Title of Regulation: 4VAC25-160. Virginia Gas and Oil Board Regulations (amending 4VAC25-160-30, 4VAC25-160-40, 4VAC25-160-110).

Statutory Authority: § 45.1-361.15 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: July 12, 2017.

Effective Date: July 27, 2017.

Agency Contact: Michael Skiffington, Regulatory Coordinator, Department of Mines, Minerals and Energy, 1100 Bank Street, 8th Floor, Richmond, VA 23219-3402, telephone (804) 692-3212, FAX (804) 692-3237, TTY (800) 828-1120, or email mike.skiffington@dmme.virginia.gov.

Basis: The Department of Mines, Minerals and Energy has the authority to promulgate regulations generally under § 45.1-161.3 of the Code of Virginia. The Virginia Gas and Oil Board has the authority to promulgate this regulation under § 45.1-361.15 of the Code of Virginia. The board is not mandated to promulgate this regulation, but it is necessary to ensure the board can meet its mandated authority to promote the safe and efficient exploration for and development, production, and utilization of gas and oil resources and protect the correlative rights of resource owners.

Purpose: The purpose of this regulatory action is to require electronic submissions and filings, eliminating unnecessary paper submissions, to remove unnecessary requirements, and to clarify ambiguous language throughout the regulation. As business practices continue to evolve with technology, it is important to ensure that the necessary regulation is as up to date as possible. These clarifying amendments will have no direct effect on public health, safety, or welfare.

Rationale for Using Fast-Track Rulemaking Process: This rulemaking is expected to be noncontroversial as it does not represent a substantive change to the regulation. The amendments are intended to clarify language, remove unnecessary requirements, and enhance the efficiency of notifications, submissions, and filings.

Substance: The amendments will ensure the language of the regulation reflects current business practices for the department and the board. The amendments specifically provide for electronic submission of information, alternative methods for notifying property owners, more efficient public notice requirements, and clarifying language for providing evidence of record transfer between new and previous unit owners.

Issues: The primary advantage to the public and regulated entities will be a clearer, more updated regulation, which reflects current business practices and regulatory needs. The primary advantage of this action to the Commonwealth is increased efficiency and clarity that result from these largely technical amendments. There are no disadvantages to the public or the Commonwealth.

Small Business Impact Review Report of Findings: This regulatory action serves as the report of the findings of the regulatory review pursuant to § 2.2-4007.1 of the Code of Virginia.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. As the result of a 2016 periodic review,¹ the Virginia Gas and Oil Board (Board) proposes to: 1) specify that documents submitted to the Board or the Department of Mines, Minerals and Energy (DMME) be sent electronically rather than as paper copies, 2) allow for additional methods of communication when certain notifications are required to be sent to other resource owners, 3) allow for when the location of a prospective gas or oil well is required to be published in a newspaper that the notice can include either a map or a description of the location, and no longer would need both, and 4) amend other language for improved clarity.

Result of Analysis. The benefits exceed the costs for all proposed changes.

Estimated Economic Impact. The Virginia Gas and Oil Board Regulations govern gas and oil operations in the Commonwealth.

The current regulation requires paper copies of certain information including exhibits in support of applications be sent to DMME. The Board proposes to amend the language to specify that the submissions be done electronically. In practice, firms regulated by the Board have submitted such documents electronically. Thus, this proposed amendment will have no impact beyond clarifying what actually occurs in practice.

The current regulation specifies that each applicant for a hearing to establish an exception to statewide spacing of oil and gas wells is to:

provide notice by certified mail, return receipt requested, to all gas, oil, coal or mineral owners having an interest underlying any tract located within the distances provided in § 45.1-361.17 of the Code of Virginia or the distance to the nearest well completed in the same pool, whichever is less.

The Board proposes to allow additional options, beyond certified mail, for the notification. Specifically, the Board proposes to also allow the notice be by another commercial carrier including but not limited to FedEx and UPS, return receipt requested, and electronic mail. The proposal to allow these alternate methods may moderately reduce costs for notifications, while still proving for proper notification. Thus the proposal likely would produce a net benefit.

When the identity or location of any person to whom notice is required to be given is unknown, the applicant (for the hearing to establish an exception to statewide spacing) is required to publish in a newspaper of general circulation in the locality where the land which is the subject of the application is located. Under the current regulation the notice must include a map showing the general location of the area that would be affected by the proposed action and a description that clearly describes the location or boundaries of the area that would be affected by the proposed action sufficient to enable local residents to identify the area. The Board proposes to amend the requirement to be that the notice published in a newspaper must include either a map or a description of the location but need not be both, as under the current regulation. This proposal would likely save applicants a moderate amount of cost in payment to a newspaper, while presumably still providing enough information for the location of the proposed well to be reasonably identifiable. Thus, this proposal will likely produce a net benefit.

Businesses and Entities Affected. The proposed amendments potentially affect the 20 natural gas operators and approximately 200 contractors and subcontractors. DMME believes that the majority of the contractors and subcontractors would meet the definition of a small business.

Localities Particularly Affected. The proposed amendments do not particularly affect specific localities.

Projected Impact on Employment. The proposed amendments would not affect employment.

Effects on the Use and Value of Private Property. The proposed amendments would not significantly affect the use and value of private property.

Real Estate Development Costs. The proposed amendments would not significantly affect real estate development costs.

Small Businesses:

Definition. Pursuant to § 2.2-4007.04 of the Code of Virginia, 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."

Costs and Other Effects. The proposals to allow for additional methods of communication when certain notifications are required to be sent to other resource owners and to allow the required newspaper notifications to include either a map or a description of the location may moderately reduce costs for some small firms.

Alternative Method that Minimizes Adverse Impact. The proposed amendments do not adversely affect small businesses.

Adverse Impacts:

Businesses. The proposed amendments do not adversely affect businesses.

Localities. The proposed amendments do not adversely affect localities.

Other Entities. The proposed amendments do not adversely affect other entities.

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¹ More information about the 2016 periodic review can be found on the Virginia Regulatory Town Hall at http://townhall.virginia.gov/L/ViewPReview.cfm?PRid=1539

Agency's Response to Economic Impact Analysis: The Department of Mines, Minerals and Energy concurs with the economic impact analysis conducted by the Department of Planning and Budget.

Summary:

The amendments (i) specify that documents submitted to the Virginia Gas and Oil Board or the Department of Mines, Minerals and Energy be sent electronically rather than as paper copies; (ii) allow for additional methods of communication when certain notifications are required to be sent to other resource owners; (iii) provide that when the location of a prospective gas or oil well is required to be published in a newspaper the notice can include either a map or a description of the location, no longer requiring both; and (iv) clarify an affidavit must be submitted to the board to release a previous unit operator from responsibility as the unit operator.

4VAC25-160-30. Administrative provisions.

A. The Virginia Gas and Oil Board shall meet on the third Tuesday of each calendar month unless no action is required by the board or unless otherwise scheduled by the board. All hearings shall be scheduled in accordance with the requirements for notice by publication in § 45.1-361.19 of the Code of Virginia. Except where otherwise established by the Act, the board may establish deadlines for filing materials for meetings or hearings scheduled on other than the third Tuesday of each month. Except where otherwise established by the Act, filings shall be in electronic form or a format prescribed by the board.

B. Applications to the board must be filed by the following deadlines:

1. All applications, petitions, appeals or other requests for board action must be received by the division at least 30 calendar days prior to the regularly scheduled meeting of the board. If the 30th day falls on a weekend or a legal holiday, the deadline shall be the prior business day.

2. When required, two copies of the following material must be filed with the division at least seven calendar days prior to the regularly scheduled meeting of the board in order for the application to be considered a complete application:

a. The affidavit demonstrating that due diligence was used to locate and serve persons in accordance with § 45.1-361.19 of the Code of Virginia and 4VAC25-160-40; and

b. Proof of notice by publication in accordance with 4VAC25-160-40 D.

C. A complete application that is not filed by the deadlines of this subsection shall be carried over to the next scheduled meeting of the board. A submission that does not contain a complete application shall not be considered by the board until the application is complete.

D. The division shall assign a docket number to each application or petition at the time of payment receipt and filing. The division shall notify the applicant of the completed filing and assigned docket number. The docket number shall be referenced when submitting material regarding the application or petition.

E. In addition to the other requirements of this chapter, applications to the board shall meet the following standards:

1. Each application for a hearing before the board shall be headed by a caption, which shall contain a heading including:

a. "Before the Virginia Gas and Oil Board";

b. The name of the applicant;

c. The relief sought; and

d. The docket number assigned by the division.

2. Each application shall be signed by the applicant, an authorized agent of the applicant, or an attorney for the applicant, certifying that, "The foregoing application to the best of my knowledge, information, and belief is true and correct."

3. Exhibits shall be identified by the docket number and an exhibit number and may be introduced as part of a person's presentation.

4. Applicants shall submit eight sets a copy of each application and exhibits. Each person offering exhibits into evidence shall also have available a reasonably sufficient number of exhibits for other persons who are subject to the provisions of §§ 45.1-361.19 and 45.1-361.23 of the Code of Virginia, who have notified the division of their request for copies of exhibits, and are expected to be in attendance at the hearing.

F. Applications for the establishment and modification of a unit, spacing or pooling shall be accompanied by a $130 nonrefundable fee, payable to the Treasurer of Virginia.

G. All parties in any proceeding before the board are entitled to appear in person or be represented by counsel, as provided for in the Administrative Process Act, § 2.2-4000 et seq. of the Code of Virginia.

4VAC25-160-40. Notice of hearings.

A. Each applicant for a hearing to establish an exception to statewide spacing under § 45.1-361.17 of the Code of Virginia shall provide notice by electronic mail, by certified mail, return receipt requested, or by another commercial carrier including Federal Express and United Parcel Service, return receipt requested, to all gas, oil, coal or mineral owners having an interest underlying any tract located within the distances provided in § 45.1-361.17 of the Code of Virginia or the distance to the nearest well completed in the same pool, whichever is less. Each applicant for a hearing to establish an exception to a well location provided for in a drilling unit established by an order of the board shall provide notice by certified mail, return receipt requested, to all gas, oil, coal or mineral owners having an interest underlying the unit where the exception is requested.

B. Each applicant shall include, in or with the mailed notice of the hearing required under § 45.1-361.19 of the Code of Virginia, the following information:

1. The name and address of the applicant and the applicant's counsel, if any;

2. In the case of an application to vacate or amend an order, identification of the order to be vacated or amended;

3. A statement of the relief sought and proposed provisions of the order or proposed order;

4. Citations of statutes, rules, orders and decided cases supporting the relief sought;

5. A statement of the type of well or wells (gas, oil or coalbed methane gas);

6. a. For a pooling order, the notice should include: a plat showing the size and shape of the proposed unit and boundaries of tracts within the unit. The location of the proposed unit shall be shown in accordance with the Virginia Coordinate System of 1983, as defined in Chapter 17 (§ 55-287 et seq.) of Title 55 of the Code of Virginia, also known as the State Plane Coordinate System. The plat shall include property lines taken from (i) deed descriptions and chain of title, (ii) county courthouse records, or (iii) a physical survey for each land track in the unit. The location of the well and the percentage of acreage in each tract in the unit shall be certified by a licensed land surveyor or a licensed professional engineer and attested by the applicant as to its conformity to existing orders issued by the board;

b. For a field rule, the notice should include: a description of the pool or pools in the field, the boundaries of the field, information on the acreage and boundaries of the units proposed to be in the field and any proposed allowable production rates; or

c. For a location exception, the notice should include: a description of the proposed well location in relation to other wells within statewide spacing limits or in relation to the allowable area for drilling within a unit;

7. A description of the interest or claim of the respondent being notified;

8. A description of the formation or formations to be produced;

9. An estimate of the amount of reserves of the unit;

10. An estimate of the allowable costs in accordance with 4VAC25-160-100; and

11. How interested persons may obtain additional information or a complete copy of the application.

C. When after a diligent search the identity or location of any person to whom notice is required to be given in accordance with subsection A or B of this section is unknown at the time the applicant applies for a hearing before the board, the applicant for the hearing shall cause a notice to be published in a newspaper of general circulation in the county, counties, city, or cities where the land or the major portion thereof which is the subject of the application is located. The notice shall include:

1. The name and address of the applicant;

2. A description of the action to be considered by the board;

3. A map showing the general location of the area that would be affected by the proposed action and or a description that clearly describes the location or boundaries of the area that would be affected by the proposed action sufficient to enable local residents to identify the area;

4. The date, time and location of the hearing at which the application is scheduled to be heard; and

5. How interested persons may obtain additional information or a complete copy of the application.

D. Notice of a hearing made in accordance with § 45.1-361.19 of the Code of Virginia or this section shall be sufficient, and no additional notice is required to be made by the applicant upon a postponement or continuance of the hearing.

E. Each applicant for a hearing to modify an order established under § 45.1-361.21 or § 45.1-361.22 of the Code of Virginia shall provide notice in accordance with § 45.1-361.19 of the Code of Virginia to each person having an interest underlying the tract or tracts to be affected by the proposed modification.

F. An applicant filing a petition to modify a forced pooling order established under § 45.1-361.21 or § 45.1-361.22 of the Code of Virginia to change the unit operator based on a change in the corporate name of the unit operator; a change in the corporate structure of the unit operator; or a transfer of the unit operator's interests to any single subsidiary, parent or successor by merger or consolidation is not required to provide notice. Other applicants for a hearing to modify a forced pooling order shall provide notice in accordance with § 45.1-361.19 of the Code of Virginia to each respondent named in the order to be modified whose interest may be affected by the proposed modification.

4VAC25-160-110. Recordkeeping.

A. Each unit operator shall maintain records of production, income, payments made to lessors and escrow agents, any suspended payments, and other information prescribed by the board until the later of:

1. When the permits for all wells in the unit have been released by the department;

2. Twenty-four months after all escrowed funds for competing claims to ownership of coalbed methane gas in the unit have been paid out under order of the board; or

3. When so ordered by the board.

B. Each unit operator shall maintain itemized records of all costs charged to participating or nonparticipating operators until the later of:

1. Twenty-four months after all costs attributable to participating or nonparticipating operators have been settled and paid; or

2. When so ordered by the board.

C. Upon transfer of the right to conduct operations in a pooled drilling unit to a new unit operator, the old unit operator shall transfer all records required to be maintained in accordance with this section to the new unit operator. The old unit operator will not be released from responsibility as the unit operator until he has submitted, to the board, evidence an affidavit that the records have been received by the new unit operator.

D. In the event a unit operator wishes to terminate its legal existence and the unit is not transferred to a new unit operator, or when the permit for any well in the unit has been revoked and the bond forfeited by the department, the unit operator shall transfer, to the board, all records required to be maintained in accordance with this section.