Shale Energy Law Blog
Articles, News and Regulatory Information on Shale Energy Law from Babst Calland
ABOUT THIS BLOG
Our Shale Energy Law Blog provides timely legal and business information on issues impacting the energy industry and specifically natural gas development, as well as articles published by the attorneys of Babst Calland.
Tagged: Legislation, Natural gas, Oil and gas, Pennsylvania, Severance tax, post-production costs, royalty payment
Tagged: AQTAC, DEP, VOC emissions, air permitting
Tagged: API, GPAC, HCAs, LPAC, NPRM, OFR, OMB, PHMSA, Pipeline Safety Act, integrity management, pipeline safety regulations, pipelines
Tagged: DEP, EHB, ERA, Environmental Hearing Board, Environmental Rights Amendment, Environmental law, Marcellus Shale, Natural gas, Oil and gas
Tagged: DEP, Environmental law, Natural gas, Oil and gas, Pennsylvania
Tagged: Ohio, lessors, operators, post-production expenses, royalty payment
- 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.
Tagged: Gas drilling, Marcellus Shale, Natural gas, Ohio, Oil and gas, Pennsylvania, Utica Shale, West Virginia
Tagged: Act 13, DCNR, Environmental Rights Amendment, Land use, Lease Fund, Royalties
On June 1, 2017, the Ohio Supreme Court ruled that a provision in an oil and gas lease requiring the lessee to pay a minimum rental/royalty does not automatically invoke a termination provision in an unrelated delay rental clause and is not void as against public policy.
In Bohlen v. Anadarko E&P Onshore, L.L.C., Slip Opinion No. 2017-Ohio-4025, the Ohio Supreme Court was asked to determine whether a lessor can terminate an oil and gas lease if the lessee fails to pay minimum rental/royalty payments. In Bohlen, the oil and gas lease contained a primary term of one year along with standard secondary term language. The lease allowed the lessee to pay a delay rental for the privilege of deferring the commencement of a well. If this delay rental was not paid, then the lease would terminate. The Addendum attached to the lease stipulated that if royalty payments due to the lessor under the lease were less than $5,500, then lessee would pay any shortfall between the royalty payments and the $5,500. This minimum rental/royalty clause did not contain a termination provision. Lessee drilled two wells during the primary term of the lease but ultimately failed to pay yearly royalty amounts equal to or greater than $5,500. Lessors argued that the failure to pay a minimum rental/royalty triggered the termination clause found within the delay rental provision.
In Bohlen, the Court reasoned that the delay rental clause and the minimum annual-rental/royalty clause were two distinct clauses. Therefore, since the minimum rental/royalty clause did not contain termination language, the failure to pay the minimum royalty would not trigger the termination of the lease. It was of no consequence that the lease contained termination language in the delay rental clause since the two clauses at issue were to be read separately. Whether the lessee needed to compensate the lessor for underpayment was not at issue in the case.
Additionally, since the lease at issue contained a primary term, it did not violate public policy for being an indefinite lease.
Tagged: Land and Leasing, Ohio, Oil and gas
Tagged: Land and Leasing, Litigation, Natural gas, Royalties, West Virginia