On January 23, 2015, Pennsylvania Senator Gene Yaw introduced Senate Bill 313 (SB 313), which would provide a process for persons actively engaged in the business of extracting oil or gas, who own or leased at least 65% of the working interests in a proposed unit, to apply to the Public Utility Commission for an order integrating the remaining interests owned by other persons similarly engaged in the business of extracting of oil or gas. SB 313 allows for the integration of working interests for the purpose of extracting oil or gas from formations below the base of the Elk Sandstone or its geologic equivalent. The proposed bill would also repeal the act of July 25, 1961, known as the Oil and Gas Conservation Law (P.L. 825, No. 359). SB 313 is currently awaiting approval from the Senate Environmental Resources and Energy Committee.
A Pennsylvania senate committee recently unanimously approved two bills regarding oil and gas royalty calculations. StateImpact Pennsylvania reported that Senate Bills 147 and 148 were approved by the Senate Environmental Resources and Energy Committee on Wednesday, January 21, 2015. If passed into law, SB 147 would require operators to disclose more information on royalty checks, including calculations and joint ventures between companies. The bill would also permit landowners to inspect company records, even if that right is not set forth in an oil and gas lease. SB 148 would prohibit operators from retaliating against landowners who question the calculation of their royalty payments. The bills are two of several that have been introduced in the state house and senate in the last year.
A third bill, Senate Bill 279, also passed the senate committee with unanimous approval. This bill would create the Pennsylvania Grade Crude Development Advisory Council, which would advise and assist the state Department of Environmental Protection with the differing regulations for conventional oil and gas operations and unconventional oil and gas operations. All three bills will move forward for consideration by the full senate.
Ohio EPA, the Ohio Division of Oil and Gas Resources Management, and the Ohio Department of Health, on November 17, 2014, jointly issued a four-page guidance letter on how Ohio regulates the landfill disposal of oil and gas production waste. The letter addresses what waste is defined as solid waste that must be disposed in landfills, classification of certain drill cuttings as not constituting regulated solid waste, and substances classified as TENORM that must be analyzed for radioactivity prior to landfill disposal. The letter can be accessed on Ohio EPA’s website at http://epa.ohio.gov/Portals/0/Drilling%20Waste%20Ltr.pdf.
Veteran attorneys Timothy Miller from Robinson & McElwee, and Christopher ‘Kip” Power, Mychal Schulz and Robert Stonestreet from the Charleston office of Dinsmore & Shohl have joined forces with Babst Calland in providing senior-level legal counsel in key practice areas including environmental, litigation and employment. The addition of the new attorneys and staff will double the size of Babst Calland’s Charleston office which opened in 2011. For more information, please visit the firm’s website.
Two pieces of proposed legislation were introduced to the Pennsylvania Senate on Thursday, July 31. Each has been referred to the Senate Environmental Resources and Energy Committee. Senate Bill 1458, if passed, would amend Title 58 by requiring that steel casings (or other steel safety devices) used in in the drilling of an oil or gas well only use steel products produced in the United States. Senate Bill 1460, provides that products containing both foreign and United States steel shall be determined to be a United States steel product if at least 75% of the cost of the articles, materials and supplies have been mined, produced or manufactured in the United States.
In its far-reaching decision in Robinson v. Commonwealth, which was issued on December 19, 2013, the Pennsylvania Supreme Court invalidated several critical provisions of Act 13. Additionally, the Supreme Court remanded to the Commonwealth Court to address whether the remaining sections of Act 13 can be severed and whether several sections of Act 13 were unconstitutional. Yesterday, the Commonwealth Court reached its decision on the remanded issues.
Regarding severability, the Commonwealth Court held that the last sentence of Section 3302 and all of Sections 3305 to 3309 were not severable and, therefore, invalid. The cumulative effect of this invalidation of all substantive portions of Chapter 33 of Act 13 is that local zoning matters relating to oil and gas will “now be determined by the procedures set forth under the [Municipalities Planning Code] and challenges to local ordinances that carry out a municipality’s constitutional environmental obligations,” and that the Pennsylvania Public Utility Commission no longer has the authority to review local ordinances for compliance with Act 13 and withhold well fees where defects were found.
Regarding the other issues, the Commonwealth Court dismissed claims that providing notice only to public drinking water systems following a spill from drilling operations and that prohibiting health professionals from disclosing the identity and amount of hydraulic fracturing additives were unconstitutional special legislation. The Court also dismissed the claim that Act 13 conferred the power of eminent domain to illegally permit taking private property for use by a private enterprise.
Review our recent Administrative Watch for more in-depth analysis.
For more background, review our blog post on the Supreme Court Decision.
In a recent opinion, the Pennsylvania Superior Court addressed whether Pennsylvania’s Landlord and Tenant Act of 1951 (the “Act”), and the applicable statute of frauds contained therein, applies to oil and gas leases. In Nolt v. TS Calkins & Associates, LP, a landowner executed an oil and gas lease to lease the oil and gas rights in a 98-acre parcel of land. The landowner thereafter agreed to sell a portion of his property to the plaintiffs. The plaintiffs subsequently filed a quiet title action arguing that the oil and gas lease is invalid and created a cloud on the title on their property. More specifically, the plaintiffs argued that the oil and gas lease was subject to the Act, and that the statute of frauds contained in the Act requires a lease to be signed by both the lessor and the lessee to be valid. Because the lessee did not sign the lease, the plaintiffs argued that only a year-to-year lease was created and that it had expired. In response, the defendants argued that an oil and gas lease is not a lease governed by the Act, but instead is a transfer of realty subject to the more general statute of frauds, which requires only the signature of the grantor. The Pennsylvania Superior Court agreed with the defendants and held that the transaction did not create a lease, but rather a transfer of a property right in the oil and gas. Accordingly, the conveyance was subject to the general statute of frauds, not the statute of frauds contained in the Act, and the plaintiffs’ argument fails.
Marcellus Drilling News reports that the Pennsylvania House and Senate passed a budget that did not include a Marcellus Shale severance tax. Governor Tom Corbett withheld his signature while he continues to work with lawmakers on pension reform.
“The 2014 Babst Calland Report – Appalachian Shale Industry in Transition: Evolving Challenges for Producers and Midstream Operators” comments on key issues facing producers and midstream operators from a legal and regulatory perspective, including:
- Governments and politics are playing a major role in shale energy. State elections will shape how the industry operates. In Ohio and Pennsylvania, the tax debate is still very much alive. In West Virginia, a gas severance tax has been in effect and has remained unchanged despite attempts to raise it. The industry faces increased budgetary and operational challenges from legislative sessions in all three states. Politically-driven developments continue to impact the prospects for new and existing underground injection wells, ranging from new seismic testing requirements to public objections to pending permit applications.
- Regulatory issues remain fluid for the Appalachian shale gas industry. There is no shortage of regulation for the burgeoning shale gas industry, particularly given the degree of transparency, public scrutiny and political influence for and against the extractive industries. A large number of regulatory issues remain, requiring constant attention to developments and details across a spectrum of subjects including: reporting, permitting, well site construction, impacts to species, and unique standards for water and air quality.
- Local government regulation of the industry is expanding. The line between state and local control is still being tested in the state of Ohio, while the implications of Post-Robinson Twp. (Act 13) local regulation in Pennsylvania will not be evident until later in 2014.
- Property rights and land use present more challenges than ever before. Myriad unresolved property rights, royalty disputes and land-related issues are pending in the courts. Producers in Ohio, West Virginia and Pennsylvania are facing a continuously evolving environment concerning property rights and land use.
- Safety and labor remain priorities. The industry’s workforce and supply chain partners are keys to productivity gains and maintaining the all-important license to operate. As the oil and gas industry must protect its workers 24/7, it must remain vigilant on safety compliance and labor matters.
- Next step in the transition: we are at the threshold of a manufacturing renaissance. The Appalachian Basin is playing a leading role in the United States’ production of record amounts of oil, gas and natural gas liquids. New business opportunities are rapidly developing, and the Appalachian Basin has the potential to evolve from our vastly successful resource extraction activities to reclaim its historic reputation as a manufacturing juggernaut.
To request a copy of “The 2014 Babst Calland Report,” contact info@babstcalland.com.
On April 23, 2014, the Findlay Township Board of Supervisors approved the conditional use application of CONSOL Energy, Inc.’s affiliate, CNX Gas Company LLC, to construct on the property of the Pittsburgh International Airport 6 well pads, up to 60 unconventional gas wells, 3 centralized impoundments (I fresh water and 2 produced water), and related pipelines and access roads. The approval is the culmination of two public hearings, held in February and March of this year, and thousands of pages of application materials. The Board of Supervisors placed 23 conditions on the approval. CNX paid the Allegheny County Airport Authority $50 million in 2013 for the airport drilling rights, and it is expected that the drilling will provide approximately $450 million in royalties to the Authority over the next 20 years.
As reported by the Akron Beacon Journal Online on April 4, 2014, the Ohio Environmental Protection Agency issued revised general permits for the installation and operation of air contaminant sources at oil and gas horizontal well sites to address methane gas released from valves, connectors and other equipment. Under the new permits, operators are required to scan all the equipment at a well site on a quarterly basis for any leaks of hydrocarbons. The purpose of the new permits is to quickly identify and correct potential gas leaks at well sites and to prevent unnecessary emissions. Colorado and Wyoming have recently adopted similar air emissions requirements.
The Future Fund Bill, which was passed by the House on February 25th, was signed into law by West Virginia governor Earl Ray Tomblin on March 20th, reports the West Virginia Metro News. As described in an earlier post on this blog, the Future Fund will be financed by 25 percent of the severance tax revenues collected from oil and gas exploration companies above a $175 million threshold. The fund would accrue interest for six years before it could be used to finance economic development projects, building infrastructure and increases in teacher salaries.
As originally described in a post by Ben Milleville on February 25th, amended Senate Bill 461, known as The Future Fund Bill, has passed the Senate and now awaits ratification by Governor Earl Ray Tomblin. As the West Virginia State Journal reports, the amended bill, modified by the House of Delegates and then passed by the Senate for a second time, calls for a baseline severance tax rate on all minerals – not just on oil and gas. Despite concerns about how the severance tax would impact the coal industry, the West Virginia Legislature ultimately agreed that the Future Fund would be a constructive way to generate revenue. Specific limitations placed on the Future Fund dictate how the money may be used and how much of the fund may be allocated at one time.
West Virginia’s Ohio River region is one step closer to seeing construction begin on a cracker plant in the Wood County area. According to the Charleston Gazette, Appalachian Shale Cracker Enterprise, owned by Brazilian based Odebrecht, purchased the SABIC Plastics Innovations facility in Wood County for approximately $11 million. The “Ascent” complex, once it is complete, will include three polyethylene plants in addition to the ethane cracker plant and associated infrastructure. The SABIC plant is anticipated to continue operations until 2015 making the timeline for constructing and opening the ethane cracker facility unknown.
The Pittsburgh Business Times reports that CONSOL Energy Inc. will use electric engines when it drills at the Pittsburgh International Airport. On Tuesday December 17, the Findlay Township Planning Commission gave an affirmative recommendation to approve four well pad sites and two impoundments. The public hearing before the Township Board of Supervisors may occur in January 2014, and drilling may commence by the end of 2014.