Earlier today, the Pennsylvania Commonwealth Court issued a unanimous decision in the much-anticipated case of Gorsline v. Board of Supervisors of Fairfield Township, reversing the decision of the Court of Common Pleas of Lycoming County. In reversing the lower court, the Commonwealth Court upheld Fairfield Township’s decision to grant conditional use approval to Inflection Energy, LLC for an unconventional well pad. This case is significant for several reasons. First, the Commonwealth Court made it clear that it is insufficient for objectors to sustain their burden by merely stating concerns or asking questions of the developer’s expert witnesses. Instead, they must present evidence to substantiate those concerns. Second, the Commonwealth Court criticized the lower court for making its own findings of fact when it did not take additional evidence and where the municipality made its own findings of fact. Third, the Commonwealth Court recognized that the lower court erred by focusing on truck deliveries during the construction phase of the project because zoning regulates the use of land and not the particulars of development and construction. Finally, the objectors attempted to raise issues based on the Pennsylvania Supreme Court’s Robinson Township decision, arguing that natural gas development is an industrial use that is per se incompatible with a residential/agricultural zoning district and that approval of the natural gas development violated the Environmental Rights Amendment of the Pennsylvania Constitution. The Commonwealth Court summarily rejected these two arguments and noted that, because the record supported the township’s determination that the proposed well pad was compatible with the permitted uses in the residential/agricultural district and the objectors presented no evidence of harm, the objectors’ claims were unsupported by the accepted evidence of record. This final point is especially significant because many anti-industry opponents cite both the lower court’s opinion and the Delaware Riverkeeper Network’s amicus brief from this case in other zoning proceedings as support for the now rejected view that oil and gas development must only occur in industrial zoning districts.
Energy Transfer Partners LP announced that it will invest $1.5 billion for a new pipeline system and processing facilities to serve the Marcellus Shale in and around Butler County, Pennsylvania. The new facilities are expected to be operational by mid-2017. Natural Gas Intelligence reported that the pipeline and facilities are part of a long-term natural gas gathering agreement between ETP and EdgeMarc Energy to serve EdgeMarc’s active wells in the region, but the facilities are also expected to accept third party gas in the future. The project plans include over 100 miles of high pressure pipeline and a cryogenic gas processing plant that will be located in western Pennsylvania near Butler County, providing an additional 440 MMcf/d of gathering capacity in the area. The plant will deliver gas to ETP’s Rover pipeline, which is expected to deliver gas to markets in the Midwest, Great Lakes and Gulf Coast regions beginning in 2017. ETP’s pipeline will also deliver natural gas liquids to the Marcus Hook Industrial Complex on the Delaware River, which is being repurposed for natural gas liquid storage, processing and distribution to foreign and domestic markets.
The Center for Sustainable Shale Development (CSSD), a collaborative of environmental organizations and energy companies that encourages responsible practices in development of shale gas resources in the Appalachian region, and CONSOL Energy, Inc. each announced the certification of CONSOL Energy’s Appalachian Basin operations. In order to be certified, CONSOL had to show that it met CSSD’s 15 Performance Standards by meeting or exceeding state and federal air and water management regulatory requirements. CONSOL joins Royal Dutch Shell and Chevron Corp. as the third natural gas producer to earn the certification.
FuelFix.com reports that the U.S. District Court for the Middle District of Pennsylvania recently ruled that the Constitution Pipeline can be built across seven northeastern Pennsylvania properties despite the fact that the respective landowners had not agreed to the construction. The Constitution Pipeline is a 124-mile pipeline project designed to transport Marcellus Shale gas from Pennsylvania to New York and New England. It would connect with the existing Tennessee and Iroquois pipelines in New York. Its partner companies, including Williams Partners LP and Cabot Oil & Gas Corp., sought access to 130 properties in Pennsylvania and filed condemnation proceedings regarding 20. Agreements were reached with 13 of the 20 landowners. Judge Malachy Mannion ruled that the pipeline has the necessary permits from the Federal Energy Regulatory Commission, and that it serves the public interest by increasing gas pipeline capacity. Judge Mannion also noted that the landowners stood to gain adequate compensation from the pipeline’s owners. A spokesman for Williams stated that the group hopes to begin construction by June 1st after obtaining additional permits and posting the necessary bond.
In a recent non-precedential opinion, the Third Circuit affirmed a decision of the Middle District of Pennsylvania dismissing an action on the basis that a doctor lacked standing to challenge what he refers to as the “Medical Gag Rules” of Act 13. In Rodriguez v. Secretary of Pennsylvania Department of Environmental Protection, the plaintiff, a doctor specializing in the treatment of renal diseases, hypertension and advanced diabetes, asserted he is unable to obtain critical information about the quality of local water. Specifically, he claimed that he needed the information to properly diagnose and treat patients whose illnesses or medical conditions allegedly resulted from contact with environmental contaminants. He therefore challenged Section 3222.1 of Act 13, which provides two mechanisms for health professionals to learn proprietary information about the chemicals used in hydraulic fracturing—one for medical emergencies and one for non-emergency situations. Dr. Rodriguez argued Act 13’s non-emergency provision, which requires a written statement and the execution of a confidentiality agreement, impermissibly restricts his speech and is unconstitutionally vague and overbroad.
The Middle District of Pennsylvania held that Dr. Rodriguez’s alleged injury was too speculative to satisfy the requirements of standing under Article III of the U.S. Constitution. In this regard, Dr. Rodriguez did not allege that he had ever been in a situation where he needed or attempted to obtain such information, or that he had ever been forced to sign a confidentiality agreement under Act 13. In short, he never suffered an injury-in-fact.
On appeal, the Third Circuit agreed with the District Court, holding that it was insufficient for Dr. Rodriguez to rely on “naked assertions devoid of further factual enhancement.” Rather, he must allege that he suffered an invasion of an interest that is actual or imminent, not conjectural. The Third Circuit also distinguished Dr. Rodriguez’s reliance upon the Supreme Court of Pennsylvania’s 2013 opinion in Robinson Twp., Washington Cty. v. Com. The court ruled that Dr. Rodriguez’s reliance on Pennsylvania law as authority regarding federal standing requirements was misplaced.
Yesterday, the Pennsylvania Supreme Court issued Harrison v. Cabot Oil & Gas Corp., a significant opinion in which the Court refused to apply equitable tolling principles that other oil and gas jurisdictions have adopted. Such principles prevent oil and gas leases from expiring during the pendency of lease litigation.
The lessors in this case filed a declaratory judgment action and a fraudulent inducement claim in federal court challenging the validity of their lease, which was two years into its primary term. Out of an abundance of caution, the operator refrained from all operations during the pendency of the litigation. It then asserted a counterclaim seeking to equitably toll the lease in the event it prevailed. Though the operator successfully defeated the lessors’ claims, the District Court denied its equitable tolling claim. As a result, the lease expired while the case was being litigated.
The operator appealed to the Third Circuit, which certified the case to the Pennsylvania Supreme Court on the grounds that it was an issue “of first impression and of significant public importance, given that its resolution may affect a large number of oil-and-gas leases in Pennsylvania.”
In a unanimous decision, the Pennsylvania Supreme Court upheld the District Court’s decision not to toll the lease. In so ruling, the Court noted that its decision went against other jurisdictions that have decided this issue. The Court also noted that the operator should have addressed the issue in its lease by adding a tolling provision. The Court also held that the result may have been different if the lessors had prevented the operator from entering the property to conduct operations.
The case is significant in several respects. First, it opens the door for lessors to try to “run out the clock” on leases by filing frivolous lease litigation. Second, it imposes on operators the obligation and risk to continue operations even in the face of suits challenging the validity of their leases. Third, if a lessor files suit to challenge a lease’s validity, and simultaneously denies the operator the right to conduct operations, the operator must now consider filing for equitable relief through an injunction before seeking to toll the lease term. Lastly, it essentially requires operators to add tolling provisions to their new leases.
American Energy Partners, LP (“AEP”) announced yesterday that its affiliates, American Energy-Utica, LLC (“AEU”) and American Energy – Marcellus, LLC (“AEM”) are combining in an all-stock transaction to form American Energy Appalachian Holdings, LLC (“AEA”). AEP hopes that the “attractive positions [of AEU and AEM] in each of these respective plays and their complementary nature will allow AEA to maximize returns by realizing administrative and operational efficiencies.” The transaction will result in AEA holding a position in over 300,000 net Utica and Marcellus shale acres in eastern Ohio and northern West Virginia. AEP entered the Marcellus shale play in June as part of a larger $4 billion effort to expand its holdings in West Virginia, Ohio and Texas. AEP affiliates also maintain positions in the Woodford Shale in central Oklahoma and the Permian Basin in western Texas.
StateImpact reported that the Federal Energy Regulatory Commission recently approved an addition to the interstate Transco pipeline that will transport Marcellus shale gas to New Jersey, where there is a high demand. The approval comes after several other pipeline expansions to New York and New England were recently approved. The Leidy Southeast line will total approximately 30 miles in Pennsylvania and New Jersey and is scheduled to be completed by late 2015.
Southwestern Energy Company and Detroit-based DTE Energy Company have made a deal to expand DTE’s natural gas gathering system in Susquehanna County, PA by 50%. The Bluestone Gathering System delivers gas from the Marcellus shale in Pennsylvania through the Millennium Pipeline in Broome County, NY and the Tennessee Gas Pipeline in Susquehanna County. According to Nasdaq, the new agreement will increase Southwestern’s transportation capacity on the Bluestone Pipeline, which currently ships up to 0.8 Bcf per day and will increase to 1.0 Bcf per day by mid-2016. The plan for increased infrastructure is significant for Southwestern, which recently acquired 413,000 net acres and 1,500 wells in southern Pennsylvania and northern West Virginia from Chesapeake Energy Corporation and had an increase of 47% in gas production over the past year.
According to a report published by Pennsylvania Business Daily, Reading-based UGI Utilities, Inc. recently became Pennsylvania’s first natural gas utility to connect one of its pipelines to a Utica Shale well, thereby increasing the supply of natural gas available to customers in Tioga and Potter counties. The expansion required UGI to construct a new meter and regulator station system, but it is estimated that the natural gas resources in the expanded system, which includes one Utica well and two Marcellus wells, can meet the energy needs of more than 50,000 households. According to a statement by Kelly Beaver, UGI’s Vice President of Supply, “[m]ore than 70 percent of the natural gas we deliver through our system is produced in the Marcellus Shale region. We are pleased to add volumes of lower-cost Utica Shale natural gas to our portfolio as another supply source.”
Fox Business reported that Sunoco Logistics Partners will invest $2.5 billion in the Mariner East 2 pipeline, which will carry natural gas liquids from the Marcellus and Utica Shale plays to an East Coast port. Mariner East 2 will connect processing plants in Pennsylvania, West Virginia and eastern Ohio with the Marcus Hook Industrial Complex near Philadelphia, which will distribute liquefied natural gas to domestic and international markets. The pipeline is the second phase of the Mariner East project, the first phase of which is expected to begin transporting gas later this year. Mariner East 2 is scheduled to begin service by the end of 2016.
On October 22, 2014, Pennsylvania Governor Tom Corbett signed House Bill 2278, The Unconventional Well Report Act, into law. The Act requires operators of unconventional wells to submit monthly production reports to the Department of Environmental Protection. The change is to revise Act 13, which had required semi-annual production reporting for unconventional wells. The initial report under the Act is due to the DEP on March 31, 2015, and thereafter monthly production reports are due 45 days after the close of the reporting period. The DEP will make the submitted reports available on its website and may use the reports in enforcement proceedings.
On October 22, 2014, Pennsylvania Governor Tom Corbett signed House Bill 402, also known as the Recording of Surrender Documents from Oil and Natural Gas Lease Act, into law. The Act imposes a duty on a lessee to deliver a surrender document to a lessor within 30 days of the termination, expiration or cancellation of an oil and gas lease. Read our Administrative Watch to learn more.
As reported by the Pittsburgh Business Times on October 15, 2014, Wexford-based Marcellus driller Mountaineer Keystone LLC has finalized its acquisition of joint-venture partner PDC Mountaineer LLC for a reported sale price of $500 million. PDC Mountaineer was created in 2009 by PDC Energy and Lime Rock Partners as a joint venture for the purposes of exploring the Marcellus Shale. Mountaineer Keystone LLC currently operates in northern West Virginia and eastern Ohio and drilled its first Utica and Marcellus wells in 2012. As a part of the deal, Mountaineer Keystone acquired 131,000 acres for its West Virginia Marcellus Shale position while also agreeing to sell the joint-venture’s midstream assets, consisting of 24 miles of high pressure gathering lines, to MK Midstream Holdings LLC, a separate joint venture in which Mountaineer Keystone holds a fifty (50%) percent stake.
Southwestern Energy Co. announced that it has signed a deal to acquire 413,000 net acres in West Virginia and Pennsylvania from Chesapeake Energy Corp. for $5.375 billion, reports the Pittsburgh Business Times. This acquisition includes 256 producing and 179 unoperated or nonproducing Marcellus and Utica Shale wells. These assets will complement those Southwestern already has in the Marcellus Shale in northeastern Pennsylvania.