1. 1 CARBON DIOXIDE SEQUESTRATION Kathy G. Beckett Jackson Kelly PLLC Charleston, West Virginia May 7 - 8, 2009 Midwest Ozone Group Meeting

2. 22 Status of State Initiatives Active Efforts Begun –Arkansas –California –Illinois HB 3854, pending –Indiana –Kansas –Louisiana –Michigan –Montana HB 502, stalled –New Mexico HB 790, pending –New York A 5836, pending –North Dakota SB 2095, final SB 2139, final –Ohio –Oklahoma –Texas –Utah –Washington –West Virginia –Wyoming HB 80, 89, 90, final HB 58, pending –Alberta –British Columbia –Saskatchewan

3. 3 WEST VIRGINIA CCS STATUTE HB2860 passed April 9, 2009 Findings: -alternative and renewable electricity is insufficient -public interest exists for advancing CCS -CCS and pipelines are integral to power plant operations Permitting: -UIC permit required -enhanced mineral recovery exemption -transition authorized for existing CCS facilities

4. 4 WEST VIRGINIA CCS STATUTE DEP authority -lead agency -rulemaking power -implement Safe Drinking Water Act -financial assurance -duration of post-closure care

5. 5 WEST VIRGINIA CCS STATUTE Permit application -geology -injection zone -other drill holes -surveillance plan -well construction -mechanical integrity testing -monitoring plan -financial assurance -post closure monitoring -notice of excursions -proof of notice -fee

6. 6 WEST VIRGINIA CCS STATUTE Carbon Dioxide Sequestration Working Group -appointed by DEP, in cooperation with State Geologist -at least 15 members -study CCS issues, including scientific, technical, legal and regulatory ownership of subsurface long range strategy conduct studies receive funds preliminary report 7/1/10 final report 7/1/11 -encourage development -assess feasibility -clarify property ownership -identify sites -assess costs / benefits -identify research -long term strategy -Cooperative agreements

7. 777 WV Open Issues Property Acquisition Many tracts involved Administrative alternative -Wyoming: 35-11-314 to 317 Wyo. Stat. Ann (2009) Streamlined property acquisition - utilization of tax records and public notice to determine ownership -allow compensation to be set (initially) by ALJs Possible role for PSC

8. 888 WV Open Issues Pipelines Pipelines within storage facility approved with overall project Transmission lines might require PSC approval

9. 999 WV Open Issues Permit program Pre-empt local regulation Allow for permitting in phases Allow injection into depleted coal and oil and gas formations (or undepleted formations, if owned)

10. 10 WV Open Issues Trust fund Fee set based on cost to state Allow funds to be expended only for the CCS project Review fee every ten years Suspend fee when trust is fully funded

11. 11 WV Open Issues User fee Base fee on actual cost of administration Review each year Allow funds to be expended only for regulation of a specific CCS project

12. 12 WV Open Issues Liability Transfer after closure Transfer to State Extend liability release to operators and generators (absent fraud) Require state to acquire insurance Limit State liability -cap on non-economic loss -no punitive damages -statute of limitations -no joint and several liability -allow consideration of collateral source payments -no medical monitoring absent present injury -no 3 rd party bad faith actions State retains sovereign immunity for matters not insured

13. 13 WV Open Issues Liability limitations during operation No release of liability Liability limitations -cap on non-economic loss -cap on punitive damages -statute of limitations -no joint and several liability -allow consideration of collateral source payments -no medical monitoring absent present injury -no 3 rd party bad faith actions

14. 14 WV Open Issues Pore space ownership issues: 1.Ownership vested in surface owners unless owned by another 2.Conveyance of surface is a conveyance of pore space unless already severed or conveyed 3.No reservation of minerals shall reserve pore space unless explicitly stated 4.Alternative ownership claim must be litigated within 10 years 5.Notice provisions in other laws should not extend to pore space owners

15. 15 WV Open Issues Pore space ownership issues: 6.Future pore space conveyances shall describe scope of right to use surface and specifically describe the pore space 7.No amendment of mineral estate or mineral owner right to use surface or pore spacewithout written consent 8.No amendment of use of prior pore space for such matters as gas storage 9.No transfer of liability to pore space owner by parties leasing pore space from such owner

16. 16 WY Ownership of Pore Space In 2008, the Wyoming legislature enacted a statute providing that the ownership of all pore space in all strata below the surface lands and waters of this state is declared to be vested in the several owners of the surface above the strata. §34-4-152 Wyo. Stat. Ann. PORE SPACE Surface Surface Owners Wyoming Law - Pore space ownership vested to surface owners.

17. 17 WY Legislative Definitions The term “pore space” is defined to mean subsurface space which can be used as storage space for carbon dioxide or other substances. §34-1-152(d) Wyo. Stat. Ann. “Geologic sequestration” means the injection of CO2 and associated constituents into subsurface geologic formations intended to prevent its release into the atmosphere. Such underground formations intended for such storage are “geologic sequestration sites”. §35-11-1039 (c) (xx-xx1) Wyo. Stat. Ann.

18. 18 WY 2009 Amendment Pore Space In 2009, the Legislature amended its 2008 language concerning the dominance of the mineral estate as of July 1, 2008 (effective date of §34-1-152(e)) For purposes of determining the priority of subsurface uses between a severed mineral estate and pore space as defined in subsection (d) of this section, the severed mineral estate is dominant regardless of whether ownership of the pore space is vested in the several owners of the surface or is owned separately from the surface. (Original House Bill 0057; effective July 1, 2009)

19. 19 WY Conveyances of Pore Spaces A conveyance of the surface ownership of real property shall be a conveyance of the pore space in all strata below the surface of such real property unless the ownership interest in such pore space has been previously severed or is excluded. No agreement conveying mineral or other interests shall act to convey ownership of any pore space in the stratum unless the agreement explicitly conveys the ownership interest. 34-1-152(b) Wyo. Stat. Ann.

20. 20 WY Conveyances of Pore Space – Surface Use Rights All instruments which transfer the rights to pore space...shall described the scope of any right to use the surface estate. The owner of any pore space right shall have no right to use the surface estate beyond that set out in a properly recorded instrument. §34-1-152(f) Wyo. Stat. Ann.

21. 21 Wyoming Regulatory Framework – Enhanced Oil Recovery In 2008, the Legislature enacted a relatively comprehensive regulatory framework to address potential sequestration in pore spaces of carbon dioxide for the purpose of removing the CO2 from the atmosphere vis-á-vis for the purposes of enhanced oil recovery. §30-5-501 Wyo. Stat. Ann.

22. 22 WY Bonding Not later than 9/30/2009 the State Oil and Gas Supervisor, the State Geologist, and the DEQ Director shall convene a working group to develop appropriate bonding procedure and other financial assurance methods to assure that adequate financial resources are provided to pay for any mitigation or reclamation costs that the state may incur as a result of a default by a permit holder. The bond is required during both operation AND post- closure period (the duration of which is to be recommended by 9/30/2009 to two joint committees of the Legislature). §35-11-313(g) Wyo. Stat. Ann.

23. 23 WY Liability Issues Wyoming’s 2008 legislation did not clearly address liability for CO2 sequestration activities. It did outline detailed requirements for a permit holder’s financial responsibilities, and abjured any liability for the state in case of default by the holder of a sequestration permit. In the 2009 Session, the Legislature attempted to remove all doubt about its intent by enacting a new statute (34-1-153 Wyo. Stat. Ann.): (a) All CO2…injected into any geologic sequestration site…shall be presumed to be owned by the injector of such material and all rights, benefits, burdens and liabilities of such ownership shall belong to the injector. This presumption may be rebutted by a person claiming contrary ownership by a preponderance of the evidence… (b)No owner of pore space, other person holding any right to control pore space or other [interest holder], shall be liable for the effects of injecting CO2 for geologic sequestration or for the effects of injecting other substances for the purpose of geologic sequestration [incidental to CO2 injection] solely by virtue of their interest or by…having given consent to the injection.

24. 24 Contact Information Kathy G. Beckett (304) 340-1019 kbeckett@jacksonkelly.com Jackson Kelly PLLC Post Office Box 553 Charleston, WV 25322