As reported by Law360, Representative Rick Mirabito, D-Lycoming, recently introduced House Bill 2318, which, if passed into law, would require the Pennsylvania Department of Conservation and Natural Resources to provide notice and require public input before leasing state forest lands for unconventional gas development. Specifically, the bill provides for a public comment period and at least one public hearing or meeting before any land could be leased by the DCNR. In addition, the public would have access to detailed development plans, including locations of well pads, impoundments, access roads, pipelines, compressor stations and other related structures and facilities, during the comment period. The DCNR would also have to provide an analysis of potential impacts of the proposed development on ecological, recreational, cultural and aesthetic resources.
“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.
Last week, Governor Tom Corbett announced that county and municipal allocations of the Act 13 well fee, which totaled $225 million for calendar year 2013, were available for review on the Pennsylvania Public Utility Commission’s website. The $225 million disbursement represents an 11% increase from 2012 and is in addition to the nearly $2 billion in corporate and personal income tax revenue paid by oil and gas companies in the past seven years. Approximately $123 million will be distributed to county and municipal governments that host shale activity. The county and municipal governments can use the money received from the Act 13 well fees on various expenses such as construction and repair of roads, emergency response preparedness, and sewer system construction and repair. Additionally, state and county agencies responsible for overseeing the natural gas industry, including the Department of Environmental Protection, will receive $17 million in funding from the well fee revenue. Another $82 million will be distributed by the Marcellus Shale Legacy Fund to counties for parks and recreation as wells as competitive grants awarded to local governments and non-profit organizations for environmental projects.
Well Fee County and Municipality Disbursements for 2013 (B1612296xAB63C)
The Wall Street Journal reported that MarkWest Energy Partners, L.P. recently announced that a new cryogenic processing facility called Bluestone II will be commenced in Butler County, Pennsylvania. The new facility will increase the processing capacity for Marcellus producers in northwest Pennsylvania to 210 million cubic feet per day. MarkWest Energy Partners, L.P. is involved in gathering, processing and transporting natural gas and the fractionation, storage and marketing of natural gas liquids.
Pennsylvania Senate Bill 1378 was recently referred to the Senate’s Environmental Resources and Energy Committee. If adopted, the bill would require the Environmental Quality Board to differentiate regulations between those relating to conventional oil and gas wells and those relating to unconventional gas wells under Title 58 of the Pennsylvania Consolidated Statutes and other related laws. The Bill defines “conventional oil and gas well” as including any of the following:
(i) a well drilled to produce oil;
(ii) a well drilled to produce natural gas from formations other than shale formations;
(iii) a well drilled to produce natural gas from shale formations located above the base of the Elk Group or its stratigraphic equivalent;
(iv) a well drilled to produce natural gas from shale formations located below the Elk Group where natural gas can be produced at economic flow rates or in economic volumes without the use of vertical or non-vertical well bores stimulated by hydraulic fracture treatments or by using multilateral well bores or other techniques to expose more of the formation to the well bores; and
(v) irrespective of formation, a well drilled for collateral purposes, such as monitoring, geologic logging, secondary and tertiary recovery or disposal injection.
The Bill defines an “unconventional gas well” in the same manner as in the Oil and gas Act of 2012 (Act 13), which is a bore hole drilled for the purpose of producing gas from an unconventional formation (existing below the base of the Elk Sandstone or geologic stratigraphic equivalent where natural gas generally cannot be produced at economic flow rates or in economical volumes except by vertical or horizontal well bores stimulated by hydraulic fracture treatments or by using multilateral well bores or other techniques to expose more of the formation to the well bore).
On Thursday, a group of Pennsylvania state legislators, led by Sen. Vincent Hughes (D-Philadelphia), unveiled a proposal that would impose a 5% severance tax on drillers operating in Pennsylvania’s Marcellus Shale industry. According to the legislators, this severance tax would net $720 million for Pennsylvania during the 2014-2015 budget year and be used for environmental protection, economic development, job training initiatives and education. Senator Hughes hopes that some of the revenue received from the severance tax would prevent the state from having to lease public land for gas drilling and exploration. Under the proposal, the severance tax would be levied in addition to the Act 13 well fees already imposed upon the natural gas drillers. Senator Hughes said that the severance tax and well fees together would generate $937 million for Pennsylvania in the 2014-2015 fiscal year. Senator Hughes’s proposal is one of numerous proposals recently introduced in the state legislature aimed at implementing a severance tax on the Marcellus Shale industry. Additionally, all four major candidates in the Democratic gubernatorial primary have also proposed a natural gas severance tax.
On May 9, 2014, in the case of Herder Spring Hunting Club v. Keller, the Superior Court of Pennsylvania issued an opinion addressing the termination of outstanding oil and gas interests through a tax sale in Pennsylvania. The property at issue was subject to a severance of oil and gas rights in 1899, and then later sold in a 1935 tax sale to the Centre County Commissioners. The appellants argued that the 1935 unseated tax sale extinguished all prior oil and gas interests and was a “title wash” which divested all prior owners of their respective interests. The Superior Court agreed with the appellants, reversing the trial court and granting summary judgment in their favor. The Superior Court held that the appellees’ predecessors failed to follow certain procedures in place at the time of the 1935 tax sale that could have preserved their interest in the oil and gas. This case is the first appellate decision addressing the “title wash” of subsurface property rights since the development of the Marcellus Shale formation in Pennsylvania began.
Yesterday the Pennsylvania Department of Environmental Protection (DEP) released its inaugural Oil and Gas Annual Report, which showcases DEP’s regulation of Pennsylvania’s oil and gas industry. The Report describes the structure of DEP’s Oil and Gas Program and provides an overview of how Pennsylvania shale plays are connected to energy security. The Report also provides examples of the agency’s work in the areas of “Permitting”, “Inspections,” “Compliance and Enforcement,” and “Stray Gas Investigations,” including mention of a database created by DEP for stray gas investigations with information dating back to 1987. In the section devoted to “Regulatory and Policy Development,” DEP indicates that it anticipates presenting a final Chapter 78, Subchapter C rulemaking to the Oil and Gas Technical Advisory Board in 2014. The Report concludes with highlights of DEP “Innovations” and a summary of studies and proposed regulations set for 2014.
The PA Environment Digest reports that the Independent Regulatory Review Commission (IRRC) approved an Environmental Quality Board regulation increasing oil and gas well fees. Additional information regarding IRRC’s approval can be found at its website. Under the current rule, fees are calculated based on wellbore length. Under the proposed rule, which was previously published in the Pennsylvania Bulletin, “unconventional nonvertical wells” and “unconventional vertical wells” will be assessed a fee of $5,000 and $4,200, respectively, regardless of total well bore length. Currently, the average permit fee is $3,200.
As reported by the Pittsburgh Business Times, the Allegheny County Council voted to approve a non-surface lease and drilling plan with Range Resources under Deer Lakes Park. Allegheny County Executive Rich Fitzgerald said that the plan would provide for environmental protection of the park while bringing in much needed revenue to the county. Despite the County Executive’s endorsement, the vote was heavily opposed by some members of the public in attendance at the hearing.
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.
On April 24, 2014, Representative Robert Matzie of the Pennsylvania House of Representatives, indicated in a statement that he will introduce legislation concerning liability for damage caused by a party conducting seismic testing. The statement indicates that the soon to be proposed legislation will seek to create a rebuttable presumption of liability for any damage occurring within 90 days of the completion of the testing, and within a 1,000 foot radius of where the testing occurs.
Proposed regulatory amendments published on April 19, 2014 are likely to affect hundreds of facilities in Pennsylvania. The Pennsylvania Department of Environmental Protection (PADEP) has estimated that 141 sources will need to install additional pollution control equipment under the proposal. Read our full Administrative Watch to learn more.
On April 10, 2014, a federal judge granted a preliminary injunction forcing Hempfield Township to permit ION Geophysical of Houston (ION) to perform seismic testing on the Township’s roads. Hempfield Township argued that it does not specifically permit seismic testing and, that by restricting the seismic testing, it was protecting the rights of property owners who did not have an agreement with ION. U.S. District Court Judge Maurice Cohill disagreed, finding that the Township was preempted by the Oil and Gas Act from prohibiting seismic testing and the Township’s refusal to negotiate an agreement with ION deprived ION of the ability to conduct seismic testing without the ability to appeal. Judge Cohill ruled that the testing will not hurt the Township and that Hempfield would be likely to lose on the merits.
On April 9, 2014, Pennsylvania Commonwealth Court President Judge Dan Pellegrini denied the petition to intervene of the Pennsylvania Independent Oil and Gas Association, Marcellus Shale Coalition and American Petroleum Institute in the Act 13 litigation, which was remanded by the Supreme Court back to the Commonwealth Court in December. However, Judge Pellegrini granted the trade groups a total of five minutes to argue as amicus curiae at a hearing scheduled for May 14, 2014 on the remanded issues. Issues to be argued in May include the jurisdiction of the PA Public Utility Commission, eminent domain, notice requirements for spills, and the provision prohibiting disclosure by health professionals of chemicals use in hydraulic fracturing.