New West Virginia law seen to help operators boost production

Houston (Platts)--12 Mar 2018 709 pm EDT/2309 GMT

Natural gas producers in West Virginia hope that a new law passed by the state Legislature and signed by the governor will help spur production in the state, which in recent years has seen a dramatic ramp-up in gas output from the Marcellus Shale play.

Governor Jim Justice signed Friday the co-tenancy bill, which would allow drilling to take place on a tract of land if 75% of royalty owners agreed. The legislation amends current state law, which had allowed owners of a small minority stake in a given tract block development of that land.

The legislation gathered the support of producer groups in West Virginia. Charlie Burd, executive director of the Independent Oil and Gas Association of West Virginia, said the bill would make it easier for operators to acquire more individual tracts of land and to be able to accumulate those contiguous tracts in a way that would allow them to drill longer laterals, which are rapidly becoming the industry norm in the Appalachian Basin.

"IOGA West Virginia is very excited to see that bill finally pass," Burd said in an interview. Burd said the legislature forged a compromise bill that would protect the rights of operators and the majority of royalty owners on a given tract of land, while protecting the rights of minority royalty owners and other stakeholders.

"There was a lot of confusion in the past about what this bill would do. Those who oppose it still wanted to cause confusion up to the end, but it's a very simple bill," he said.

Gas production in West Virginia has grown quickly in recent years as producer-backed pipeline capacity expansions and a buildout in gas processing infrastructure have enabled large Appalachian drillers such as EQT Energy and Antero Resources to bolster their output.

A concentration of acreage among the state's top producers has also led to a trend of longer well laterals, driving efficiency gains and boosting initial production rates and ultimately recovered volumes from wells drilled, Platts Analytics has found. For example, in second-quarter 2015, producer Antero Resources reported its average lateral length drilled in the West Virginia Marcellus shale was approximately 8,300 feet; in 2018, the company expects an average lateral length of 9,700 feet, and by 2020 it forecasts an average lateral length of 11,600 feet, according to its fourth quarter 2017 company earnings presentation.

Recent authorizations the US Federal Energy Regulatory Commission handed down will likely drive further development in West Virginia as a series of high-capacity pipelines and expansions look to further unlock the state's shale gas.

The 2 Bcf/d Mountain Valley Pipeline whose capacity is backed in large part by producer EQT Energy, and the 2.7 Bcf/d Mountaineer XPress project, which is backed in part by Antero Resources, have begun construction and are both targeting service by late 2018.

The two projects alone would enable a near-doubling of the state's gas production, assuming they filled with entirely new production. Production in West Virginia has so far averaged 4.5 Bcf/d in 2018, roughly flat to the 2017 daily average and about 500 MMcf/d higher than the 2016 daily level, Platts Analytics data shows. -- Jim Magill, Eric Brooks,

-- Edited by Matt Eversman,

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