Shale Energy Law Blog

The 2021 Babst Calland Report Highlights Legal and Regulatory Perspectives at a Transformational Time for the U.S. Energy Industry

A Recent Conversation with U.S. Senator Joe Manchin Featured in this Report

Law firm Babst Calland today published its 11^th annual energy industry report: The 2021 Babst Calland Report – Legal & Regulatory Perspectives for the U.S. Energy Industry. Each of our nation’s energy sectors is impacted by local, state and federal policies, many of which are addressed in this inclusive report on legal and regulatory developments for the energy industry in the United States.

The Babst Calland Report represents the timely collective perspectives of more than 45 energy attorneys on the current state of the U.S. natural gas and oil, coal, and renewable energy sectors. For the first time, this Report is presented as an easy-to-navigate digital site featuring 12 sections, addressing the following key topics:

• Business Outlook for the U.S. Energy Industry
• Climate Change Initiatives from the Biden Administration
• Pipeline & Hazardous Materials Safety Administration Priorities
• Environmental Law Developments
• Environmental Justice Issues
• Appalachian Basin Regional Developments
• Coal Mining Regulatory Changes
• Expansion of the U.S. Renewable Energy Market
• Real Estate & Land Use Developments
• Litigation Trends
• Changes in Employment & Labor Law
• Emerging Technologies Affecting the Energy Industry

Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “The energy industry, once again, is at an inflection point and a moment of resiliency as it experiences a rebound in pricing and recovers from the impact of the global pandemic. Evidenced by the signing of several Executive Orders, President Biden has made climate change a focal point of U.S. energy policy. The full impact of the new administration’s “government-wide” approach to regulatory and social environmental policies will be unclear for months.

“This transformational time promises to bring significant changes for the U.S. energy industry. It is vital for any energy organization to consider the forewarnings, the risks, and the legal and regulatory implications to its business.”

Report Features Video Commentary from U.S. Senator Joe Manchin

This edition features commentary from Senator Joe Manchin (D-WV), Chairman of the U.S. Senate Energy and Natural Resources Committee, who spoke with Babst Calland energy clients at a special briefing on June 25, 2021. A link to the webinar recording is available in this Report.

To request a copy of The 2021 Babst Calland Report, click here.

Updates on key developments in energy and natural resources law beyond this Report are available directly by the attorneys who represent clients in a wide spectrum of industry sectors and legal practice areas.

The Babst Calland Report Highlights Legal and Regulatory Challenges for the U.S. Oil and Gas Industry

The law firm of Babst Calland published its 10^th annual energy industry report: The 2020 Babst Calland Report – The U.S. Oil & Gas Industry: Federal, State, Local Challenges & Opportunities; Legal and Regulatory Perspective for Producers and Midstream Operators. 

In this Report more than 50 energy attorneys provide perspective on the current state of the U.S. natural gas and oil production industry and its growth to historic highs due to more than a decade of advances in on-shore horizontal drilling and high-volume hydraulic fracturing. It asserts that despite current challenges, a maturing shale industry is poised for future growth as natural gas and oil producers have driven down the costs of production. Transportation options for moving these natural resources from growing areas of production to customers continue to be built, even with new hurdles from regulators and other stakeholders.

Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “The U.S. natural gas and oil industry has experienced tremendous growth and change since we first published this Report in 2011. Fast forward to an unprecedented 2020 with a pandemic, a corresponding economic slow-down and oversupply of natural gas and crude oil. With increased public and government pressure, sustained low prices, and less-reliable financing options, resiliency will continue to be the driving force of a dynamic energy market that continues to evolve.”

Report highlights

The Babst Calland Report is an annual review of the issues and trends at the federal, state and local level in the oil and gas industry over the past year. The 102-page Report covers a range of topics from the industry’s business outlook, regulatory enforcement and rulemaking to developments in pipeline safety and litigation trends. The Firm’s collective legal experience and perspectives on these and related business developments are highlighted in this Report, including those summarized below:

• Long-term, U.S. energy production appears poised to continue to outstrip domestic consumption due in some measure to increased consumption efficiency, along with the obvious ramifications from the natural gas revolution.
• The regulatory environment is focused on climate change, reducing emissions, water quality developments, and enforcement. Increased volumes of written agency guidance, enforcement, and penalties continue to challenge the industry.
• Citizens groups continue to actively challenge federal and state initiatives designed to expand natural gas and oil development, creating delays and uncertainties.
• Land use and zoning challenges continue at the local level. Increasing industry headwinds have resulted in a slowdown of new permitting activity amid ongoing challenges and ordinance restrictions.
• Public interest in pipeline safety has grown amid opposition and new rules from the Pipeline and Hazardous Materials Safety Administration in response to increased public and congressional pressure to initiate and finalize new or revised pipeline safety regulations. Operators seek to install new or replace existing pipelines throughout the U.S. while advocacy groups aggressively oppose many pipeline projects.
• Title legislation and court decisions vary by state and basin. In Pennsylvania, for example, Act 85 took effect in January 2020 and defines the conditions in which oil and gas producers may drill a lateral wellbore that crosses between two or more pooled units.
• Although 2019 saw renewed claims of adverse health effects allegedly related to oil and gas development, support for such claims continues to be limited, as now noted by numerous publications.
• Unmanned aircraft systems take hold in the energy sector. Despite the pandemic and its impacts, unmanned aircraft systems (UAS) have emerged as essential tools for the energy industry for conducting complex inspection and monitoring of difficult to access infrastructure and locations.
• From a workforce standpoint, COVID-19 conditions and other wage and hour regulations, amendments to the Family Medical Leave Act, and expanded unemployment benefits under the CARES Act have had an impact on companies across the country.

The natural gas and oil industry continues to expand its reach and impact on U.S. energy supply and independence. Each company has its own set of opportunities and challenges to navigate based on its financing, debt, shareholder goals, and operations and infrastructure footprint. Nonetheless, the United States’ plentiful supply of natural gas and oil is expected to continue to fuel the country’s economic future and support national security.

Request a copy of the Report

Babst Calland’s Energy and Natural Resources attorneys support clients operating in multiple locations throughout the nation’s shale plays. To request a copy of the Report, contact info@babstcalland.com.

Pennsylvania Supreme Court Accepts Appeal in Case Involving Lease Abandonment by Operator

The Pennsylvania Supreme Court recently accepted the appeal of Mitch-Well Energy, Inc. (“Mitch-Well”) in SLT Holdings, LLC v. Mitch-Well Energy, Inc. on the issue of whether Mitch-Well effectively abandoned its leases by failing either to produce oil or gas or pay required minimum rental payments to the landowners.  In 2019, the Pennsylvania Superior Court affirmed the trial court’s determination that Mitch-Well abandoned its leases due to the lack of production and payments.

The leases, executed in 1985, cover two tracts in Warren County, Pennsylvania, and contain provisions requiring Mitch-Well to drill a certain number of wells on the parcels and make yearly minimum payments to the lessors.  The leases also contain a provision stating that the leases will continue for so long as Mitch-Well determines that oil and gas can be produced in paying quantities.  From 1996 through 2013, wells drilled under the leases failed to produce in paying quantities and Mitch-Well neglected to make the minimum payments are required by the leases, prompting the landowners to seek judicial determination that Mitch-Well abandoned the leases.

On appeal, the Supreme Court will consider Mitch-Well’s argument that in its good faith determination, the wells were productive even though the trial court failed to take testimony on this issue. The Supreme Court asked Mitch-Well and the landowners to address Aye v. Philadelphia Co. and Jacobs v. CNG Transmission Corp., indicating that the Court may consider whether the leases survive both the automatic termination due to the non-payment of royalties and whether Mitch-Well abandoned the leases during the 16 years of non-production.  This is an opportunity for the Court to provide additional clarity on Pennsylvania law relating to cessation of production and lease abandonment and termination.

The 2019 Babst Calland Report Highlights Federal, State and Local Challenges and Opportunities for the U.S. Oil and Gas Industry

The law firm of Babst Calland today released its annual energy industry report: The 2019 Babst Calland Report – The U.S. Oil and Gas Industry: Federal, State and Local Challenges & Opportunities; Legal and Regulatory Perspective for Producers and Midstream Operators.

In this Report, Babst Calland energy attorneys provide perspective on issues, challenges, opportunities and recent developments in the oil and gas industry that are relevant to producers and midstream operators.

According to the International Energy Agency, “the second wave of the U.S. shale revolution is coming” and the United States will account for a 70 percent increase in global oil production and a 75 percent expansion in LNG trade in the next five years. 

On a year-over-year basis, natural gas production continues to increase in each of the seven largest shale basins in the United States. Most notably, oil and natural gas production is being driven by three of the largest producing basins including Appalachia in Pennsylvania, West Virginia and Ohio, the Permian Basin in Texas and New Mexico, and the Haynesville Basin in southwestern Arkansas, northwest Louisiana, and east Texas.

Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “Domestic shale producers and operators continue to face myriad legal and regulatory challenges by regulatory agencies, the courts, activists, and the market. This annual review is a snapshot of the issues and trends on the federal, state and local level in the oil and gas industry over the past year.”

The 92-page Babst Calland Report covers a range of topics from the industry’s business outlook, regulatory enforcement and rulemaking to developments in pipeline safety and litigation trends. A few of the Report’s highlights include:

• The U.S. Department of Energy’s Energy Information Administration (EIA) reports both oil and dry natural gas production set U.S. records this year. Oil production hit 12.4 million barrels per day in May, natural gas soared above 90 billion cubic feet per day. U.S. production of gas liquids also set records and now account for over a quarter of U.S. petroleum product output.
• This year, the oil and gas industry received mixed messages regarding environmental matters. On the federal level, the Trump administration generally loosened regulatory and/or statutory constraints, such as narrowing the Clean Water Act definition of “Waters of the United States.” In contrast, at the state level, some agencies introduced or considered more rigorous standards, including Pennsylvania’s proposed cap-and-trade program.
• Public interest in pipeline safety has grown significantly in recent years. Consequently, operators’ installation of new pipeline infrastructure to transport energy products from the nation’s shale plays to domestic and foreign markets has resulted in increased scrutiny.
• In Pennsylvania, the contours of the Robinson Township II decision continue to be litigated and legislated by local governing bodies, while the Commonwealth Court provided clarity concerning a municipality’s right to determine the location of oil and gas operations. In West Virginia, the extent of a county government’s ability to investigate alleged nuisances is being considered in the state’s highest court. In Colorado, new legislation has empowered local governments to take a much more active role in regulating oil and gas development.
• Significant title issues concerning oil and gas property rights continue to be addressed in states in shale plays throughout the country. The desire to improve efficiencies has resulted in the use of allocation wells and cross unit drilling, particularly in Texas and Oklahoma.
• Nuisance claims, alleging that excessive noise, traffic, dust, light, air pollution and impaired water quality interfere with the use and enjoyment of private property, continue to be asserted across the shale plays.
• An increasing number of oil and gas companies recognize the advancements in commercial unmanned aircraft systems (UAS) technology and the utility and cost savings associated with using UAS to inspect and monitor assets such as pipelines and infrastructure.

After more than a decade, the shale gas industry continues to expand its reach and impact on our country’s energy supply and independence. Babst Calland’s Energy and Natural Resources attorneys support clients operating in multiple locations throughout the nation’s shale plays. To request a copy of the Report, contact info@babstcalland.com.

The 2018 Babst Calland Report Focuses on the Appalachian Basin Oil & Gas Industry Forging Ahead Despite Obstacles

Babst Calland today released its annual energy industry report: The 2018 Babst Calland Report – Appalachian Basin Oil & Gas Industry: Forging Ahead Despite Obstacles; Legal and Regulatory Perspective for Producers and Midstream Operators.  This annual review of shale gas development activity in the Appalachian Basin acknowledges an ongoing rebound despite obstacles presented by regulatory agencies, the courts, activists, and the market. To request a copy of the Report, contact info@babstcalland.com.

In this Report, Babst Calland attorneys provide perspective on issues, challenges, opportunities and recent developments in the Appalachian Basin and beyond relevant to producers and operators. According to the U.S. Energy Information Administration’s May 2018 report, the Appalachian Marcellus and Utica shale plays account for more than 40 percent of U.S. natural gas output, compared to only three percent a decade ago. Since then, the Appalachian Basin has become recognized in the U.S. and around the world as a major source of natural gas and natural gas liquids.

The industry has been forging ahead amidst relatively low natural gas prices, infrastructure building, acreage rationalization and drilling plans that align with business expectations. The policy landscape continues to evolve with ever-changing federal and state environmental and safety regulations and tax structures along with a patchwork of local government requirements across the multi-state region.

Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “This Report provides perspective on the challenges and opportunities of a shale gas industry in the Appalachian Basin that continues to enjoy a modest rebound. While more business-friendly policies and procedures are emanating from Washington, D.C., threats of trade wars are raising concerns about the U.S. energy industry’s ability to fully capitalize on planned exports to foreign markets.”

To read more: click here.

Employment & Labor Alert: Wage Hour Division Announces PAID Program to Assist with FLSA Compliance

On March 6, 2018, the Wage and Hour Division of the U.S. Department of Labor (WHD) announced a new pilot program, the Payroll Audit Independent Determination (PAID) program, which is intended to encourage employers to identify and correct potentially non-compliant practices.

According to DOL’s Q&A page on the PAID program (https://www.dol.gov/whd/PAID/#4) “The PAID program provides a framework for proactive resolution of potential overtime and minimum wage violations under the FLSA. The program’s primary objectives are to resolve such claims expeditiously and without litigation, to improve employers’ compliance with overtime and minimum wage obligations, and to ensure that more employees receive the back wages they are owed—faster.”  To read more: click here.

Pennsylvania Superior Court Upholds “Title Washing”

In Woodhouse Hunting Club, Inc. v. Hoyt, an unpublished opinion filed February 2, 2018, the Pennsylvania Superior Court upheld the practice of “title washing” of unseated land in Pennsylvania. Prior to January 1, 1948, title washing occurred through a tax sale of unseated land from which oil, gas and/or minerals (the “subsurface estate”) had been previously severed. If the subsurface estate had not been separately assessed, the tax sale of the unseated land would extinguish the prior severance and vest the tax sale purchaser with full ownership in the surface and subsurface estates. If the oil and gas had been separately assessed, then the tax sale of the surface would have no effect on the subsurface estate. After January 1, 1948, mineral estates were no longer separately assessed from the surface in Pennsylvania and title washing could no longer occur. In 2016, the Pennsylvania Supreme Court upheld the practice of “title washing” of unseated or unimproved land in Pennsylvania. Herder Spring Hunting Club v. Keller, 143 A.3d 358 (Pa. 2016).

Prior to the Superior Court ruling, the trial court had quieted title in favor of Woodhouse Hunting Club, Inc. based upon the Club’s argument that Hoyt did not own subsurface mineral rights due to a 1902 title wash. In issuing its ruling in Hoyt, the Superior Court noted that the Herder Spring decision addressed and disposed of all of Hoyt’s issues in the case. Therefore, the Superior Court relied on the holding in Herder Spring in affirming the trial court’s decision to grant summary judgment and quiet title in favor of Woodhouse Hunting Club, Inc.

Pennsylvania legislature attempts to inject new life into expired oil and gas leases

On October 30, Governor Tom Wolf signed House Bill 74, which amended the Pennsylvania Fiscal Code. The 90-page bill included Section 1610-E, entitled “Temporary Cessation of Oil and Gas Wells,” which codified certain rights of oil and gas lessors and lessees to extend leases during periods of temporary cessation of production. This article explores how traditional savings clauses found in leases and existing legal precedent may be impacted by Section 1610-E, and provides an analysis of potential challenges arising out of the application of this new law. Click here to read this article from the January issue of The PIOGA Press.

Oil and Gas Severance Tax Bill Fails to Reach House Floor

Pennsylvania House Bill No. 1401, which would create a severance tax and significantly change oil and gas royalty payments, recently failed to pass an important legislative hurdle.

The bill imposes a 3.2% severance tax, or drilling tax, on unconventional natural gas extraction. This tax would be in addition to the Act 13 impact fees already levied upon natural gas producers. According to drafters of the bill, the severance tax and the impact fees would equal approximately 5% of the value of natural gas sold in Pennsylvania. Additionally, the bill would alter the required minimum royalty payment under and oil and gas leases so that the lessor would not receive less than 12.5% of the gross proceeds received by the lessee on production under the lease. Under the terms of the bill, a deduction or allocation of costs, expenses or other adjustments could not be deducted from the gross proceeds before calculating the amount of royalty due to the lessor. This provision would severely limit, and at times eliminate, an operator’s ability to deduct pro-rata post-production costs from royalty payments.

Late Tuesday night, supporters of House Bill No. 1401 failed to acquire the necessary votes to push the bill to the House floor so that debate on the legislation could resume. The motion, which required 101 votes to succeed, instead received 100 votes in favor. The bill has been subject to numerous amendments which has stalled its progress.

Although this represents a setback for the bill, it is possible that further legislative action may be taken to pass it. At this point, however, it now appears that passage will be more difficult.

Environmental Alert: The DEP Releases a Trio of Draft Technical Guidance Documents

On October 14, 2017, the DEP published notices of availability for a trio of draft Technical Guidance Documents (TGD) in the Pennsylvania Bulletin. Each of these TGDs proposes policy departures from current practices in both the form and substance of the respective TGD. Two of them, Policy for the Development and Publication of Technical Guidance and Policy for the Development and Review of Regulations, are significantly less detailed than their predecessor TGDs. For instance, the draft TGDs omit internal procedural steps and checkpoints involved in the DEP’s promulgation of new technical guidance documents and regulations. The revisions, if finalized, will affect those regulated and public entities who routinely participate in the DEP’s TGD and regulatory development process.
Read more.

The 2017 Babst Calland Report Focuses on the Resurgence of the Appalachian Shale Gas Industry

On June 20, 2017, Babst Calland released its seventh annual energy industry report entitled The 2017 Babst Calland Report – Upstream, Midstream and Downstream: Resurgence of the Appalachian Shale Industry; Legal and Regulatory Perspective for Producers and Midstream Operators. This annual review of shale gas development activity acknowledges the continuing evolution of this industry in the face of economic, regulatory, legal and local government challenges. To request a copy of the Report, contact info@babstcalland.com.

In this Report, Babst Calland attorneys provide perspective on issues, challenges, opportunities and recent developments in the Appalachian Basin and beyond relevant to producers and operators.

In general, the oil and gas industry has rebounded during the past year through efficiency measures, consolidation and a resurgence of business opportunities related to shale gas development and its impact on upstream, midstream and downstream industries. As a result, many new opportunities and approaches to regulation, asset optimization and infrastructure are underway. Increased spending during the past year has led to a significantly higher rig count in the Appalachian Basin enabling growth in the domestic production of oil and gas as other shale plays across the country experience reductions.

The shale gas industry continues to provide the tri-state region with significant economic opportunities through employment and related revenue from the development of well sites, building of pipelines necessary to transport gas to market, and new downstream opportunities being created for manufacturing industries due to the volume of natural gas and natural gas liquids produced in the Appalachian Basin. Shell’s progress from a year ago to construct an ethane cracker plant in Beaver County, Pennsylvania represents just one example of the expanding downstream market for natural gas. Many other manufacturing firms are expected to enter the region and establish businesses drawn by the energy and raw materials associated with natural gas and natural gas liquids from the Marcellus and Utica shales.

The Report also highlights changes that have occurred during the past year in the political landscape that are expected to affect the energy industry. The Trump administration is signaling a fundamental shift in the energy policies established by the Obama administration. New executive orders and policies have been issued that promise to lead to more pipeline development, reduced federal oversight of the oil and gas industry and increased access to oil and natural gas reserves.

Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “This Report provides perspective on the challenges and opportunities of a resurging shale gas industry in the Appalachian Basin, including: the divergence of federal and state policy that creates more uncertainty for industry; increased special interest opposition groups on new issues and forums despite their lack of success in the courts; and the expansion from drilling to midstream development and now to downstream manufacturing that demonstrates the emergence of a more diverse energy economy.”

The 74-page Report contains six sections, highlighted below, each addressing key challenges for oil and gas producers and midstream operators.

• Business Issues: Adapting to the New Price Environment as natural gas producers continue to focus on reducing costs and improving efficiencies. Recently, the number of natural gas producers in the Appalachian Basin has contracted through select merger and acquisition activity. With efficiency of operations in mind, natural gas producers continue to focus on consolidating their activities geographically. The oil and gas industry faced significant financial stress over the past year, and 2016 will go down as one of the more dramatic years in the United States’ oil and gas history. In the 2016 calendar year, primarily due to low commodity prices, 70 North American oil and gas exploration and production companies filed for bankruptcy protection.

• State and Federal Governments Remain Active in a Changing Regulatory Landscape as developments in the state environmental standards for enforcement, air, water and waste management in Pennsylvania, West Virginia and Ohio, as well as anticipated initiatives from non-governmental organizations (NGOs), will continue to have an effect on production and midstream operations. Separately, the impact of the Trump administration on various federal regulatory initiatives from the Obama era promises to be significant. President Donald Trump’s March 28, 2017 Executive Order was directed towards the development of the country’s natural resources. The order, among other things, requires agencies to review regulations that may burden the development or use of domestic energy resources.

• Pipeline Safety Legislative and Regulatory Developments Continue to Shape the Industry through the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration’s (PHMSA) pipeline safety program. It is unlikely that there will be a dramatic shift in PHMSA’s enforcement policy in 2017. “Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2016” (PIPES Act) was signed into law last year with a provision allowing PHMSA to issue emergency orders if an unsafe condition or practice constitutes, or is causing, an imminent hazard. These emergency orders can impose industry-wide operational restrictions, prohibitions, or safety measures without a prior hearing.

• Litigation Trends including a number of alleged nuisance claims continue to travel through West Virginia, Ohio and Pennsylvania courts. Materials discussing alleged health effects from unconventional natural gas development continue to be disseminated at a record pace by industry opposition groups. A casual review of the material could lead to the erroneous conclusion that air emissions have not been tested; this is not, however, the case. The air quality data collected by a variety of objective parties using established monitoring and testing protocols around shale development in northeastern U.S. over the last six years demonstrate that shale operations are safe.

• Local Government Law and Regulations Continue to Spawn Debate and Legal Challenges which continue to increase throughout the Appalachian Basin. However, the industry has successfully challenged overly-restricted ordinances. In contrast to municipalities that have adopted ordinances that permit reasonable oil and gas development, some local governments continued in 2017 to test their regulatory authority by enacting strict regulations for uses ancillary to well site development. Operators impacted by these regulations likewise continued to push back on these local regulations that severely impede, if not entirely prohibit, development or operation.

• Downstream Opportunities include exciting developments for production and midstream companies with new emerging markets for consumption of natural gas and natural gas liquids, such as power generation, export, and the petrochemical and related manufacturing industries. The U.S. petrochemical industry is undergoing tremendous growth, including the Northeast which is a prime target for more niche markets, and an opportunity to repurpose industrial assets for this regionalized growth.

As market conditions evolve for the oil and gas industry in the Appalachia Basin and throughout the United States, Babst Calland’s multidisciplinary team of energy attorneys continues to stay abreast of the many legal and regulatory challenges currently facing producers and midstream operators.

Pennsylvania Appeals Court Affirms Trial Court’s Order To Terminate A Portion Of An Oil And Gas Lease And Eject Operator

On March 17, 2017, the Superior Court of Pennsylvania affirmed a trial court’s 2015 order that severed and terminated a portion of an oil and gas lease.  The subject lease covered 240 acres located in Venango County, Pennsylvania, which was subsequently subdivided.  Additionally, the leasehold interest was divided into depths that lie above and below the Onondaga formation and were held by different operators.  On appeal, the appellant operator argued that the trial court lacked jurisdiction over the controversy because the plaintiffs failed to join all the indispensable parties.  This action was originally brought by property owners who acquired 32 acres of the 240 acre tract.

In part of affirming the trial court’s order, the Superior Court indicated that one of the major factors involved in a determination of whether a party is indispensable in a lease context is whether the lease is severable.  In this case, the court held the lease was severable based on the intent of the parties to the lease, which was determined by the language of the lease and the subsequent conduct of the successors in interest to the original lessee.  The lease specifically provided the lessee the “right to subdivide and release the premises.”  Additionally, successors in interest to the original lessee divided the leasehold interest into depths that lie above and below the Onondaga formation, which supports that the lease was severable.  The Superior Court distinguished this case from precedent set forth in Seneca Res. Corp. v. S & T Bank, 122 A.3d 374., that an operator was not required to be actively drilling undeveloped portions in order to maintain the leasehold on the bases that: (1) the leased acreage in this case consisted of a number of distinct parcels rather than one tract; (ii) the language of the subject lease provided the lessee the right to “subdivide and release” the property; and (iii) the successors in interest to the original lessee of the subject lease subdivided the leasehold into two or more formations rather than operating under the lease as a whole.  Based on these factors, the court held that the lease was severable.  Additionally, the Superior Court affirmed the trial court’s finding that the lease had expired as to the subject property because the predecessors in interest to the appellant operator failed to produce oil and gas in paying quantities on the subject property and had breached the implied obligation to explore and develop the property “with reasonable diligence.”  Accordingly, the court held that the lease was null, void, and of no force and effect pertaining to the subject property.

Pennsylvania Appeals Court Vacates Denial of Class Certification of Lessors to Oil and Gas Leases in Clearfield County

On January 17, 2017, the Superior Court of Pennsylvania vacated a trial court’s order denying class certification of two classes of lessors to oil and gas leases covering property in Clearfield County, Pennsylvania in Cardinale v. R.E. Gas Dev., 2017 PA Super 13.  The case involved two classes of plaintiffs because two similar class action complaints were consolidated.   These cases involved whether the lessees were required to tender paid-up bonuses when the lessee untimely rejected an oil and gas lease based upon title, surface or geology within a specified due diligence period.  The trial court previously rejected the class certification that would have combined these two classes because common questions of law or fact did not predominate over individual questions with respect to the breach of contract claim, stating “[t]o fully resolve the case, the finder of fact would have to analyze each individual property and the circumstances surrounding the Defendants’ refusal to pay the bonus to determine if the Defendants breached each contract, or if the Defendants simply did not approve of the surface, title or geology of each parcel of land.”

On appeal, the Superior Court indicated that the critical inquiry for the certifying court is whether the material facts and issues of law are substantially the same for all class members.  The court further provided that the existence of distinguishing individual acts is not fatal to class certification and that it is Pennsylvania’s policy to favor certification of class actions.  Because the court identified six fundamental questions that are common to all class members, it found that the trial court erroneously denied class certification.  Accordingly, the court vacated the trial court’s order and remanded so that the trial court may utilize its discretion and determine whether class certification is proper in this case, including whether the class definition is overly broad insofar as it may include individuals whose leases were rejected in a timely fashion.

PADEP’s Chapter 78a Rulemaking Goes into Effect for Unconventional Operations in Pennsylvania

On Saturday October 8, 2016, the Pennsylvania Department of Environmental Protection’s new Chapter 78a regulations associated with unconventional wells went into effect when they were published in the Pennsylvania Bulletin.  For unconventional well operators, there are substantial changes from prior law affecting operations over the entire life of the well, from permitting to site construction, waste handling, impoundments, pipelines, site restoration and spill remediation.  For more information, check out our Administrative Watch.

PA Supreme Court Strikes Down Additional Provisions of Act 13

The Pennsylvania Supreme Court declared the last remaining challenged sections of Act 13 of 2012 to be invalid in an opinion issued September 28, 2016 in the Robinson Township v. Commonwealth line of cases.  Read more about it in our Administrative Watch.