No assessed value will be assigned to well pads

November 8, 2012
Shale Play

WHEELING, W.Va. - A special committee of county assessors has helped the West Virginia Tax Department decide whether to set an assessed value on well pad sites on landowners' properties.

Ohio County Assessor Kathie Hoffman was one of five assessors on the committee, put together by the West Virginia Association of Assessors.

She said state tax officials wanted the group to figure out how to determine the value of gas drilling well pad sites. Initially, she said, it was "strongly suggested" that a well pad site be "carved out" at five acres and that each acre be appraised at $5,000, making for a total appraisal of $25,000.

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In comparison, mineral rights owners currently pay about $25 per acre, she noted.

After about three months of meetings, however, Hoffman and her fellow assessors decided adding such a value wasn't fair, especially to farmers who are in a less expensive Class 2 category. A meeting was held recently in Upshur County with the assessor committee, state tax officials and representatives of some drilling companies. At that meeting, it was decided that no value would be placed on well pad sites.

"Our concern was for the people who do not own the mineral rights, they just own the surface rights ... Our concern as assessors was how to value that," Hoffman said, noting a total appraisal of $25,000 would change a farmer's land from Class 2 to a more expensive Class 3.

Some may have lost their homestead exemption, she added.

Hoffman said she was concerned with this possible change in class, resulting in higher taxes, because the farmers aren't making any money off their land because in some cases it's unusable at the moment.

For example, to reach well sites or pads, roads are being built across farmland, rendering it useless for cattle grazing or growing grass for haymaking.

And not everyone who owns their surface rights also owns mineral rights. Only the mineral rights owners are able to sign gas drilling leases to make money.

"It was decided by the state that we are not going to cut out that five acres - the state took our advice ... and they decided they are not going to cut that off. It's a big relief to the farmers and others who own surface rights that they aren't going to have pay extra taxes on that in 2013. Some will see a bill for mineral rights, but not for surface rights. ... There will be a normal (property tax) bill but not an additional bill related to drilling sites."

John Miller, Ohio County extension agent, said he was pleased to learn that no value would be placed on landowners' well pad sites. Most landowners or farmers, he said, only received about $15,000 for the disturbance of their land by a drilling company.

"That would have been a hefty tax burden. I think they made the right decision," Miller said. "A value of $25,000 would have been a burden to those people."

Hoffman said if such a value was applied, it likely would have caused people "undue stress."

"It's bad enough they have to put up with these drilling sites and the noise and the dirt, and then to be charged taxes on top of that - that's like adding insult to injury and that's what we wanted to avoid," she said.

"Those are the people we were really concerned about - the surface owners who didn't get anything at all ... and were going to have pay an increase in assessed values and taxes. That was a concern to all of us."

Hoffman noted for the moment there are about 28 wells in Ohio County, none of which are currently producing gas to take to market.

"Right now the value of the gas is like $2, not anywhere it had been before. ... It's not paying off, so they're not hooking them up and getting them running. They're really not producing because prices are too low - can't make a profit on it," Hoffman said.