TITLE 4. CONSERVATION AND NATURAL RESOURCES

DEPARTMENT OF ENERGY

Fast-Track Regulation

Title of Regulation: 4VAC25-160. Virginia Gas and Oil Board Regulations (amending 4VAC25-160-10, 4VAC25-160-90).

Statutory Authority: § 45.2-103 of the Code of Virginia.

Public Hearing Information: No public hearing is currently scheduled.

Public Comment Deadline: July 2, 2025.

Effective Date: July 17, 2025.

Agency Contact: Larry Corkey, Policy and Planning Manager, Department of Energy, 1100 Bank Street, Eighth Floor, Richmond, VA 23219, telephone (804) 692-3239, or email larry.corkey@energy.virginia.gov.

Basis: Section 45.2-103 of the Code of Virginia authorizes the Department of Energy to promulgate regulations necessary or incidental to the performance of its duties or execution of its powers.

Purpose: The purpose of this action is to ensure that provisions are clear and reflective of current agency practice and to streamline processes related to the welfare of citizens by defining the escrow procedure for unknown or unlocatable gas and oil owners.

Rationale for Using Fast-Track Rulemaking Process: This action is expected to be noncontroversial and therefore appropriate for the fast-track rulemaking process because the amendments are nonsubstantive; the amendments only clarify current agency practice.

Substance: The amendments (i) add a definition for escrow and (ii) update standards for escrow accounts to reflect current agency practice.

Issues: The primary advantage of this action to the public and the agency is that the amendments ensure that the regulation is defined and reflective of current agency practice. There are no disadvantages to the public or the Commonwealth.

Department of Planning and Budget Economic Impact Analysis:

The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Code of Virginia and Executive Order 19. The analysis presented represents DPB's best estimate of the potential economic impacts as of the date of this analysis.¹

Summary of the Proposed Amendments to Regulation. The Department of Energy (NRG) proposes to amend the regulation concerning current practice on the distribution of funds for unknown or unlocatable gas and oil owners.

Background. The current regulation does not clearly address what should be done with funds that are intended to be disbursed to unknown or unlocatable gas and oil owners. For many years in practice, funds for unknown or unlocatable gas and oil owners have been held by an escrow agent in the Virginia Gas and Oil Board (board) escrow account at a contracted bank.² In November of 2019, the Virginia Department of Treasury (Treasury) directed the board (under the provisions of §§ 55.1-2500 through 55.1-2545 of the Virginia Disposition of Unclaimed Property Act) to release all unknown and unlocatable funds to them to be held until the rightful owners come forward and make a claim.³ No further deposits need to be made into the Gas and Oil Board escrow account for unknown and unlocatable gas owners. The agency has in practice been instructing operators to send remaining royalty payments directly to Treasury. Thus, NRG is proposing that the regulation be amended so that it reflects this current agency practice.

Estimated Benefits and Costs. The proposed amendments clarify current procedure and would have no impact on requirements. Nevertheless, the amendments may be beneficial in that readers of the regulation could become better informed.

Businesses and Other Entities Affected. Since the proposed amendments reflect current practice, no entity is directly affected. The regulation concerns the gas and oil industry in the Commonwealth. The Code of Virginia requires DPB to assess whether an adverse impact may result from the proposed regulation.⁴ An adverse impact is indicated if there is any increase in net cost or reduction in net benefit for any entity, even if the benefits exceed the costs for all entities combined.⁵ As the proposed amendments neither increase net costs nor reduce net benefits, no adverse impact is indicated.

Small Businesses⁶ Affected.⁷ The proposed amendments do not adversely affect small businesses.

Localities⁸ Affected.⁹ According to NRG, gas and oil wells in Virginia are located in the Counties of Buchanan (51%), Dickenson (24%), Tazewell (10%), Russell (7.0%), Wise (6.0%), Lee (less than 1.0%), and Scott (less than 1.0%). The proposed amendments do not affect costs for local governments.

Projected Impact on Employment. The proposed amendments do not affect total employment.

Effects on the Use and Value of Private Property. The proposed amendments neither affect the use and value of private property nor real estate development costs.

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¹ Section 2.2-4007.04 of the Code of Virginia requires that such economic impact analyses determine the public benefits and costs of the proposed amendments. Further the analysis should include but not be limited to: (1) the projected number of businesses or other entities to whom the proposed regulatory action would apply, (2) the identity of any localities and types of businesses or other entities particularly affected, (3) the projected number of persons and employment positions to be affected, (4) the projected costs to affected businesses or entities to implement or comply with the regulation, and (5) the impact on the use and value of private property.

² Source: NRG.

³ Ibid.

⁴ Pursuant to § 2.2-4007.04 D: In the event this economic impact analysis reveals that the proposed regulation would have an adverse economic impact on businesses or would impose a significant adverse economic impact on a locality, business, or entity particularly affected, the Department of Planning and Budget shall advise the Joint Commission on Administrative Rules, the House Committee on Appropriations, and the Senate Committee on Finance. Statute does not define "adverse impact," state whether only Virginia entities should be considered, nor indicate whether an adverse impact results from regulatory requirements mandated by legislation.

⁵ Statute does not define "adverse impact," state whether only Virginia entities should be considered, nor indicate whether an adverse impact results from regulatory requirements mandated by legislation. As a result, DPB has adopted a definition of adverse impact that assesses changes in net costs and benefits for each affected Virginia entity that directly results from discretionary changes to the regulation.

⁶ Pursuant to § 2.2-4007.04, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

⁷ If the proposed regulatory action may have an adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include: (1) an identification and estimate of the number of small businesses subject to the proposed regulation, (2) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the proposed regulation, including the type of professional skills necessary for preparing required reports and other documents, (3) a statement of the probable effect of the proposed regulation on affected small businesses, and (4) a description of any less intrusive or less costly alternative methods of achieving the purpose of the proposed regulation. Additionally, pursuant to § 2.2-4007.1 of the Code of Virginia, if there is a finding that a proposed regulation may have an adverse impact on small business, the Joint Commission on Administrative Rules shall be notified.

⁸ "Locality" can refer to either local governments or the locations in the Commonwealth where the activities relevant to the regulatory change are most likely to occur.

⁹ Section 2.2-4007.04 defines "particularly affected" as bearing disproportionate material impact.

Agency Response to Economic Impact Analysis: The Department of Energy concurs with the economic impact analysis prepared by the Department of Planning and Budget.

Summary:

The amendments (i) add a definition for escrow and (ii) update standards for escrow accounts to reflect current agency practice.

4VAC25-160-10. Definitions.

The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:

"Act" means the Virginia Gas and Oil Act of 1990, Chapter 16 (§ 45.2-1600 et seq.) of Title 45.2 of the Code of Virginia.

"Applicant" means a person or business who files an application, petition, appeal, or other request with the Division of Gas and Oil.

"Board" means the Virginia Gas and Oil Board.

"Complete application" means all the materials required to be filed by the applicant under this chapter.

"Department" means the Department of Energy.

"Director" means the Director of the Department of Energy or his the director's authorized agent.

"Directional survey" means a well survey that measures the degree of deviation of a hole, or distance, from the vertical and the direction of departure.

"Division" means the Division of Gas and Oil of the Department of Energy.

"Division director" means the Director of the Division of Gas and Oil.

"Election" means the performance of an act within the time established or required by statute, order, or regulation. An election required to be made by board order or regulation must be in writing and (i) be personally delivered to the person or agent of the person described in the order or regulation by the date established or required, or (ii) be mailed to the person or agent of the person described in the order or regulation at the address stated therein in the order or regulation and be postmarked by the United States U.S. Postal Service before midnight on the date established or required.

"Escrow" means an account held in trust. In the case of a gas or oil owner whose identity or location is unknown, escrow includes the deposit of funds with the Department of Treasury Unclaimed Property Division on behalf of such owner.

"Field" means the general area underlain by one or more pools.

"Gas/oil ratio" means the product of the number of Mcf of natural gas produced from a well divided by the number of barrels of oil produced from the well as determined by a gas/oil ratio test.

"Gas well" means any well which that produces or appears capable of producing a ratio of 6,000 cubic feet (6 Mcf) of gas or more to each barrel of oil, on the basis of a gas-oil ratio test.

"Inclination survey" means a well survey to determine the deviation, using the surface location of the well as the apex, of a well bore from the true vertical beneath the apex on the same horizontal subsurface plane.

"Mcf" means, when used with reference to natural gas, 1,000 cubic feet of gas at a pressure base of 14.73 pounds per square inch gauge and a temperature base of 60°F.

"Mine development plan" means a permit or license application filed with the Division of Mines or Mined Land Repurposing for legal permission to engage in extraction of coal resources.

"Oil well" means any well which that produces or appears capable of producing a ratio of less than 6,000 cubic feet (6 Mcf) of gas to each barrel of oil, on the basis of a gas-oil ratio test.

"Petitioner" means any person or business who files a petition, appeal, or other request for action with the Division of Gas and Oil or the Virginia Gas and Oil Board.

"Pooling" means the combining of all interests or estates in a gas, oil, or coalbed methane drilling unit for the development and operations thereof. Pooling may be accomplished either through voluntary agreement or through a compulsory order of the board.

"Respondent" means a person named in an application, petition, appeal, or other request for board action and against whom relief is sought by the applicant, or a person who, under the terms of a board order, is required to make an election.

"Unit operator" means the gas or oil owner designated by the board to operate in or on a pooled unit.

4VAC25-160-90. Standards for escrow accounts.

Payment of funds into escrow accounts shall be made in accordance with the standards established in each order of the board requiring such payment. In addition, the unit operator of a drilling unit subject to a voluntary pooling agreement may petition the board under 4VAC25-160-140 of this chapter for an order authorizing the escrow of funds subject to conflicting claims in accordance with board standards or regulations regarding escrow of such funds in units subject to a compulsory pooling order.

When any gas or oil owner's identity and location remain unknown, the operator may, pursuant to § 45.2-1600 of the Code of Virginia, dispose of the unknown lessor's funds directly with the Department of Treasury Unclaimed Property Division to be held and distributed pursuant to the Virginia Disposition of Unclaimed Property Act (§ 55.1-2500 et seq. of the Code of Virginia).