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New West Virginia law seen to help operators boost production

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 outputfrom the Marcellus Shale play.

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

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

"IOGA West Virginia is very excited to see that bill finally pass," Burdsaid in an interview. Burd said the legislature forged a compromise billthat would protect the rights of operators and the majority of royaltyowners on a given tract of land, while protecting the rights of minorityroyalty 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, butit's a very simple bill," he said.

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

A concentration of acreage among the state's top producers has also ledto a trend of longer well laterals, driving efficiency gains and boostinginitial production rates and ultimately recovered volumes from wellsdrilled, Platts Analytics has found. For example, in second-quarter 2015, producer Antero Resourcesreported its average lateral length drilled in the West VirginiaMarcellus shale was approximately 8,300 feet; in 2018, the companyexpects an average lateral length of 9,700 feet, and by 2020 it forecastsan average lateral length of 11,600 feet, according to its fourth quarter2017 company earnings presentation.

Recent authorizations the US Federal Energy Regulatory Commission handeddown will likely drive further development in West Virginia as a series ofhigh-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 largepart by producer EQT Energy, and the 2.7 Bcf/d Mountaineer XPressproject, which is backed in part by Antero Resources, have begunconstruction and are both targeting service by late 2018.

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

-- Edited by Matt Eversman, newsdesk@spglobal.com