of this section shall deliver to the purchaser a direct severance payment authorization number, issued by the tax commissioner. The purchaser shall not withhold and remit the tax imposed by this article on production of natural gas or oil sold to a severer who delivers to the purchaser a direct severance payment authorization number.
(8) The tax commissioner may promulgate emergency rules addressing collection and remittance of the severance tax by the first purchaser or the severer or both, taxation of oil and natural gas and coal bed methane and such administrative matters as may relate to the filing, reporting and payment of the tax imposed by this article and by article thirteen-v of this chapter, and such interpretive and legislative rules as the tax commissioner may find appropriate relating thereto.
(9) Notwithstanding other provisions of this code the the contrary, if the tax commissioner determines that a transaction between a first purchaser and a severer is not an arm's length transaction or is otherwise a transaction for which price manipulation appears to have affected the amount of tax collected or remitted under this article, the tax commissioner may determine the applicable tax base on which such tax should have been imposed and issue an assessment of tax accordingly.
§11-13A-3d. Imposition of tax on privilege of severing coalbed methane.
(a) The Legislature hereby finds and declares the following:

(1) That coalbed methane is underdeveloped and an under- utilized resource within this state which, where practicable, should be captured and not be vented or wasted;
(2) The health and safety of persons engaged in coal mining is a paramount concern to the state. The Legislature intends to preserve coal seams for future safe mining, to facilitate the expeditious, safe evacuation of coalbed methane from the coalbeds of this state, and to ensure the safety of miners by encouraging the advance removal of coalbed methane;
(3) The United States environmental protection agency's coalbed methane outreach program encourages United States coal mines in the United States to remove and use methane that is otherwise wasted during mining. These projects have important economic benefits for the mines and their local economies while they also reduce emissions of methane; and
(4) The initial costs of development of coalbed methane wells can be large in comparison to conventional wells and deoxygenation and water removal increase development expenditures.
The Legislature, therefore, concludes that an incentive to coalbed methane development should be implemented to encourage capture of methane gas that would otherwise be vented to the atmosphere.
(b) Imposition of tax. -- In lieu of the annual privilege tax imposed on the severance of natural gas or oil pursuant to section three-a, article thirteen-a, for the privilege of engaging or continuing within this state in the business of severing coalbed methane for sale, profit or commercial use, there is hereby levied and shall be collected from every person exercising such privilege an annual privilege tax: Provided, That effective for taxable years beginning on or after the first day of January, two thousand one, there is an exemption from the imposition of the tax provided for in this article for a maximum period of five years for all coalbed methane produced from any coalbed methane well placed in service after the first day of January, two thousand. For purposes of this section, the terms "coalbed methane" and "coalbed methane well" have the meaning ascribed to them in section two, article twenty- one, chapter twenty-two of this code. The exemption from tax provided by this section is applicable to any coalbed methane well placed in service before the first day of January, two thousand eleven.
(c) Rate and measure of tax. -- The tax imposed on subsection (b) of this section is five percent of the gross value of the coalbed methane produced, as shown by the gross proceeds derived from the sale thereof by the producer, except as otherwise provided in this article.
(d) Tax in addition to other taxes. -- The tax imposed by this section applies to all persons severing coalbed methane in this state, and is in addition to all other taxes imposed by law.
(e) Except as specifically provided in this section, application of the provisions of this article apply to coalbed methane in the same manner and with like effect as the provisions apply to natural gas.
(f) Notwithstanding any other provision of this code to the contrary, on and after the first day of January, two thousand eight, the provisions of this section are null and void and of no force or effect: Provided, That all coalbed methane produced from any coalbed methane well on which drilling commenced before the first day of September, two thousand seven that was placed in service after the first day of January, two thousand shall be entitled to the exemption set forth in this section for the remainder of the five year original exemption period applicable to the coalbed methane produced from that well.
§11-13A-3f. Imposition of tax on privilege of severing coalbed methane On and after January 1, 2008.
 (a) On and after the first day of January two-thousand eight, coalbed methane and methane produced from or by a coalbed methane well is taxable as natural gas for purposes of the taxes imposed by this article and the taxes imposed by article thirteen-v of this chapter.
(b) For purposes of this section, the terms "coalbed methane" and "coalbed methane well" have the meaning ascribed to them in section two, article twenty-one, chapter twenty-two of this code.
§ 11-13A-10. Paying tax; annual tax credit.
Every taxpayer subject to any tax imposed under this article shall be allowed one annual credit of five hundred dollars against the taxes due under this article, to be applied at the rate of forty-one dollars and sixty-seven cents per month for each month the taxpayer was engaged in business in this state during the taxable year exercising a privilege taxable under this article. Persons providing health care items or services who become subject to the tax imposed by section three of this article beginning the first day of June, one thousand nine hundred ninety-three, shall be allowed a proportional credit under this section based on the number of months in their tax year that begin on or after the first day of June, one thousand nine hundred ninety-three. Notwithstanding any other provision of this code to the contrary, on and after the first day of January, two thousand eight, the credit authorized under this section and under articles thirteen-d, and thirteen-s of this chapter, or under any other provision of this code shall not be allowed or applied against for tax due under sections three-a or three-f of this article.
§ 11-13A-17. Collection of tax; agreement for processor to pay tax due from severer.
(a) General.

In the case of natural resources, other than natural gas and oil, where the tax commissioner finds that it would facilitate and expedite the collection of the taxes imposed under this article, the tax commissioner may authorize the taxpayer processing the natural resource to report and pay the tax which would be due from the taxpayer severing the natural resources. The agreement shall be in such form as the tax commissioner may prescribe. The agreement must be signed: by the owners, if the taxpayers are natural persons; in the case of a partnership or association, by a partner or member; in the case of a corporation, by an executive officer or some person specifically authorized by the corporation to sign the application. The agreement may be terminated by any party to the agreement upon giving thirty days' written notice to the other parties to the agreement: Provided, That the tax commissioner may terminate the agreement immediately upon written notice to the other parties when either the taxpayer processing the natural resource or the taxpayer severing the natural resource fails to comply with the terms of the agreement.
(b) Natural gas and oil.
(1) In the case of natural gas and oil, except for those cases:
(A) Where the person severing (or both severing and processing) the natural gas will sell the gas to the ultimate consumer, or
(B) Where the tax commissioner determines that the collection of taxes due under this article would be accomplished in a more efficient and effective manner through the severor, or severor and processor, remitting the taxes; the first person to purchase the natural gas after it has been severed, or in the event that the natural gas has been severed and processed before the first sale, the first person to purchase the natural gas after it has been severed and processed, shall be liable for the collection of the taxes imposed by this article. He shall collect the taxes imposed from the person severing (or severing and processing) the natural gas, and he shall remit the taxes to the tax commissioner. In those cases where the person severing (or severing and processing) the natural gas sells the gas to the ultimate consumer, the person so severing (or severing and processing) the natural gas shall be liable for the taxes imposed by this article. In those cases where the tax commissioner determines that the collection of the taxes due under this article from the severance (or severance and processing) of natural gas would be accomplished in a more efficient and effective manner through the severor (or severor and processor) remitting the taxes, the tax commissioner shall set out his determination in writing, stating his reasons for so finding, and so advise the severor (or severor and processor) at least fifteen days in advance of the first reporting period for which such action would be effective.
(2) On on or before the last day of the month following each taxable calendar month, each person first purchasing natural gas or oil as described in section three-a and three-f of this article and this subdivision (1) above, shall report the purchases of natural gas and the purchases of oil during the taxable month, showing the quantities of gas purchased, the quantities of oil purchased, the price paid, the date of purchase, and any other information deemed necessary by the tax commissioner for the administration of the tax imposed by this article, and shall pay the amount of tax due, on forms prescribed by the tax commissioner.
(c) Interpretation. The provisions of this article shall be construed without reference to the provisions of article seven-a, chapter twenty-two of this code regarding royalty payments.
ARTICLE 13V. WORKERS' COMPENSATION DEBT REDUCTION ACT.
§11-13V-4a. Coalbed Methane.
(a) On and after the first day of January two-thousand eight, coalbed methane and methane produced from or by a coalbed methane well is taxable as natural gas for purposes of the taxes imposed by this article and the taxes imposed by article thirteen-a of this chapter: Provided, That all coalbed methane produced from any coalbed methane well on which drilling commenced before the first day of September, two thousand seven that was placed in service after the first day of January, two thousand shall be entitled to the exemption set forth in section three-d, article thirteen-a of this chapter for the remainder of the five year original exemption period applicable to the coalbed methane produced from that well.
(b) For purposes of this section, the terms "coalbed methane" and "coalbed methane well" have the meaning ascribed to them in section two, article twenty-one, chapter twenty-two of this code.
§11-13V-4b. Purchaser of natural gas to withhold tax.
(a)Remittance of withheld tax by purchaser. -- On or after the first day of January, two-thousand eight, the first person to purchase the natural gas after it has been severed, or in the event that the natural gas has been severed and processed before the first sale, the first person to purchase natural gas after it has been severed and processed, shall be liable for the collection of the taxes imposed by this article from the person severing (or severing and processing) the natural gas, and shall remit the taxes to the tax commissioner. Taxes so collected by the purchaser are held in trust for the State, and the purchaser is liable for any failure to collect or remit the tax, in accordance with the provisions of articles nine and ten of this chapter. The severer shall not be liable for tax withheld by the purchaser, but not remitted to this State by the purchaser.
(1) No profit shall accrue to any person as a result of the collection of the tax levied by this article notwithstanding the total amount of the taxes collected may be in excess of the amount for which the severer would be liable by the application of the rate of tax levied by this article. The total amount of all taxes collected by the purchaser shall be returned and remitted to the tax commissioner as provided in this article.
(2) If any severer refuses to pay or otherwise does not pay to the purchaser the tax imposed by this article, or a severer refuses to present to the purchaser a valid direct severance payment authorization number indicating that the purchaser is not required to collect and remit the taxes imposed by this article, or presents to the purchaser a false direct severance payment authorization number or a false document, the severer shall be personally liable for the amount of tax applicable, and the purchaser shall not be liable for such tax.
(3) Nothing in this section relieves any severer who owes the tax and who has not paid the tax imposed by this article from liability for payment of the tax. In those cases the tax commissioner has authority to make an assessment against the severer, based upon any information within his or her possession or that may come into his or her possession. This assessment and notice thereof shall be made and given in accordance with article ten of this chapter. The severer shall not be liable for tax withheld by the purchaser, but not remitted to this State by the purchaser.
(4) The due dates and payment requirements of this article apply to the payment and remittance of tax by purchasers of natural gas under this section.
(5) Exceptions. The requirement that the purchaser shall withhold and remit the tax imposed by this article on production of natural gas shall not apply:
(A) Where the person severing (or severing and processing) the natural gas sells the gas or oil to the ultimate consumer, the person so severing (or severing and processing) the natural gas shall be liable for the taxes imposed by this article; or
(B) Where the tax commissioner determines that the collection of the taxes due under this article or article thirteen-a of this chapter, or both, from the person severing the natural gas or oil, or severing and processing the natural gas would be accomplished in a more efficient and effective manner through the severer (or severer and processor) remitting the taxes, the tax commissioner shall set out his or her determination in writing, stating his or her reasons for so finding, and so advise the severer (or severer and processor) at least fifteen days in advance of the first reporting period for which the commissioner's determination is effective.
(6) Notwithstanding the provisions of this section, the person severing the natural gas is the taxpayer for purposes of this article and is liable for the tax imposed by this article. The taxpayer is subject to the bonding requirements as applicable under section thirteen of this article. The first purchaser that is responsible for withholding and remittance of the tax is subject to the bonding requirements as applicable under section thirteen of this article, and severers from whom the tax is withheld shall not be subject to the bond specified in section thirteen of this article. However, a severer who has been issued a direct severance payment authorization number or who is otherwise subject to a requirement to pay the tax imposed by this article directly to the State rather than through withholding by the first purchaser, is subject to the bonding requirements as applicable under section thirteen of this article. This article shall not be interpreted to relieve any person of a bonding requirement other than the bonding requirement set forth in section thirteen of this article, and shall not be interpreted as addressing any bonding requirement other than the bonding requirement set forth in section thirteen of this article.
(7) On or before the last day of the month following each taxable calendar month, each person first purchasing natural gas as described in this section shall report the purchases of natural gas during the taxable month, showing the quantities of gas purchased, the price paid, the date of purchase, and any other information deemed necessary by the tax commissioner for the administration of the tax imposed by this article, and shall pay the amount of tax due, on forms prescribed by the tax commissioner.
(b)Interpretation. The provisions of this article shall be construed without reference to the provisions of article seven-a, chapter twenty-two of this code regarding royalty payments.
CHAPTER 22. ENVIRONMENTAL RESOURCES.

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

º22-6-1. Definitions.

Unless the context in which used clearly requires a different meaning, as used in this article:

(a) "Casing" means a string or strings of pipe commonly placed in wells drilled for natural gas or petroleum or both;

(b) "Cement" means hydraulic cement properly mixed with water;

(c) "Chair" means the chair of the West Virginia shallow gas well review board as provided for in section four, article eight, chapter twenty-two-c of this code;

(d) "Coal operator" means any person or persons, firm, partnership, partnership association or corporation that proposes to or does operate a coal mine;

(e) "Coal seam" and "workable coal bed" are interchangeable terms and mean any seam of coal twenty inches or more in thickness, unless a seam of less thickness is being commercially worked, or can in the judgment of the department foreseeably be commercially worked and will require protection if wells are drilled through it;

(f) "Director" means the director of the division of environmental protection as established in article one of this chapter or such other person to whom the director has delegated authority or duties pursuant to sections six or eight, article one of this chapter.

(g) "Deep well" means any well other than a shallow well, drilled and completed in a formation at or below the top of the uppermost member of the "Onondaga Group";

(h) "Expanding cement" means any cement approved by the office of oil and gas which expands during the hardening process,
including, but not limited to, regular oil field cements with the proper additives;
(i) "Facility" means any facility utilized in the oil and gas industry in this state and specifically named or referred to in this article or in article eight or nine of this chapter, other than a well or well site;

(j) "Gas" means all natural gas and all other fluid hydrocarbons not defined as oil in this section;

(k) "Oil" 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 reservoirs;

(l) "Owner" when used with reference to any well, shall include any person or persons, firm, partnership, partnership association or corporation that owns, manages, operates, controls or possesses such well as principal, or as lessee or contractor, employee or agent of such principal;

(m) "Owner" when used with reference to any coal seam, shall include any person or persons who own, lease or operate such coal seam;

(n) "Person" means any natural person, corporation, firm, partnership, partnership association, venture, receiver, trustee, executor, administrator, guardian, fiduciary or other
representative of any kind, and includes any government or any political subdivision or any agency thereof;
(o) "Plat" means a map, drawing or print showing the location of a well or wells as herein defined;

(p) "Review board" means the West Virginia shallow gas well review board as provided for in section four, article eight, chapter twenty-two-c of this code;

(q) "Safe mining through of a well" means the mining of coal in a workable coal bed up to a well which penetrates such workable coal bed and through such well so that the casing or plug in the well bore where the well penetrates the workable coal bed is severed;

(r) "Shallow well" means any gas well, drilled and completed in a formation above the top of the uppermost member of the "Onondaga Group": Provided, That in drilling a shallow well the operator may penetrate into no more then seventy-five feet below the top of the uppermost member of the "Onondaga Group" to a reasonable depth, not in excess of twenty feet, in order to allow for logging and completion operations, but in no event may any formation below the top of the uppermost member of the "Onondaga Group" formation be otherwise produced, perforated or stimulated in any manner;

(s) "Stimulate" means any action taken by a well operator to increase the inherent productivity of an oil or gas well,
including, but not limited to, fracturing, shooting or acidizing, but excluding cleaning out, bailing or workover operations;
(t) "Waste" means (i) physical waste, as the term is generally understood in the oil and gas industry; (ii) the locating, drilling, equipping, operating or producing of any oil or gas well in a manner that causes, or tends to cause a substantial 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 a substantial or unnecessary or excessive surface loss of oil or gas; or (iii) the drilling of more deep wells than are reasonably required to recover efficiently and economically the maximum amount of oil and gas from a pool; (iv) substantially inefficient, excessive or improper use, or the substantially unnecessary dissipation of, reservoir energy, it being understood that nothing in this chapter shall be construed to authorize any agency of the state to impose mandatory spacing of shallow wells except for the provisions of section eight, article nine, chapter twenty-two-c of this code and the provisions of article eight, chapter twenty-two-c of this code; (v) inefficient storing of oil or gas: Provided, That storage in accordance with a certificate of public convenience issued by the federal energy regulatory commission shall be conclusively presumed to be efficient and (vi) other underground or surface waste in the production or storage of oil, gas or condensate, however caused. 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, however, That nothing in this exclusion is intended to address ownership of the gas;
(u) "Well" means any shaft or hole sunk, drilled, bored or dug into the earth or into underground strata for the extraction or injection or placement of any liquid or gas, or any shaft or hole sunk or used in conjunction with such extraction or injection or placement. The term "well" does not include any shaft or hole sunk, drilled, bored or dug into the earth for the sole purpose of core drilling or pumping or extracting therefrom potable, fresh or usable water for household, domestic, industrial, agricultural or public use;

(v) "Well work" means the drilling, redrilling, deepening, stimulating, pressuring by injection of any fluid, converting from one type of well to another, combining or physically changing to allow the migration of fluid from one formation to another or plugging or replugging of any well;

(w) "Well operator" or "operator" means any person or persons, firm, partnership, partnership association or corporation that proposes to or does locate, drill, operate or abandon any well as herein defined;

(x) "Pollutant" shall have the same meaning as provided in subsection (17), section three, article eleven, chapter twenty-two of this code; and

(y) "Waters of this state" shall have the same meaning as the term "waters" as provided in subsection (23), section three, article eleven, chapter twenty-two of this code.

ARTICLE 7A. OIL AND NATURAL GAS PRODUCTION ROYALTY PAYMENTS.

§22-7A-1. Legislative findings and declarations.

The Legislature hereby finds and declares:

(1) That the exploration for, and the development of, oil and gas reserves in this state attracts capital investment, generates revenue for local royalty owners, producers, and others, provides employment to a significant number of West Virginians;

(2) That the development of oil and gas reserves is frequently conducted pursuant to leases or other continuing contractual agreements whereby the owners of such oil and natural gas are paid a royalty or other fee related to the volume of oil and gas produced or marketed;

(3) That such royalty arrangements typically provide for the royalty owner to receive a share of the proceeds derived from the sale of oil and natural gas, or a share of the value of the oil and gas produced;

(4) That prior to federal regulatory changes beginning in nineteen ninety-two, integrated interstate pipeline companies
operated in all segments of the natural gas business, acting as major producers of natural gas that also marketed the gas and provided the pipeline, compression, processing and other services to deliver the gas to consumers and commercial interests in the marketplace;
(5) As a part of their business, integrated interstate pipeline companies secured leases from mineral owners that granted the right to drill for and produce natural gas in exchange for royalty payments, typically a percentage payment of one-eighth of the value of the gas as produced;

(6) That because integrated interstate pipeline companies were both producers and marketers, the value of the gas or oil for the purpose of calculating royalties could be calculated at any point in the process from the point of extraction from the ground to the point of sale; and in many oil and gas leases, it was agreed that the value of the natural gas for the calculation of royalties would be determined "at the wellhead" or "in the field", meaning that the value of the natural gas for the purposes of calculating royalty would be the price for which the gas was sold by the integrated interstate pipeline company, minus the costs of delivering the gas to market, sometimes known as post-production costs or expenses, which included the cost of operating pipelines, compression facilities, dehydrating facilities, marketing, distribution and other costs necessary to deliver the gas to
markets such as distant city gates, industrial users, commercial establishments, and even city home burner tips;
(7) That, in addition to producing and marketing their own natural gas, integrated interstate pipeline companies also purchased gas produced by independent producers at the point the gas entered the pipeline of the integrated interstate pipeline company, and resold that gas in various markets; and in these arrangements, independent producers and royalty owners valued natural gas for the purposes of calculating royalty at the price independent producers were paid by the integrated interstate pipeline company;

(8)That integrated interstate pipeline companies traditionally provided a bundled sales service for producers that included the cost of the gas produced and all post-production services necessary to deliver natural gas to the consumer, including the costs of gathering, processing, dehydration, compression, fuel, transportation, line loss, storage, and distribution;

(9) That the price typically paid by integrated interstate pipeline companies to independent producers reflected the pipeline companies' post-production responsibilities and included deductions for the costs of gathering, processing, compression, and line loss borne by the pipeline companies;

(10)That substantially all of the costs of services provided
by integrated interstate pipeline companies, including the purchase of natural gas from independent producers, was regulated by federal authorities;
(11) That such post-production expenses incurred downstream from the wellhead ultimately enhance the quality of the gas and increase the proceeds derived from the sale thereof;

(12) That on the eighth day of April, one thousand nine hundred ninety-two, the Federal Energy Regulatory Commission issued Order No. 636, which ultimately required interstate pipeline companies to unbundle, or separate, their sales and transportation services, ensuring that the gas of other suppliers could receive the same quality of transportation services previously enjoyed by a pipeline company's own gas sales, thereby increasing competition among the various gas sellers;

(13) That, as a result of unbundling and other regulatory changes, integrated interstate pipeline companies tended to disaggregate the functions they provided and often established separate operating units or affiliated companies to perform different services, such as exploration for and production of natural gas, gathering of natural gas before it entered an interstate pipeline, transportation of natural gas through pipelines in interstate commerce, and the marketing and distribution of natural gas to consumers;

(14) That as a result of this and other regulatory changes,
lessees/producers, both those affiliated with major pipeline companies and independent producers, now contract with marketers for the sale of the gas and arrange separately for the post- production services necessary to market the gas;
(15)That due to these fundamental changes in the federal regulatory scheme governing the oil and gas industry, uncertainty has developed regarding the treatment of post-production expenses in existing oil and gas leases, many of which were executed years before the aforementioned regulatory changes could have been contemplated;

(16) That these regulatory changes have created uncertainty regarding whether certain post-production expenses are properly deductible when calculating royalty payable to the royalty owner, often centering on whether lease provisions providing that the royalty owner's royalty is calculated "at the well," "at the wellhead," or other similar language, are sufficient to indicate that a lessee/producer may exclude post-production expenses from the royalty calculation;

(17) That such uncertainty has given rise to litigation, carrying with it significant costs to the involved parties, creating risk to the investment and revenue generated by the production of oil and gas reserves, and resulting in a division among our sister states on the effect of "at the wellhead"-type language on the allocation of post-production expenses;

(18) That the Supreme Court of Appeals recently concluded that lease language providing that a royalty owner's royalty is to be calculated "at the well," "at the wellhead," or other similar language "is ambiguous and, accordingly, is not effective to permit the lessee to deduct . . . any portion of the costs incurred between the wellhead and the point of sale." Syl. Pt. 8, Tawney v. Columbia Natural Resources, 219 W. Va. 266 (2006);

(19) That it is in this state's interest to promote a stable business environment and to ensure that changes in federal regulations and unsettled law do not impede development of the West Virginia oil and natural gas industry and do not lead to uncertainty and expensive litigation of existing business relationships;

(20) That the Legislature has previously exercised the police powers of this state to alter the common law in an effort provide greater certainty regarding the payment of oil and natural gas production royalties, to promote development, and to discourage expensive litigation by, inter alia:

(i) proscribing new wells for the production and development of oil and gas pursuant to annual flat well royalty leases, in which the royalty is based solely on the existence of a producing well and thus is not inherently related to the volume of the oil and gas produced or marketed, while permitting continuation of flat rate royalty payments for wells then existing, see W. Va. Code §22-6-8;

(ii) providing statutory relief to surface owners in the form of compensation and damages irrespective of provisions in existing deeds, leases or other contracts, see W. Va. Code §22-7-1, et seq.; and

(iii) creating a statutory presumption regarding the cancellation of oil and gas leases regardless of the terms and conditions of such leases, see W. Va. Code §36-4-9a; and

(21) That while being fully cognizant that the provisions of section ten, article one of the United States Constitution and of section four, article three of the Constitution of West Virginia, which proscribe the enactment of any law impairing the obligation of a contract, the Legislature further finds that:

(i) The Supreme Court has recognized that section ten, article one of the United States Constitution must be accommodated to the inherent police power of the State "to safeguard the vital interests of its people." Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 434 (1934). Likewise, the Supreme Court of Appeals has noted that "[s]tates can preserve community order, health, safety, morals and economic well-being, even though contracts are affected." Security Nat'l Bank & Trust Co. v. First W.Va. Bancorp, Inc., 166 W.Va. 775, 780 (1981);

(ii) In determining whether a Contract Clause violation has
occurred, courts utilize a three-step test. The initial inquiry is whether the statute has substantially impaired the contractual rights of the parties. If a substantial impairment is shown, the second step of the test is to determine whether there is a significant and legitimate public purpose behind the legislation. Finally, if a legitimate public purpose is demonstrated, the court must determine whether the adjustment of the rights and responsibilities of contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation's adoption. See Syl. Pt. 4, Shell v. Metropolitan Life Ins. Co., 181 W. Va. 16 (1989); and
(iii) Although total destruction of contractual expectations is not necessary for a finding of substantial impairment, state regulation that restricts a party to gains it reasonably expected from the contract does not necessarily constitute a substantial impairment. See Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 410 (1983);

(22) That it is a valid exercise of the police powers of this state and in the interest of the State of West Virginia and in furtherance of the welfare of its citizens, to eliminate expensive, burdensome and wasteful litigation and to promote investment in West Virginia by establishing statutory presumptions regarding the calculation of oil and natural gas royalties and the allocation of production and post-production expenses; and

(23) That the establishment of the statutory presumptions provided in this article are consistent with the contemplation of parties to leases or other continuing contractual agreements prior to and after the aforementioned federal regulatory changes and simply restrict the parties to the gains that they reasonably expected from the lease or other continuing contractual agreements at the time such leases and/or contracts were entered into; thus, these presumptions do not substantially impair contractual rights and are based on a significant and legitimate public purpose.

§22-7A-2. Definitions.

As used in this article, unless otherwise specified, the following terms have the following definitions:

(1) "Public access pipeline" means a pipeline that either transports natural gas for others for compensation or is obligated to do so by law, rule, regulation or order.

(2) "At the well," "at the wellhead," "well head," "wellhead," "at the mouth of the well," "in the field," "on the lease," "at the well mouth," "at the mouth of the well" or other similar language in a lease or other continuing contractual agreement related to oil or natural gas, means the point and place where oil or natural gas is first delivered into a public access pipeline.

(3) "Post-production expenses" means the costs and expenses for transportation, gathering, processing, dehydration, storage, compression, line loss, lost and unaccounted for gas, and the like
incurred after natural gas is first delivered into a public access pipeline.
§22-7A-3. Implied covenants in oil & natural gas leases and calculation of production royalty.

(a) Production and post-production expenses may be allocated between the parties by contract.
(b) Unless a written agreement clearly provides otherwise, there shall be a presumption in all leases and agreements related to payment of oil and natural gas royalty that expenses for transportation, gathering, processing, dehydration, compression and the like incurred before natural gas is first delivered into a public access pipeline shall not be deducted from sales proceeds when calculating the amount due as royalty.
(c) Unless a written agreement clearly provides otherwise, there shall be a presumption in all leases and agreements related to payment of oil and natural gas royalty and overriding royalty that reasonable post-production expenses incurred shall be excluded from sales proceeds when calculating royalty and overriding royalty. Unless a written agreement clearly provides otherwise, leases and continuing contractual agreements that refer to royalty at the well, at the wellhead or similar language contemplate deduction of reasonable post-production expenses when calculating royalty.
(d) Unless a written agreement clearly provides otherwise, reasonable post-production expenses shall be excluded from sales proceeds when calculating royalty with respect to leases and other contractual agreements that provide that a production royalty is due with reference to "amount realized," "amount received," "amount paid," "proceeds," "net proceeds," "receipts," "net receipts," "wholesale price," "gross receipts" or similar terms related to, or calculated or payable with reference to, terms such as "at the well," "at the well head," "at the well mouth," "in the field," "on the lease," "at the mouth of the well," "free of costs," "in the pipeline," or similar language. It shall be presumed that reasonable post-production expenses may be excluded from proceeds when the lease or agreement does not specify the place or manner of calculation of royalty or overriding royalty.
(e) Unless a written agreement clearly provides otherwise, leases and other contractual agreements which provide that a natural gas royalty or overriding royalty is due or payable with reference to "market value," "market price," "wholesale market value," "wholesale price," "average prevailing price," "field price at the well," "prevailing price in the field," "value," or similar terms, contemplate and provide for the calculation of price and value by excluding post-production expenses from sales receipts, or if the gas in not sold, then by excluding post-production expenses from a generally accepted measure of market value, such as the first of the month Inside FERC monthly Index (or if not available, a similar measure of market value) on the interstate pipeline into which the gas is, or may be, delivered.
(f) The value, market value, amount realized, proceeds and amount received for natural gas sold by a producer pursuant to a short or long-term contract is the price provided in the contract where: (i) the contract was entered into in good faith by a willing buyer and a willing seller in an arm's length transaction without undue influence from third parties; (ii) the price was not adversely affected by the time or method of payment; and (iii) the contract was commercially reasonable at the time the contract was formed. For purposes of calculation and payment of royalty, the value, market value, proceeds, amount realized, and amount received for natural gas sold by a producer pursuant to a short or long-term contract transaction that does not meet the forgoing criteria shall be deemed to be the Inside FERC monthly Index price for the appropriate region (or if not available, a similar measure of market value) on the interstate pipeline into which the gas is, or may be, delivered, less reasonable post-production expenses as defined herein, for gas sold each month under said contract during the term of said contract.
(g) Any implied covenants to market or develop oil and natural gas production shall not be applied or construed in contravention of this article.
(h) Charges for post-production expenses determined in connection with proceedings of federal and/or state regulatory agencies or amounts not exceeding amounts approved by federal and/or state regulatory agencies for materially comparable services in the region shall be deemed reasonable, but in no event shall reasonable post-production expenses exceed the amount of costs incurred therefore.
§22-7A-4. Third Party Costs and Gas Used.
(a) Unless a written agreement clearly provides otherwise, it shall be presumed that royalty or overriding royalty shall not be due or payable on reasonable amounts actually charged by non- affiliated third parties for gathering, line loss and unaccounted- for gas, fuel, processing, compression, transportation, distribution or storage in connection with the sale or delivery of natural gas.
(b) Unless a written agreement clearly provides otherwise, it shall be presumed that production royalty and overriding royalty shall not be due or payable with respect to natural gas not sold because the natural gas is:
(i) used or consumed by the producer producing, gathering, transporting, treating, dehydrating, storing, processing or compressing natural gas; or
(ii) lost or unaccounted for by the producer during normal operations: Provided, That the total amount of producer used, lost or unaccounted-for gas that may be excluded from payment of royalty shall not exceed amounts equal to maximum amounts approved by regulatory agencies for similar services.
§22-7A-5. Application.
The provisions of this article, other than the provisions of section six of this article, are remedial in nature and shall be applied retroactively to all matters in which a jury verdict has not been returned or a final decision or judgment by a court of competent jurisdiction has not been rendered prior to the effective date of this article.
§22-7A-6. Production royalty reporting requirements.
(a) As soon as is practicable, but no later than two hundred seventy days after the effective date of this article, the following information shall be furnished to the royalty owner with, or as part of, any royalty statement:
(1) Identification by name and date of the lease(s) and well(s) that are the subject of the royalty statement and the production period covered by the royalty statement;
(2) Volume of gas actually sold during the production period in mcf or decatherm, identified as mcf or decatherm;
(3) The payee's royalty interest expressed in the form of a decimal; and
(4) A statement as to whether any costs or expenses have been deducted from the sales price when the royalty was calculated or paid. If any such costs or expenses were deducted, a detailed explanation of the manner or method of calculation of royalty shall be provided at least annually, and each time such manner or method changes.
(b) If the amount due as royalty is less than one hundred dollars per annum, producers shall provide the information required by this section annually.
(c) Upon the effective date of the enactment of this article, producers shall make reasonable efforts to respond within thirty days to any written inquiry by a royalty owner regarding royalty statements, the calculation of royalties and the costs and expenses deducted from the sales price paid to the producer.
(d) In the event the producer fails to reasonably respond to written inquiries from a royalty owner as required in subsection (c) of this section, the royalty owner may file a written complaint with the West Virginia Oil and Gas Conservation Commission. If the Commission determines that a producer failed to respond to a reasonable written inquiry in accordance with this subsection, the Commission may award the royalty owner five hundred dollars for each such failure to respond, and may also impose reasonable costs on the producer for the cost of reviewing the complaint.
CHAPTER 22C. ENVIRONMENTAL RESOURCES; BOARDS, AUTHORITIES, COMMISSIONS AND COMPACTS.
ARTICLE 8. SHALLOW GAS WELL REVIEW BOARD.
§22C-8-2. Definitions.
Unless the context in which used clearly requires a different meaning, as used in this article:
(1) "Board" means the shallow gas well review board provided for in section four of this article;
(2) "Chair" means the chair of the shallow gas well review board provided for in section four of this article;
(3) "Coal operator" means any person who proposes to or does operate a coal mine;
(4) "Coal seam" and "workable coal bed" are interchangeable terms and mean any seam of coal twenty inches or more in thickness, unless a seam of less thickness is being commercially worked, or can in the judgment of the division foreseeably be commercially worked and will require protection if wells are drilled through it;
(5) "Commission" means the oil and gas conservation commission provided for in section four, article nine of this chapter;
(6) "Commissioner" means the oil and gas conservation commissioner provided for in section four, article nine of this chapter;
(7) "Correlative rights" means the reasonable opportunity of each person entitled thereto to recover and receive without waste the gas in and under a tract or tracts, or the equivalent thereof;
(8) "Deep well" means any well other than a shallow well, drilled and completed in a formation at or below the top of the uppermost member of the "Onondaga Group";
(9) "Division" means the state division of environmental protection provided for in chapter twenty-two of this code;
(10) "Director" means the director of the division of environmental protection as established in article one, chapter twenty-two of this code or such other person to whom the director delegates authority or duties pursuant to sections six or eight, article one, chapter twenty-two of this code;
(11) "Drilling unit" means the acreage on which the board decides one well may be drilled under section ten of this article;
(12) "Gas" means all natural gas and all other fluid hydrocarbons not defined as oil in subdivision (15) of this section;
(13) "Gas operator" means any person who owns or has the right to develop, operate and produce gas from a pool and to appropriate the gas produced therefrom either for such person or for such person and others. In the event that there is no gas lease in existence with respect to the tract in question, the person who owns or has the gas rights therein shall be considered a "gas operator" to the extent of seven eighths of the gas in that portion of the pool underlying the tract owned by such person, and a "royalty owner" to the extent of one eighth of such gas;
(14) "Just and equitable share of production" means, as to each person, an amount of gas in the same proportion to the total gas production from a well as that person's acreage bears to the total acreage in the drilling unit;
(15) "Oil" 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;
(16) "Owner" when used with reference to any coal seam, shall include any person or persons who own, lease or operate such coal seam;
(17) "Person" means any natural person, corporation, firm, partnership, partnership association, venture, receiver, trustee, executor, administrator, guardian, fiduciary or other representative of any kind, and includes any government or any political subdivision or any agency thereof;
(18) "Plat" means a map, drawing or print showing the location of one or more wells or a drilling unit;
(19) "Pool" means an underground accumulation of gas in a single and separate natural reservoir (ordinarily a porous sandstone or limestone). It is characterized by a single natural- pressure system so that production of gas from one part of the pooltends to or does affect 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 formation, so that it is effectively separated from any other pools which may be present in the same district or in the same geologic structure;
(20) "Royalty owner" means any owner of gas in place, or gas rights, to the extent that such owner is not a gas operator as defined in subdivision (13) of this section;
(21) "Shallow well" means any gas well, drilled and completed in a formation above the top of the uppermost member of the "Onondaga Group": Provided, That in drilling a shallow well the well operator may penetrate into no more then seventy-five feet below the top of the uppermost member of the "Onondaga Group" to a reasonable depth, not in excess of twenty feet, in order to allow for logging and completion operations, but in no event may any formation below the top of the uppermost member of the "Onondaga Group" formation be otherwise produced, perforated or stimulated in any manner;
(22) "Tracts comprising a drilling unit" means that all separately owned tracts or portions thereof which are included within the boundary of a drilling unit;
(23) "Well" means any shaft or hole sunk, drilled, bored or dug into the earth or into underground strata for the extraction, injection or placement of any liquid or gas, or any shaft or hole sunk or used in conjunction with such extraction, injection or placement. The term "well" does not include any shaft or hole sunk, drilled, bored or dug into the earth for the sole purpose of core drilling or pumping or extracting therefrom potable, fresh or usable water for household, domestic, industrial, agricultural or public use; and
(24) "Well operator" means any person who proposes to or does locate, drill, operate or abandon any well.
ARTICLE 9. OIL AND GAS CONSERVATION. § 22C-9-2. Definitions.
(a) Unless the context in which used clearly requires a different meaning, as used in this article:
(1) "Commission" means the oil and gas conservation commission and "commissioner" means the oil and gas conservation commissioner as provided for in section four of this article;
(2) "Director" means the director of the division of environmental protection and "chief" means the chief of the office of oil and gas;
(3) "Person" means any natural person, corporation, 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) "Operator" 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 such person or for such 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 "operator" to the extent of seven eighths of the oil and gas in that portion of the pool underlying the tract owned by such owner, and as "royalty 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 shall be considered as "operator" as to such pool;
(5) "Royalty owner" means any owner of oil and gas in place, or oil and gas rights, to the extent that such owner is not an operator as defined in subdivision (4) of this section;
(6) "Independent 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 the first day of July, one thousand nine hundred ninety-seven;
(7) "Oil" 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) "Gas" means all natural gas and all other fluid hydrocarbons not defined as oil in subdivision (7) of this section;
(9) "Pool" means an underground accumulation of petroleum or gas in a single and separate natural 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) "Well" means any shaft or hole sunk, drilled, bored or dug into the earth or underground strata for the extraction of oil or gas;
(11) "Shallow well" means any gas well, drilled and completed in a formation above the top of the uppermost member of the "Onondaga Group": Provided, That in drilling a shallow well the well operator may penetrate into no more then seventy-five feet below the top of the uppermost member of the "Onondaga Group" to a reasonable depth, not in excess of twenty feet, in order to allow for logging and completion operations, but in no event may any formation below the top of the uppermost member of the "Onondaga Group" formation be otherwise produced, perforated or stimulated in any manner;
(12) "Deep well" means any well other than a shallow well, drilled and completed in a formation at or below the top of the uppermost member of the "Onondaga Group";
(13) "Drilling unit" means the acreage on which one well may be drilled;
(14) "Waste" 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 deep wells than are reasonably required to recover efficiently and economically the maximum amount of oil and gas from a pool. 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 twentytwoa of this code: Provided, That nothing in this exclusion is intended to address ownership of the gas;
(15) "Correlative rights" means the reasonable opportunity of each person entitled thereto to recover and receive without waste the oil and gas in and under his tract or tracts, or the equivalent thereof; and
(16) "Just 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 underlying such person's tract or tracts.
(b) Unless the context clearly indicates otherwise, the use of the word "and" and the word "or" shall be interchangeable, as, for example, "oil and gas" shall mean oil or gas or both.

Note:The purpose of this bill is to simplify the taxation and clarify the regulation and treatment under the law of the production, marketing and delivery of natural gas and oil.

Strike-throughs indicate language that would be stricken from the present law, and underscoring indicates new language that would be added. §11-13A-3f, §11-13V-4a, §11-13V-4a, §22-7A-1, §22-7A-2, §22-7A-3, §22-7A-4, §22-7A-5 and §22-7A-6are new, therefore, strike-throughs and underscoring have been omitted.