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The Foundation Mineral and Energy Law Newsletter

Pennsylvania – Oil & Gas

(By Joseph Reinhart, Sean McGovern, Matthew Wood and Gina Falaschi)

On December 10, 2022, the Pennsylvania Environmental Quality Board (EQB) published in the Pennsylvania Bulletin a final-omitted rulemaking (Conventional VOC Rule), 52 Pa. Bull. 7635, and a final-form rulemaking (Unconventional VOC Rule), 52 Pa. Bull. 7587, adopting reasonably available control technology (RACT) standards to control volatile organic compound (VOC) and methane emissions from existing and future conventional oil and gas operations and unconventional oil and gas operations. These regulations establish RACT requirements for conventional and unconventional oil and natural gas sources of VOC emissions. These sources include natural gas-driven continuous bleed pneumatic controllers, natural gas-driven diaphragm pumps, reciprocating compressors, centrifugal compressors, fugitive emissions components and storage vessels installed at unconventional well sites, gathering and boosting stations, and natural gas processing plants, as well as storage vessels in the natural gas transmission and storage segment.

The Conventional VOC Rule was effective on notice from the Pennsylvania Department of Environmental Protection (PADEP) on December 2, 2022. Members of the Pennsylvania House Environmental Resources and Energy (ERE) Committee had disapproved the final-omitted regulation, Regulation #7-579, in a November 14, 2022, letter to the Independent Regulatory Review Commission (IRRC). On November 17, 2022, the IRRC approved the final-omitted rulemaking, and the EQB subsequently adopted an emergency certified final-omitted regulation, Regulation #7-580, on November 30, 2022. See Press Release, PADEP, “EQB Adopts Emergency Air Quality Regulation for Existing Conventional Oil and Gas Sources” (Nov. 30, 2022). Regulation #7-580 is identical to Regulation #7-579 except that it received an emergency certification of need from then-Governor Tom Wolf. PADEP said that the final-omitted regulation was appropriate under the Commonwealth Documents Law because notice and comment from the public was unnecessary, impractical, and contrary to the public interest. PADEP recommended that EQB adopt the regulation as a final-omitted regulation as part of the process to meet the U.S. Environmental Protection Agency’s (EPA) December 16, 2022, deadline for the state to adopt methane emission controls for oil and gas operations. See Executive Summary, “Control of VOC Emissions from Conventional Oil and Natural Gas Sources—25 Pa. Code Chapter 129” (Oct. 12, 2022); see also Vol. 39, No. 4 (2022) of this Newsletter. Failure of the state to adopt the required regulations reportedly could have resulted in the loss of over $500 million in federal highway assistance. On December 5, 2022, the Pennsylvania Independent Oil & Gas Association, Pennsylvania Independent Petroleum Producers, and Pennsylvania Grade Crude Oil Coalition filed a lawsuit challenging the legality of the Conventional VOC Rule. See Petition for Review in the Nature of a Complaint for Declaratory Relief, Pa. Indep. Oil & Gas Ass’n v. Commonwealth, No. 574 MD 2022 (Pa. Commw. Ct. filed Dec. 5, 2022).

The Unconventional VOC Rule, which became effective upon publication in the Pennsylvania Bulletin, was adopted by the EQB at its June 14, 2022, meeting. The House ERE Committee met on July 11, 2022, and approved a letter to the IRRC announcing its opposition to the final EQB regulation on a number of grounds, including that the revised regulation had not gone through public notice and comment. During its July 21, 2022, meeting, the IRRC unanimously voted to approve the regulation. The House ERE Committee met on August 2, 2022, to vote on a concurrent resolution disapproving of the rule, and the resolution was voted out of committee. The House and Senate each had 30 calendar days, or 10 legislative voting days (whichever is later), to adopt the concurrent resolution. Neither took further action and the regulation was published in the Pennsylvania Bulletin.

A rule substantially similar to those published on December 10 was approved by the EQB in March 2022, but it did not distinguish between conventional and unconventional emission sources. That rulemaking had advanced to the Pennsylvania House and Senate ERE Committees and the IRRC for consideration, but the House ERE Committee issued a disapproval letter for the rulemaking on April 26, 2022. Three trade associations also filed a petition for review of the rulemaking in the Commonwealth Court of Pennsylvania. The petition and the House ERE Committee’s disapproval letter alleged that PADEP failed to comply with Act 52 of 2016, which requires that any rulemaking concerning conventional oil and gas wells be undertaken separately and independently from those concerning unconventional oil and gas wells or other subjects. As a result, PADEP withdrew the regulation from IRRC consideration on May 4, 2022. See Vol. 39, No. 2 (2022) of this Newsletter.

PADEP submitted both the Unconventional VOC and Conventional VOC Rules to EPA as a revision to Pennsylvania’s state implementation plan (SIP). On December 14, 2022, EPA issued a completeness determination for PADEP’s revision to Pennsylvania’s SIP, which avoided the imposition of federal highway funding sanctions that were set to take effect on December 16, 2022. EPA is now evaluating whether it will approve the SIP revision.

Governor Enacts Law Amending Oil and Gas Lease Act to Provide Additional Royalty Payment Transparency

On November 3, 2022, then-Pennsylvania Governor Tom Wolf signed Senate Bill 806 into law as Act 153 of 2022. The Act, effective March 3, 2023, amends the Oil and Gas Lease Act to clarify the minimum amount of information that a conventional or unconventional oil and gas operator is required to provide to a royalty owner on a royalty payment check stub or in an attachment to other forms of payment. The Act requires that an operator/payor furnish the following items (the complete details of which are available in the Act’s text):

  • identifying information for the lease, property, unit, or wells for which payment is being made;
  • the month and year of oil, gas, or natural gas liquids production for which the payment is being made;
  • the total volume of oil, gas, or natural gas liquids produced and sold per well;
  • the price received per unit of oil, natural gas, or natural gas liquids sold;
  • the aggregate amounts for each category of deductions for each well incurred that reduces the royalty owner’s payment, including all severance and other production taxes;
  • net and gross value of the payor’s total sales from each well less any deductions;
  • the royalty owner’s legal and contractual interest in the payor’s share, expressed as a decimal or fraction;
  • the royalty owner’s share of the gross value of the payor’s total sales before any deductions;
  • the royalty owner’s share of the sales value less the royalty owner’s share of taxes and any deductions; and
  • the payor’s contact information, including an address and telephone number.

See 58 Pa. Stat. §§ 35.2, .3(a).

The Act allows an unconventional operator and royalty owner to agree that the operator may provide this information in a summary format, so long as the operator provides the complete information upon the royalty owner’s request by certified mail. Id. § 35.3(b). If an unconventional operator fails to provide complete payment information without good reason within 60 days of a royalty owner’s request, the amendments authorize a royalty owner to bring a civil action against the operator to obtain the information and recover any incurred associated attorney’s fees and court costs in doing so. Id. § 35.3(c). The Act also sets deadlines for payment for unconventional operators (within 120 days from the date of first sale; thereafter, within 60 days after the end of the month when the production is sold), subject to certain exceptions, and imposes interest penalties for late payments. Id. § 35.3(e).

Governor Enacts Law Creating Orphan Well Plugging Grant Program

On November 3, 2022, then-Pennsylvania Governor Tom Wolf signed House Bill 2528 into law as Act 136 of 2022. The Act, effective January 3, 2023, amended Pennsylvania law to create the Orphan Oil and Gas Well Plugging Grant Program and bring the program into compliance with the requirements for the use of federal funding for well plugging. Among the significant amendments, the Act requires that no less than 20% of the funds allocated from the federal Infrastructure Investment and Jobs Act, Pub. L. No. 117-58, 135 Stat. 429 (2021), be made available for plugging conventional oil and gas wells (unless funds remain uncommitted six months prior to any deadline for recapture of the funds by the federal government, in which case they may be used for other purposes). 58 Pa. Cons. Stat. Ann. § 2811(a). The Act also increases the maximum grant amounts from $10,000 to $40,000 (or the actual cost, whichever is less) for wells up to 3,000 feet deep and from $20,000 to $70,000 (or the actual cost, whichever is less) for wells deeper than 3,000 feet. Id. § 2822(b).

The Act includes additional criteria an applicant must submit to the Pennsylvania Department of Environmental Protection (PADEP) to be considered a qualified well plugger (e.g., a demonstration that the applicant has access to the necessary equipment, materials, resources, and services required to plug wells). Id. § 2824(a). A qualified well plugger must also attest that (1) it will provide necessary documentation to allow PADEP to demonstrate it is complying with funding allocation requirements, and (2) each well plugged by the qualified well plugger will be plugged in accordance with applicable requirements. Id. § 2825(b).

The Act also requires that PADEP allow Pennsylvania companies of any size to bid on well plugging contracts. Id. § 3271.1. To qualify, any such company must be headquartered or have its main offices in Pennsylvania and conduct at least 50% of its business activities in the commonwealth. Id. Alternatively, other companies may qualify as “Pennsylvania companies” if they subcontract the work to subcontractors selected through a competitive bidding process that gives priority to subcontractors, when possible, that satisfy the location and business activity thresholds described above. Id. These requirements do not prohibit PADEP from accepting bids from or awarding contracts to companies that are not “Pennsylvania companies” if taking such action is not otherwise prohibited. Id.

PADEP Considering Revising Applicable Regulations After Release Event at Natural Gas Storage Facility

On December 9, 2022, the Pennsylvania Department of Environmental Protection (PADEP) announced that it had issued an administrative order and two compliance orders related to a natural gas storage facility release event that occurred in Jackson Township, Cambria County, Pennsylvania, in November 2022. See Press Release, PADEP, “DEP Issues Three Orders to Equitrans in Wake of Rager Mountain Storage Reservoir Natural Gas Release” (Dec. 9, 2022) (at which the three orders are available). In the press release, PADEP said its investigations into the event are ongoing.

At the December 1, 2022, Oil and Gas Technical Advisory Board (TAB) meeting, Kurt Klapkowski, Acting Deputy Secretary for PADEP’s Office of Oil and Gas Management, referenced the release event and indicated that it will inform PADEP actions in 2023. After praising Pennsylvania’s current regulations, which were adopted in 1994, as “very good” in terms of the requirements they place on the gas storage industry, Klapkowski said that in response to the release event, stakeholders can probably expect “significant development of potential proposed rule-makings, potential proposed statutory changes, [and] potential proposed administrative and implementation changes.” TAB Meeting at 29:10, 30:50 (Dec. 1, 2022). To achieve these goals, Klapkowski said that he expected significant interaction between PADEP and operators, as well as coordination with TAB and the Crude Development Advisory Council (CDAC). Id. at 32:13. CDAC, which reports to TAB, will be involved in any proposed rulemakings, guidance, or other administrative changes because storage wells are defined as conventional wells governed by 25 Pa. Code ch. 78.

Although Klapkowski did not provide specific details about PADEP’s potential actions and the form of the process, he said the changes may be proposed to chapter 78 and “[e]verything is on the table for consideration in terms of making sure that this industry is regulated appropriately and the public gets protected and the environment is protected from potential incidents like this happening again in the future.” Id. at 34:53. Prior to answering questions from attendees, Klapkowski said that PADEP is going to be spending significant effort on this in the coming weeks and months. Id. at 35:22. PADEP further addressed the release event and its response applicable to Pennsylvania gas storage operations, now under the new Shapiro administration, at CDAC’s February 16, 2023, meeting.

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