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In a recent non-precedential opinion, the Third Circuit affirmed a decision of the Middle District of Pennsylvania dismissing an action on the basis that a doctor lacked standing to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.
Business Wire reports that Seneca Resources Corporation (“Seneca”) announced the initial production results from its recently completed well producing from the Utica shale formation in Tioga County, Pennsylvania. The well’s 24-hour peak production rate was 22.7 million cubic feet of natural gas per day. According to Seneca’s President, Ronald J. Tanski, the well’s production reports, along with others in the area, lower the risk of the Utica potential in Seneca’s DCNR 007 tract where the well is located. Tanski also estimated the resource potential for the DCNR 007 tract to be approximately 1 trillion cubic feet. Seneca plans to drill another Utica exploration well in 2016.
During his March 3, 2015 budget address, Pennsylvania Governor Tom Wolf again proposed higher energy taxes. In response, the Marcellus Shale Coalition issued a statement, reiterating the vast benefits that have been realized by the Commonwealth as a result of natural gas development, including job creation and tax revenue. According to MSC President Dave Spigelmyer, the proposed budget “would undercut Pennsylvania’s positioning in the global fight to attract capital investments and stunt this economic momentum rather than fully capitalize on it.” Spigelmyer also stressed the concerns shared by small businesses, labor unions and local governments alike that higher energy taxes could result in job losses and revenue losses. In light of the fact that Pennsylvania voters overwhelmingly support policies that lead to the creation of affordable energy supplies and local jobs, the MSC stated that it will continue to collaborate with Governor Wolf and the General Assembly to help advance policies that seek to grow and expand opportunity.
Earlier this week, the U.S. District Court for the Middle District of Pennsylvania granted a motion for summary judgment in favor of a natural gas operator in a closely-watched case involving air aggregation issues. In 2011, Citizens for Pennsylvania’s Future (PennFuture) filed suit alleging that Ultra Resources, Inc. (Ultra) constructed a major source of nitrogen oxides (NOx) without the appropriate New Source Review (NSR) permit. The case involved eight compressor stations in Tioga and Potter counties for which Ultra had obtained separate authorizations from the Pennsylvania Department of Environmental Protection (DEP) to use the General Plan Approval/General Operating Permit known as “GP-5”. PennFuture viewed the compressor stations as functionally interrelated, operating in concert with a metering station as a single facility with potential NOx emissions in excess of the NSR major source threshold, thereby subjecting Ultra to heightened permitting requirements.
In granting Ultra’s motion for summary judgment, the District Court concluded that Ultra’s compressor stations did not constitute a single facility. The regulatory definition of a single facility requires, in relevant part, that sources be “located on one or more contiguous or adjacent properties” in order to be aggregated into a single facility. The central issue in this case was whether Ultra’s compressor stations are on “adjacent” properties.
The District Court found that Ultra’s compressor stations are not on “adjacent” properties under either the distance-based, plain meaning approach advocated by Ultra, or the functional relationship theory put forth by PennFuture. According to the District Court, the stipulated facts showed that the compressor stations are not “sufficiently close to, or near enough, each other to be considered adjacent.” Also, with respect to functional relationship, the District Court found no unique facts suggesting that Ultra’s emission sources were “unusual or outside of the normal oil and gas configurations and arrangements contemplated by [DEP].”
Although the District Court concluded that “the plain meaning of ‘contiguous’ and ‘adjacent’ should control a determination of whether two or more facilities should be aggregated,” it specifically “decline[d] to hold that functional interrelatedness can never lead to, or contribute to, a finding of contiguousness or adjacency.” Read our Administrative Watch for additional information regarding the District Court decision in Citizens for Pennsylvania’s Future v. Ultra Resources, Inc.
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.
Pennsylvania Governor Tom Wolf proposed a 5% severance tax on natural gas production. Though specific details are not yet available, Wolf recommended a tax modeled after West Virginia’s severance tax, which currently taxes gas at a rate of 5% and imposes an additional fee of 4.7 cents per 1000 cubic feet of extracted gas. Wolf believes the proposed tax could generate $1 billion in new revenue for the state. The bulk of this revenue would go to fund education. Wolf said the tax would not be levied in addition to Act 13’s well fees, but rather, the well fees would be rolled into the tax.
Responding to Wolf’s tax proposal, David Spigelmyer, president of the Marcellus Shale Coalition, criticized the proposal and noted that the natural gas industry already pays significant taxes in Pennsylvania. Spigelmyer believes the new energy tax will discourage capital investment and make Pennsylvania a less competitive market for the natural gas industry. Spigelmyer stressed that the investments made by the energy companies act as a driving force for the Pennsylvania economy and tax base – accounting for more than $700 million in royalties paid to landowners and more than 200,000 jobs created. Spigelmyer believes Wolf should focus on the creation of new jobs rather than new taxes.
Today, Pennsylvania Governor Tom Wolf fulfilled a campaign promise by signing an executive order banning new oil and gas leases on public land owned by the Commonwealth. This order ended the efforts of former Governor Tom Corbett to expand oil and gas drilling below Pennsylvania-owned parks and forests. While environmentalists applauded the new executive order as a sign of strong environmental regulation, critics labeled it an unnecessary political action that bans the safe development of natural gas beneath taxpayer land. Currently, Pennsylvania has leased about 700,000 acres of approximately 2.1 million acres of state forest. This new executive order does not effect leases already in effect.
On January 27, 2015, the Pennsylvania Superior Court affirmed an order by the Court of Common Pleas of Susquehanna County in Sisson, et al. v. Stanley, et al. The trial court’s order allowed the heirs of Joseph Stanley, who previously reserved all the oil and gas under a tract of land in 1953, to open a default judgment from an action to quiet title.
One of the three issues in this case was whether the lower court should have granted a petition to open a default judgment because of an insufficient search under Pa.R.C.P. 430 due to additional evidence being presented by the ‘after-found’ heirs, when the lower court already determined the Appellants conducted a sufficient good-faith investigated based upon Appellants’ affidavit and a hearing in according with Pa.R.C.P. 430. The Superior Court held that the lower court correctly granted such petition because the heirs did not receive proper service of process. Rule 430(a) provides that motions for service, including service by publication, shall be accompanied by an affidavit stating the nature and extent of the investigation which has been made to determine the whereabouts of the defendant and the reasons why service cannot be made. Due process of law requires an adequate investigation for interested parties and service of process be reasonably calculated, under all circumstances, to apprised interested parties of the pendency of the action and afford them an opportunity to present their objections.
In this case, the court found the affidavit to be facially deficient for several reasons and granted the petition to open the default judgment. First, the affidavit indicated that the appellant searched the Recorder of Deeds office and not the Register of Wills office. The court stated that if the appellant searched the records at the Register of Wills office, he would have found the will of Joseph Stanley and identified his twelve heirs. Second, the affidavit indicated that the appellant did not consider that some of Joseph Stanley’s heirs could have moved. The court stated that if the appellant would have searched the local newspaper obituaries, he would have discovered that some the of heirs moved to the neighboring county. Finally, the court indicated that the appellant’s failure to identify which Internet sites he visited or what search he ran provided a basis that he did not exercise due diligence and good faith in his efforts to locate the heirs. It reasoned that given the ease of identifying and using sophisticated Internet services to trace ancestry and family history, it is inconceivable that the plaintiff, employing good faith efforts, was unable to locate a single heir.
Given the sparse information included in the affidavit, and the seeming ease with the plaintiff could and should have located interested parties, the court affirmed the lower court’s conclusion that the plaintiff’s investigation was deficient.
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.
On January 7, 2015, the Commonwealth Court of Pennsylvania entered an opinion and order in the case Pennsylvania Environmental Defense Foundation v. Commonwealth of Pennsylvania. The Pennsylvania Environmental Defense Foundation (“PEDF”) sought declaratory judgment with respect to past and future leasing of State land for oil and natural gas development as well as for the propriety of the use of monies in the Oil and Gas Lease Fund. The Court did not address the legality of leases executed by the Department of Conservation and Natural Resources (“DCNR”) in 2008 and 2010, due to the absence of indispensable parties, i.e., the lessees.
First, the Court held that neither 1602-E nor 1603-E of the Pennsylvania Fiscal Code violates Article I, Section 27, the Environmental Rights Amendment (“ERA”) of the Pennsylvania Constitution. Section 1602-E mandates that the General Assembly, rather than DCNR, appropriate all royalties paid into the Lease Fund. The Lease Fund is a depository for all rents and royalties paid from oil and gas leases on Commonwealth lands. Based upon the plain language of the Fiscal Code, which left rent revenue and bonus payments under the control of DCNR, the Court held that PEDF failed in its burden to show that the General Assembly had infringed on rights protected under the ERA or had not acted consistently with its trustee obligations under the ERA.
Section 1603-E appropriates up to $50 million in royalty monies annually to DCNR to carry out the purposes of the Lease Fund, which include conservation, recreation, dams, and flood control in state parks and forests. The Court determined whether the funding provided to DCNR for the agency to meet its duties under the ERA was adequate by applying its standard for public funding inquiries. Under this standard, the constitutional challenge was denied because PEDF presented no evidence that the funding appropriated was “so deficient that DCNR cannot conserve and maintain our State natural resources.”
Second, the Court held that the General Assembly’s transfers and appropriations from the Lease Fund for the benefit of the Commonwealth generally were not inconsistent with the Environmental Rights Amendment. The Court found that while the Environmental Rights Amendment places a duty on the Commonwealth to conserve and maintain public natural resources. It does not prohibit the use of revenues derived from public natural resources for non-conservation purposes. The Court rejected PEDF’s contention that the Lease fund is a trust fund that must be reinvested into the conservation and maintenance of the Commonwealth’s public natural resources.
Third, the Court found that DCNR has the exclusive statutory authority to determine whether to lease Commonwealth lands for oil and natural gas extraction. The Court reasoned that the Conservation and Natural Resources Act gives DCNR the authority to determine whether leasing public lands is in the best interest of the Commonwealth and, if so, to execute leases as the agency deems appropriate.
The Pennsylvania Department of Environmental Protection (DEP) has finalized revisions to the General Plan Approval and/or General Operating Permit (BAQ-GPA/GP-5 or General Permit) for Natural Gas Compression and/or Processing Facilities (known as “GP-5”). Revisions to GP-5 include removal of the 100,000 ton per year greenhouse gas applicability threshold and addition of an annual compliance certification requirement. Changes to the permit were proposed in November 2014. DEP received public input from ten commenters.
The Pennsylvania Department of Environmental Protection (DEP) has announced the results of its highly anticipated study on potential exposure to Technologically Enhanced Naturally Occurring Radioactive Materials (TENORM) associated with oil and gas development. Initiated in January 2013 at the direction of Governor Tom Corbett, the study included sampling of drill cuttings, flowback and produced waters, and various treatment solids, as well as radiological surveying of well sites, landfills, and other areas involved in disposal or treatment of drilling wastes. In general, the study found that “there is little potential for harm to workers or the public from radiation exposure due to oil and gas development”. However, the study report includes recommendations for future actions, including additional research and investigation.
The Pittsburgh Post-Gazette reports that Pennsylvania Governor-Elect Tom Wolf has announced the nominations of individuals to head some of the state agencies. He announced the nomination of John Quigley, who served as the Secretary of the Department of Conservation and Natural Resources under Governor Rendell, to be Secretary of the Department of Environmental Protection. The Governor-Elect also announced Cindy Dunn to serve as Secretary of the Department of Conservation and Natural Resources. The Governor-Elect expects to have a full Cabinet announced by the time he is sworn in on January 20th.