On January 19, 2016, Pennsylvania Governor Tom Wolf and the Department of Environmental Protection (DEP) announced a sweeping new regulatory strategy for reducing methane emissions from oil and natural gas operations in the Commonwealth. Methane, the primary constituent of natural gas, is considered by federal and state agencies to be a potent greenhouse gas which contributes to climate change. Governor Wolf stated that Pennsylvania, as the nation’s second-largest producer of natural gas, is “uniquely positioned to be a national leader in addressing climate change.”
The Pennsylvania methane reduction strategy is expected to result in significant changes to the air permitting and regulatory regime that currently applies to oil and natural gas industry sources. For more information, read our Administrative Watch.
As previously reported, in November 2014, the Lycoming County Court of Common Pleas granted the condemnation of a temporary construction easement to UGI Penn Natural Gas, Inc., a public utility. As a result, UGI was allowed to use the easement to park and store vehicles, equipment and materials related to the construction and maintenance of a pipeline which is to provide gas service to the Moxie/Panda Electric Generation Plant. Law360 reported that the Commonwealth Court of Pennsylvania recently issued a pair of opinions upholding the decision of the trial court. CourtListener recently posted a copy of the opinions. Among other findings concerning the timeliness of the landowners’ claims, the Commonwealth Court concluded that: (1) a pipeline meant to supply a power plant could constitute a public utility service; and (2) the scope of UGI’s taking was not greater than necessary to acquire the property rights in connection with the easement. In short, the court determined that the landowners’ challenges were meritless.
As reported by Law360, the Pennsylvania Supreme Court will allow argument after the January decision by the Commonwealth Court in Pa. Envtl. Def. Found. v. Commonwealth, 108 A.3d 140, 45 ELR 20006, in order to determine how judges should approach government actions challenged under the Environmental Rights Amendment (Article I, Section 27) of the Pennsylvania Constitution. The Court said that it would consider “the proper standards for judicial review of government actions and legislation challenged under the Environmental Rights Amendment” and, specifically, the constitutionality of a pair of fiscal code amendments that gave the Pennsylvania Legislature control over revenue streams generated from the leasing of state land for oil and gas drilling. In January, the Commonwealth Court ruled that the Environmental Rights Amendment did not place fundamental restrictions on what the Commonwealth can do with revenues generated from public lands.
Babst Calland represents an oil and gas operator in Lycoming County, PA, where a recent court order requires an objector to a well pad to post a $5.69 million bond in order to move forward with a land use appeal. The basic facts of the case are described below. Inflection Energy (PA) LLC (Inflection) is an oil and gas operator that received conditional use approval for a well site in Loyalsock Township’s Agricultural Rural (A-R) zoning district. An objector appealed that approval to the Court of Common Pleas of Lycoming County. The appeal contained no allegations that Inflection failed to meet any of the objective requirements of the Loyalsock Township Zoning Ordinance. In response to that appeal, Inflection filed a petition for bond with the Court alleging that the primary purpose of the appeal was for delay, that the appeal was frivolous on the merits, and that the objector should post a bond to compensate Inflection for that delay if the objector chooses to move forward with the appeal. At the hearing before Senior Judge Brendan J. Vanston, Inflection presented as witnesses two Inflection employees who testified that the objector had stated that the appeal was brought only to delay the development of the well pad. On November 6, 2015, Sr. Judge Vanston entered an Order of Court finding that the appeal was frivolous and that the objector shall post a bond with the Court in the amount of $5.69 million by December 4, 2015 in order to proceed with the appeal.
On October 21, 2015, Judge Richard McCormick, President Judge of the Westmoreland County Court of Common Pleas, issued a decision and order upholding the validity of Allegheny Township’s zoning ordinance, which permits oil and gas well development in the Township’s R2 Agricultural/Residential Zoning District. The decision in Frederick v. Allegheny Township Zoning Hearing Board, No. 1898 of 2015 (Com. Pl. Westmoreland Co. Oct. 21, 2015), affirms a previous decision of the Township’s Zoning Hearing Board. Babst Calland represented CNX Gas Company LLC (CNX), an intervenor in the case, before both the Common Pleas Court and the Zoning Hearing Board.
CNX applied for and received a zoning compliance permit to develop an unconventional gas well pad in the Township’s R2 District, in which oil and gas well development is permitted as a use by right. Neighboring property owners Dolores Frederick, Beverly Taylor, and Patricia Hagaman appealed to the Zoning Hearing Board, challenging both the issuance of the permit and the validity of the Township’s zoning ordinance, alleging that permitting oil and gas well development in the R2 District violated the Pennsylvania Supreme Court’s plurality decision in Robinson Township v. Commonwealth of Pennsylvania. Following several nights of hearings and oral argument, the Zoning Hearing Board ruled that the zoning ordinance was valid and upheld the issuance of the zoning compliance permit. Objectors then appealed to Common Pleas Court.
Since the Robinson decision, zoning ordinances authorizing oil and gas development have been challenged in several municipalities, with objectors essentially arguing that those ordinances are invalid because they are not strict enough. In most of these cases, the objectors have asserted that the zoning ordinance violated the Pennsylvania Environmental Rights Amendment (as interpreted by the Robinson plurality) because it permitted oil and gas development, a use they characterize as “industrial”, in agricultural, residential and other non-industrial districts. To date, all of those challenges have been rejected by local zoning hearing boards, although several of those decisions have been appealed to Common Pleas Court. Frederick is significant in that it is the first case in which a Court has addressed a Robinson based ordinance validity challenge. This case is precedential in Westmoreland County and is instructive to Courts in the other counties of the Commonwealth.
In Frederick, Judge McCormick first observed that Robinson was not binding precedent because it was only a plurality decision. The Court also pointed out that that Robinson did not address the constitutionality of a local ordinance, but instead involved a statute of statewide application (Act 13) that was invalidated because it interfered with the right of municipalities to make local zoning determinations. In any event, the Court went on to conclude that the Allegheny Township zoning ordinance was consistent with the Robinson plurality. Significantly, citing the extensive record developed before the Zoning Hearing Board, Judge McCormick expressly rejected the objectors’ contention that the zoning ordinance’s authorization of oil and gas uses “is inconsistent with the agricultural and residential character of the Township.” That record established that (1) there was a long history of oil and gas development in the Township, including a number of wells and a pipeline in close proximity of the objectors’ properties, (2) in the R2 District approximately 75% of the land mass is leased to oil and gas operators, (3) having the well pad on his property enabled the surface owner to continue actively farming his property instead of developing it for a residential subdivision, and (4) permitting oil and gas operations in the R2 District enhances the Township’s ability to maintain its rural character. The Court also cited to expert testimony which concluded that oil and gas operations have safely coexisted within rural communities throughout the Commonwealth.
Judge McCormick also rejected several of the objectors’ related arguments. Specifically, the Court ruled that the Township zoning ordinance did not constitute illegal “spot” zoning and did not violate sections 604 and 605 of the Pennsylvania Municipalities Planning Code. In so concluding, the Court stated that the Township’s “legislative body sought to further the general welfare of its citizens by permitting them to benefit economically from oil and gas resources and royalites, and enabling them to retain the agricultural use and rural setting of their land.” Finally, the Court found that the authorization of oil and gas development did not violate the community development objectives of the Township zoning ordinance.
On October 14, 2015, the United States District Court for the Western District of Pennsylvania invalidated several provisions of a Grant Township, Indiana County, Pennsylvania local ordinance that was intended to prevent an oil and gas operator from operating an injection well that had been permitted by the U.S. Environmental Protection Agency. In Pennsylvania General Energy Company, L.L.C. v. Grant Township, C.A. No. 14-209, 2015 U.S. Dist. LEXIS 139921 (W.D. Pa. Oct. 14, 2015), Pennsylvania General Energy Company, L.L.C. challenged the constitutionality, validity and enforceability of the Grant Township ordinance that sought to establish a self-described Community Bill of Rights Ordinance. For additional information, read our recent Administrative Watch.
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.
The Pennsylvania Superior Court ruled on Friday that an oil and gas lease was not forfeited by the failure of the operators to pay delay rentals. In Dewing v. Abarta Oil & Gas Co., the landowners (the “Dewings”) executed an oil and gas lease that was owned by Abarta Oil & Gas Co. Inc., Talisman Energy USA, Inc. (“Talisman”) and Range Resources (“Range”, collectively, the “Operators”). The lease provided that delay rentals be paid for the primary term for the lease unless and until a well is drilled on the property or a well unit is drilled. The lease also stated that it “shall never be subject to a civil action or other proceeding to enforce a claim of forfeiture due to Lessee’s alleged failure to perform as specified herein, unless Lessee has received written notice of Lessor’s demand and thereafter fails or refuses to satisfy Lessor’s demand within 60 days from the receipt of the notice” (the “Forfeiture Clause”). The Dewings did not receive delay rentals for a period of time and sent notice of such failure to Talisman, which informed the Dewings that Range was handling the payment of delay rentals. The Dewings subsequently sent notice that the lease was forfeited to Range, and Range thereafter paid the delay rentals to the Dewings. The Dewings filed the underlying civil action, alleging that the lease had been forfeited and abandoned for failure to timely pay the delay rental. The Superior Court affirmed the trial court’s ruling in favor of the Operators, stating that although the Dewings had the right to seek forfeiture under the Forfeiture Clause, they did not prove that the Operators did not materially breach the lease. Citing a prior decision, Linder v. SWEPI, 549 Fed. Apx. 104 (3d. Cir. 2013), the Superior Court held that unless a contract contains a “time-is-of-the-essence” clause, the breach of the delay rental provision by making a late payment is not a material breach. Further, when a lease includes a 60-day cure period, it is evident that the parties intended to improve the chances of an out-of-court resolution to a breach caused by the late payment of delay rentals. Therefore, the Superior Court held that the Operators had not materially breached or abandoned the oil and gas lease under dispute.
The Pennsylvania Department of Environmental Protection (DEP) recently announced the draft final revisions to the “Environmental Protection Performance Standards at Oil and Gas Well Sites” rulemaking (Chapters 78 and 78a). Following the most recent round of public comment, DEP decided not to include the provisions for noise mitigation and centralized storage tanks for wastewater in the final regulations. DEP indicated that a separate process is more appropriate for noise mitigation due to the complex nature of noise mitigation. With regard to centralized storage tanks, DEP decided it would continue to regulate these facilities under the residual waste regulations. The amendments will be discussed at the upcoming meetings of the Conventional Oil and Gas Advisory Committee and, Oil and Gas Technical Advisory Board in late August and early September, respectively.
In the case titled Mason v. Range Res.-Appalachia LLC (2015 U.S. Dist. LEXIS 97471), the United States District Court for the Western District of Pennsylvania recently held that a 1961 oil and gas lease remained in effect pursuant to the terms of the lease. The lease provided the lessee the right to enter the leased premises to explore, drill, produce and market oil and gas as well as inject, store and withdraw gas and protect gas stored therein. The habendum clause of the lease provided that the lease would extend into its secondary term so long as the lessee operated the property (i) in search for oil and gas; (ii) for production of oil and gas; (iii) for storage of oil and gas; or (iv) “for the protection of any gas stored in such storage field” (emphasis added). These types of oil and gas leases are commonly referred to as “Dual Purpose” Leases. The leased premises is situated within a protective area for a 11,000 acre storage field located in Washington County, Pennsylvania, and no well has been drilled on and no production occurred on the leased premises.
The landowners argued, among other things, that the 1961 lease has expired because (i) the lease provides the lessee the right to use the premises to produce gas, store gas and protect gas stored on the leased premises; (ii) the lessee may not use the leased premises for the protection of gas stored on adjoining lands until it first produced gas on the leased premises; and (iii) the annual payments were insufficient to extend the lease into its secondary term. The court applied the rationale set forth in Penneco Pipeline v. Dominion Transmission, Inc. and the rules of contract interpretation to conclude that the lease had entered into its secondary term and remained in effect. The court held that the only reasonable construction of the granting and habendum clauses is that the lessee may use the land for protecting gas stored immediately under the leased premises or gas stored under adjoining land or both. Because the lessee was using the leased premises to protect gas stored under adjoining land and tendered annual rental payments, it concluded that the 1961 lease is still in effect.
Horsehead Holding Corp. (Horsehead) announced Monday that it closed on the sale of its former zinc smelter to Shell Chemical (Shell), which is the proposed site for an ethane cracker plant in Beaver County. Although Shell has not made a final decision on whether to build the cracker plant, it has been considering the Horsehead property as a site for the plant, which would convert ethane, a component of natural gas, into polyethylene. Shell is moving forward with developing the site, having demolished the smelter plant and relocated power lines. Shell indicated that this is a necessary step in the plans to acquire permits and continue development of the site.
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.
On May 27, 2015, Pennsylvania Governor Tom Wolf announced the formation of a task force to help the Commonwealth, the natural gas industry and communities partner for the development of new pipeline infrastructure to allow natural gas and related byproducts to more effectively reach the market. The task force will focus on creating a series of best practices for the planning, siting and routing of pipelines. It is projected that Pennsylvania may see the construction of up to 25,000 miles of gathering lines in the next decade, and possibly another 4,000 to 5,000 miles of midstream and transmission lines. John Quigley, the acting Secretary of the Pennsylvania Department of Environmental Protection, will serve as chairman of the task force. The Governor will seek representatives from state agencies, the legislature, federal and local governments, the pipeline and natural gas industries and environmental groups to join the task force. Some of the goals of the task force are to plan construction practices that reduce environmental impact, establish a predictable and efficient permitting process, develop long-term operations and maintenance plans and engage in meaningful public participation.
The Pittsburgh Post-Gazette reports that Governor Tom Wolf nominated Andrew Place to serve as commissioner on the Pennsylvania Public Utility Commission. Mr. Place is currently the corporate director for energy and environmental policy. He was selected to replace the outgoing commissioner, James Cawley, whose term expired March 31 of this year. Mr. Cawley will serve until September 1 or until the nominee is confirmed.
Earlier this week the Pennsylvania Department of Environmental Protection (DEP) released the 2013 air emissions inventory for the natural gas industry. Operators submit emissions data to DEP on an annual basis. Compared to 2012, the 2013 inventory includes data from 1,590 additional well sites and 33 additional midstream facilities. Despite an increase in the number of facilities reporting emissions data, the 2013 inventory shows a decrease in methane and carbon monoxide emissions compared to 2012. The 2013 inventory also shows increased emissions of nitrogen oxides, particulate matter, sulfur dioxide and volatile organic compounds.