Hess Corporation and Newfield Exploration Company recently terminated lease agreements with about 1,300 property owners in Wayne County, Pennsylvania, where the Delaware River Basin Commission (DRBC) has imposed a moratorium on gas drilling since May 2010. The moratorium is not intended to be permanent, but only until the DRBC develops environmental regulations for drilling in the watershed. The landowners received a combined $150 million (at $3,000 per acre) initially, and would have received an estimated $187 million in royalties had the wells been drilled. The landowners are free to negotiate with other energy companies, but it is unclear whether any drillers would be interested given the moratorium. Several weeks ago, the Northern Wayne Property Owners Alliance threatened to sue the DRBC “to regain [their] right to access [their] mineral estates.”
Senate Bill Number 259, which amends the Guaranteed Minimum Royalty Act by allowing drillers to pool land into gas-drilling units, was signed by Governor Corbett today after fast-track approval by the Senate on June 30th. The bill allows joint development on adjacent land unless expressly prohibited by the applicable leases. Absent any agreement by all affected royalty owners, the production shall be allocated to each royalty owner in a proportion deemed reasonable by the operator. The bill does not permit the forced pooling of unleased oil and gas estates. Additionally, any lease that does not provide for at least one-eighth royalty shall be subject to an escalation equal to one-eighth royalty when the original state of the subject land is altered by any new drilling or any other procedure for increasing production.
MarketWatch reports that XTO Energy Inc., a subsidiary of ExxonMobil, announced on June 17th the startup of a natural gas liquids recovery facility in Butler County, Pennsylvania. Located on 340 acres, the facility is the first of its kind for XTO in the Appalachian region. Containing 40 miles of connecting pipeline and 2 gas compressor stations, the facility is designed to treat approximately 125 million cubic feet of natural gas per day. In the past four years, XTO has drilled 50 wells over 46,000 net acres in Butler County.
EQT now requires its contractors to join ISNetWorld (ISN), a platform that gathers, organizes, and verifies pre-qualification safety data and other information. EQT will continue to make safety requirements and approvals in-house utilizing ISN data, but the requirement will streamline the verification of safety data and ensure that contractors supply up to date information. Currently 61% of EQT’s contractors are ISN members.
Last week, in Good Will Hunting Club, Inc. v. Range Resources-Appalachia, LLC, the U.S. District Court for the Middle District of Pennsylvania held that a landowner (Good Will) was bound by a five-year extension clause in an oil and gas lease that it signed with Range Resources because drilling commenced within the initial term of the lease. The court concluded that staking a drill site, obtaining permits, obtaining easements, clearing timber, and beginning construction of a well pad clearly constituted commencement of drilling operations even though no drill bit had touched the ground. Good Will argued that the five-year extension clause was unenforceable because Good Will was not aware of the clause. However, the lease had been negotiated on behalf of Good Will by a consultant who had authority to execute the lease on Good Will’s behalf and the Court concluded that the consultant “had actual authority to negotiate the Lease… and it [was therefore] his understanding of the terms of the Lease that bind[s] Good Will.”
In Summit Petroleum Corp. v. US EPA, 690 F.3d 733 (6th Cir. 2012), the U.S. Court of Appeals for the Sixth Circuit overturned the US EPA’s finding that a natural gas sweetening plant and approximately 100 gas wells scattered across a 43-square-mile area in Michigan should be treated as a single source for purposes of Title V of the Federal Clean Air Act. The case turned on whether the plant, wells, flares and pipelines were located on “adjacent properties” for purposes of the Title V permitting program, which requires the aggregation of individual sources in making major source determinations if certain requirements are met. In a split decision, the Sixth Circuit applied the plain meaning of the term “adjacent” and rejected the US EPA’s longstanding reliance on functional relatedness in conducting an adjacency analysis.
Read about this development and more in the Babst Calland Report. Access the Report’s executive summary here. Request a copy here.
Over this past week (May 28th through 31st), a review team assembled by the State Review of Oil & Natural Gas Environmental Regulations (“STRONGER”) has conducted an in-state review of Pennsylvania’s Oil and Gas Regulatory Program. The six person review team consisted of representatives from other state regulatory entities, the oil and gas industry, and public interest organizations. Pennsylvania’s program has been reviewed four times since 1990, the last being in 2010. Following the in-state review, the STRONGER review team members will complete a written report that will be published on STRONGER’s website. The written report must follow the established guidelines developed by STRONGER and adopted by the Interstate Oil and Gas Compact Commission.