PRELIMINARY PERFORMANCE REVIEW OF THE
Oil and Gas Conservation Commission
Commission Attendance has Improved
Significantly Since the Previous Audit
Oil and Gas Conservation
Commission Records Show that
the Agency is Meeting Mandates of
its Permitting Process
The West Virginia Oil and Gas Conservation Commission (OGCC) regulates the drilling of deep wells in the state. The OGCC approves drilling permits and conducts hearings on matters relating to the exploration for or production of oil and gas from deep wells. Hearings are held to determine the optimum spacing of wells and to pool the interests of royalty owners and operators of a drilling unit. Objectives of the OGCC are to:
According to West Virginia Code §22C-9-4, the Oil and Gas Conservation Commission has the authority to: 1) Regulate the spacing of deep wells; 2) Create and enforce reasonable rules and orders necessary to prevent waste, protect correlative rights, and govern practices and procedures; 3) Issue subpoenas to witnesses and administer oaths and affirmations to such witnesses; and 4) Serve as technical advisor regarding oil and gas to the Legislature, to the Chief of Office of Oil and Gas, to DEP and to any other state agency related to the oil and gas industry.
The Oil and Gas Conservation Commission may designate to the Commission staff the authority to approve or deny applications for new well permits to establish drilling units or special field rules. However, only the OGCC has the authority to: 1) Propose legislation; 2) Approve or deny an application for new well permits if the application does not conform to the rules of the OGCC and if a request for hearing has been received; or 3) Approve or deny an application for the pooling of interests within a drilling unit.
Any exception to the field rules or the spacing of wells which does not meet the rules of the Oil and Gas Conservation Commission, and any application for the pooling of interests within a drilling unit, must be heard in a meeting of the members of the OGCC.
Activities performed by the OGCC in 1999 included the permitting of 73 deep wells in 14 counties. In 1998 the OGCC permitted 42 deep wells in 16 counties. The graph below shows the permitting activities from 1990 - 1999.
Issue Area 1: Commission Attendance has Improved Significantly Since the Previous Audit.
During the period of review from 1997 through May 2000, the Oil and Gas Conservation Commission held 14 meetings. The Commission attendance rate was 77% for this period as compared to a 40% rate for a similar number of meetings as recorded in the previous audit. This improvement in attendance could be due to a restructuring of the Commission. Previously, the Commission members only advised the Commissioner and did not vote on decisions. The Commissioner made all final decisions. Since the previous audit, the Commission's statute was amended during the 1998 Legislative session to allow Commission members voting authority on issues instead of merely advising the Commissioner. This gives the members a more active role in Commission activities, thus more reason to attend meetings. In addition, the increase in deep well permits since 1995, as shown in the previous graph, could lead to the possibility of more hearings being requested, which would cause more Commission meetings and would indicate more need for the Commission.
West Virginia Code §22C-9-4 now states that three members are required for a quorum, and two of the members present must be those appointed by the governor. Review of meeting minutes demonstrated that only twice did the Commission fail to have a quorum present. The Commission has been consistent in having a quorum present for the past ten meetings. The review of the minutes also showed that both the Chairman of the Commission and the Chief of the Office of Oil and Gas had 100% attendance. While the overall attendance of the Commission has improved, the Director of the Division of Environmental Protection has only attended one meeting in the past three years. West Virginia Code §22C-9-4(a) states in part,
The oil and gas conservation commission shall be composed of five members. The director of the division of environmental protection and the chief of the office of oil and gas shall be members of the commission ex officio.
The Legislative Auditor believes that the Director of DEP should make an effort to attend the meetings of this committee. In the occasion that the Director's attendance is not possible, a proxy should be sent in his or her place. In addition, the OGCC's Program Manager has been present for every meeting except one. The following table provides a breakdown of the 14 meetings that the Legislative Auditor analyzed.
Oil and Gas Conservation Commission Hearings and Meetings Attendance*
|Date||DEP Director||Chief, OOG||Member A||Member B||Member C|
* "x" denotes attendance of meeting or hearing ** No minutes are available
"Vacant" denotes open position on board
*** The Chief of the Office of Oil &
Gas also served as Acting Commissioner/Chairman
With the exception of the Director of the Division of Environmental Protection, the overall attendance of the Commission has improved since the previous audit, which may partly be due to the members gaining a more active role in meetings since the change in the West Virginia Code. Also, the increase in deep well permits since 1995 could lead to the possibility of more hearings being requested which would require more meetings of the Commission, thus indicating more need for the Commission.
The Director of the Division of Environmental Protection should attend meetings of the Oil and Gas Conservation Commission or send a proxy in his or her place.
Issue Area 2: Oil and Gas Conservation Commission Records Show that the Agency is Meeting Mandates of its Permitting Process.
In order to help determine the efficiency
and effectiveness of the West Virginia Oil and Gas Conservation Commission,
the Legislative Auditor conducted a sample of the 1999 applications for
deep well permits. According to West Virginia Code §22C-9-7(a)(1),
After one discovery deep well has been drilled establishing a pool, an application to establish drilling units may be filed with the commission by the operator of such discovery deep well or by the operator of any lands directly and immediately affected by the drilling of such discovery deep well, or subsequent deep wells in said pool. Each application shall contain such information as prescribed by reasonable rules proposed by the commission in accordance with the provisions of section five of this article.
The Elements of a Complete Application
The Commission does have a "check-off list" for whether or not an application conforms to the rules of the Commission. According to the Commission's Program Manager, an application is checked for completeness when it is first received. A complete application includes: 1) proof that notice of the intent to drill a well was sent to the surface owners of record and the coal owners of record; 2) a certificate of consent and easement executed between the operator and the surface owner of the tract where the well is to be drilled (unless the well is a test well); 3) a signed and approved reclamation plan; 4) a surveyed plat showing the exact location of the proposed well; 5) a topography map of the proposed location; 6) a list of the royalty owners and a reference to the lease record; and 7) an approved casing and tubing program.
Legislative Auditor's Review of the Applications
The Legislative Auditor analyzed 44 applications for deep well permits. Overall, the Commission is doing a good job maintaining the records. Only two of the applications lacked having all seven of the categories listed above. One file was missing the certificate of consent and easement. However, it was later obtained, and a copy of it was provided to the Legislative Auditor. The other file did not have a signed and approved reclamation plan, which was also provided to the Legislative Auditor at a later time. The two missing documents were more than likely in their respective files at one time. Due to the fact that both documents were checked off on a separate check list that is kept in the files.
Another important aspect of the application process is to ensure that the wells are spaced an appropriate distance from each other and from the nearest unit boundary. According to Procedural Rule §39-1-4 (4.2),
To prevent waste,...each deep well drilled shall be not less than 3,000 feet from a deep well drilling to or capable of producing hydrocarbons from the objective pool of the deep well and no deep well shall be less than 400 feet from a lease or unit boundary.
Every one of the 44 applications that the
Legislative Auditor evaluated specified that the well is at least 400 feet
from a lease or unit boundary. Also, two of the 44 applications did not
meet the 3,000 feet criteria. In both of these instances exceptions were
granted after the applicable hearing. The Legislative Auditor did not perform
field work sampling to determine the accuracy of the information provided
in the applications. In lieu of field work, a paper audit was performed
relying on the accuracy of the documentation within the Office of Oil and
Gas' files. CSR §39-1-4.4(c) requires that a topographical plat be
included in each application. The plat showing the locations of all deep
wells in that area is prepared, signed and stamped by an independent licensed
land surveyor. The plat is then examined by the Commission staff to determine
the distances between existing wells and proposed wells. In addition, according
to the Commission's Program Manager, inspectors from the Office of Oil
and Gas physically check the locations of the wells. The inspector can
determine if the location is reasonably close to the actual survey location.
Each application file reviewed by the Legislative Auditor included a plat
as required, and the audit relied on the expertise of the land surveyors
and inspectors to determine the accuracy of the spacing between land boundary
units and current wells. Table 2 depicts a synopsis of the 44 applications
that the Legislative Auditor analyzed.
Sample of 1999 Deep Wells Permitted
|# Of Applications||# At least 400 feet away from property boundary||# At least 3000 feet away from another well||# Having consent & easement||# Having approved rec. plan||# Having approved casing & tubing||# Having list of royalty owners||# Having plat & map|
|% of total||100%||100%||97%||97%||100%||100%||100%|
* Exceptions were granted
In addition to the aforementioned categories listed above, the Legislative Auditor also examined the application files to see if the certificate of consent and easement was filed in the applicable County Clerk's office. This was done due to West Virginia Code §22C-9-7(b)(4), which states:
No drilling or operation of a deep well for the production of oil or gas shall be permitted upon or within any tract of land unless the operator shall have first obtained the written consent and easement therefor, duly acknowledged and placed on record in the office of the county clerk, for valuable consideration of all owners of the surface of such tract of land, which consent shall describe with reasonable certainty, the location upon such tract, of the location of such proposed deep well, a certified copy of which consent and easement shall be submitted by the operator to the commission.
The Legislative Auditor found that all
44 of the certificates of consent and easement were notarized by a Notary
Public. However, 15 of the 44 or 34% had no proof of being filed
in the County Clerk's office. This does not necessarily mean that these
15 certificates were not recorded by the County Clerk's office, merely
that the Legislative Auditor was unable to see physical proof (i.e. County
Clerk stamp) of these certificates being recorded. In these instances,
the onus does not lie with the Oil and Gas Conservation Commission but
with the respective County Clerk's office.
Application Approval Date Exceeds Application Received Date
After analyzing the applications, the Legislative
Auditor discovered that five of the 44 applications had an approval letter
that was dated earlier than the "stamped date" of the application being
received. In cases such as these, the Oil and Gas Conservation Commission
receives the application before the Office of Oil and Gas, which is the
office that stamps in all relevant documents. Therefore, the Commission
will approve an application then forward it to the Office of Oil and Gas,
who may not stamp it in until a few days after the application has been
approved. In addition, both the Oil and Gas Conservation Commission and
the Office of Oil and Gas receive applications. There is no rule that states
the applications have to come directly to the Oil and Gas Conservation
Commission or to the Office of Oil and Gas.
Through analysis of Oil and Gas Conservation Commission records, the Legislative Auditor has determined that the Commission is following Legislative Rules by analyzing documents as required during the permitting process. This shows that the Commission is making sure that deep well drilling is being done according to rules, and that conflicts among well owners are avoided by documenting land ownership and spacing between wells. The Legislative Auditor commends the agency for its thorough record keeping. Considering the number of documents that filter into both the Commission and the Office of Oil and Gas, the Commission is able to account for the required documentation.