WV Executive

This is a land with majestic natural beauty and hard working people who are proud of their mountain heritage and a land with an abundance of natural resources. This is West Virginia.

Local historians, David McKain and Bernie Allen, have traced the history of oil and natural gas in West Virginia to as far back as 1771 when George Washington acquired a 250-acre track of land containing an "oil and gas spring." Commercialization of the oil industry dates back to 1819, with the first major wells drilled in 1859 in Petroleum, just outside Parkersburg.

The importance of the oil and natural gas extraction industry can be emphasized in its direct and indirect impact to the West Virginia economy. In 2002, more than $40 million was paid in annual property tax revenues, and for fiscal years 2000 through 2002, more than $79 million was paid in state severance taxes. In addition, nearly 4,000 West Virginians are directly employed in the extraction of oil and natural gas, which has an annual payroll exceeding $147 million with an estimated 13,000 additional jobs supporting exploration, production and transportation services in the industry. In 2001 alone, oil and natural gas producers invested over $349 million in drilling and equipping newly drilled wells.

Today, while many industry sectors within the state are in decline, the extraction of oil and natural gas, as well as other natural resources, has stabilized and seen an increase in activity. Statistics kept by the Independent Petroleum Association of America (IPAA) show West Virginia ranks as the second largest producer of natural gas east of the Mississippi and 14th in the United States. In the production of crude oil, West Virginia is ranked the ninth largest producer east of the Mississippi and 25th in the nation.

Natural gas and oil are produced in 50 of West Virginia's 55 counties. The Energy Information Administration (EIA), the statistical branch of the Department of Energy, shows that in 2002, West Virginia had 45,000 producing gas wells which yielded just over 190 billion cubic feet of annual production and more than 8,000 oil wells that produced 4,000 barrels per day.

West Virginia is a net exporter of all types of energy, including natural gas and oil. Producers in West Virginia rely on an intricate interstate pipeline system developed by transmission companies to transport natural gas to the major markets in the northeast and elsewhere. As more wells are drilled and more markets developed, producers also will rely on these same transmission companies to create and provide additional capacity on their systems.

Most experts are of the opinion that a fundamental shift in the natural gas supply-and-demand balance has occurred and resulting in higher prices and volatility. While storage levels are currently higher than last year at this same time and higher than the five-year average, the price of natural gas still remains strong which indicates that the supply is not efficient for the demand.

From the producer-operator perspective, this increased demand coupled with stabilized production levels has allowed market forces to balance the price at the wellhead. For the most part, the summer production shut-ins and down swings in pricing that have traditionally occurred within the industry are gone (see Figure One).

On the commodity pricing side, statistics from the EIA show the following national average prices:

By contrast, here are the average commodity prices for West Virginia consumers for the same time period:

The producer community believes the stabilization of prices will lead to increased investment in drilling activity in an attempt to increase the supply of natural gas.

Closer to home are areas of growing concern. The first is a shortage of skilled workers entering the industry. This problem is not only a concern in West Virginia but is plaguing the industry nationally as well. Many industry leaders are saying that more must be done to encourage students to consider jobs in the oil and natural gas industry, and this problem will become more acute in the years and decades to come. One of the misconceptions is that the extraction and production of oil and natural gas is still done as it was 100 years ago. However, nothing could be further from the truth. Today, the petroleum industry is high-tech, applying cutting edge technology, seismic equipment and computer modeling.

While this shortage is in no way affecting the industry's ability to safely and efficiently deliver oil and natural gas to end-users, United States Congress and the Presidential administration are being asked to address important issues and provide an environment where energy markets are less volatile. To that end, a comprehensive energy strategy that balances development of the domestic energy resources with sound conservation and renewable energy measures should be considered.

The second area of concern is the availability and affordability of liability insurance-more particularly employer liability insurance. Many producers and service companies are finding themselves in a difficult situation in their attempt to stay in compliance on performance clauses in contracts. The major problem is finding underwriters willing to renew or write new policies in West Virginia. In fact, it is increasingly difficult to find a carrier because most have departed the state and are unwilling to consider new clients. Those who find insurance are facing skyrocketing premiums. It is widely accepted that tort reform legislation will assist in alleviating this problem. Hopefully, this will be on the West Virginia Legislature's list of priority issues in the upcoming 2005 session.

The Independent Oil and Gas Association of West Virginia, Inc. (IOGA-WV), formed in 1959, is a trade association comprised of more than 360 independent oil and gas producers, suppliers, royalty owners and service companies engaged in the extraction and production of natural gas and oil in West Virginia. It is IOGA's goal to serve as an advocate for industry issues and to represent the combined interests of the entire producer community.

IOGA-WV is proud of its long-standing service to the producer community and to the state of West Virginia. IOGA-WV is not only interested in the production of natural gas and oil in West Virginia, but it is also interested in the youth of the state. Since 1997, IOGA-WV has awarded more than $47,000 to West Virginia high school seniors whose parents work for IOGA member companies.