Articles, Alerts & Perspectives

The PIOGA Press

This article is an excerpt of the 2016 Babst Calland Report – “An unprecedented Time for the Oil & Gas Industry: Price Down, Supply Up, Reform Ahead. Legal and Regulatory Perspective for Producers and Midstream Operators.

In 2015, 42 North American oil and gas exploration and production companies filed for bankruptcy protection.  At least another 29 have filed in 2016, and continuing price pressure may result in more bankruptcy filings.  Given this state of affairs, companies operating in the oil and gas sector should understand how their rights and obligations are affected when their contractual counterparties become bankruptcy debtors, and how to take advantage of business opportunities presented through the bankruptcy process.

Assumption or Rejection of Contracts

One of the main purposes of the Bankruptcy Code is to afford a commercial debtor the opportunity to rehabilitate and reenter the stream of commerce as a productive enterprise.  One tool afforded to debtors is the right under Section 365 of the Bankruptcy Code to determine which of its “executory contracts” dating from prior to the bankruptcy filing are beneficial, and which are burdensome, and to reject those that are burdensome, thereby relieving the debtor of the obligation to perform burdensome contracts going forward.  The Bankruptcy Code does not define the term “executory contract,” but the term is generally understood to encompass those contracts where the obligations of both parties are unperformed to the degree that the failure of either party to complete performance would constitute a material breach.  Section 365 also permits a debtor to reject its unexpired leases.

The question of whether a debtor can reject particular sorts of contracts can hinge on issues determined under state law.  More specifically, the treatment of oil and gas leases, gathering agreements and transportation agreements can vary, depending on the treatment of those agreements under the state law governing those agreements. …

Pipeline & Gas Journal

The department of Transportation’s (DOT) Pipeline and Hazardous Materials Safety Administration (PHMSA), the federal agency charged with administering the nation’s pipeline safety program, published a long-awaited notice of proposed rulemaking (NPRM) for gas transmission and gathering pipelines

Under development for more than four years, the NPRM proposes significant changes to PHMSA’s safety standards for gas pipeline facilities in 49 C.F.R., Part 192. Of particular importance to the upstream and midstream sectors, the NPRM includes a proposal to modify the federal safety standards for onshore gas gathering lines in four significant ways.

Read more.

Pittsburgh Post-Gazette

No one wants to drill for oil and gas in South Fayette anymore.

That’s not part of a new settlement that aims to put to bed a years-long conflict between the township and a group of landowners who felt South Fayette was trying to exclude drilling from its borders.

But it’s a loud unsaid.

The low price of natural gas has likely dampened the appetite of Range Resources, the Texas-based shale operator that once leased land from the Kosky family and their business interests, and of the landowners who continue to spend hundreds of thousands of dollars fighting the township.

Read more. 

Pittsburgh Tribune Review

Attracting companies such as Royal Dutch Shell to build their petrochemical plants along the Ohio River was the easy part, as far as Keith Burdette is concerned.

The challenge will come in accommodating a related manufacturing complex that officials in three states hope to establish around ethane crackers, said Burdette, executive director of the West Virginia Development Office.

“We’re not trying to build a facility anymore. We’re trying to build an industry,” he told several hundred people Monday at a petrochemical conference in Downtown Pittsburgh. “Building an industry is a lot more complicated.”

As Shell prepares to start construction of a multibillion-dollar facility in Beaver County, and two other companies weigh building crackers in Ohio and West Virginia, officials at the conference said they must make sure the region has the infrastructure, workforce and real estate that the industry needs to expand.

“We have to work that much harder with respect to what our next steps are,” said Dennis Davin, secretary of Pennsylvania’s Department of Community and Economic Development.

Shell this month said it made the decision to go ahead with construction, nearly five years after it started looking in the region. The cracker, which will convert ethane liquids from Marcellus shale wells to the building blocks of plastics, is expected to attract manufacturers interested in using its products.

Davin said those companies will need a place to build.

“Our issue right now is that in Western Pennsylvania … we don’t have enough construction-ready sites for things that we know are going to happen in follow-on investment from this,” he said. “We know that there are going to be plastics manufacturers, fertilizer manufacturers … and downstream companies that are going to look for sites.”

As his boss, Gov. …

The Legal Intelligencer

Editor’s note: The authors represented Cardinal before the township, trial court and Commonwealth Court.

On Jan. 7, the Pennsylvania Commonwealth Court rendered a decision in Kretschmann Farm v. Township of New Sewickley, 2016 Pa. Commw. LEXIS 33 (Pa. Commw. 2016), which addressed the heated debate over the compatibility of oil and gas operations and agricultural uses.

In 2014, Cardinal PA Midstream, (Cardinal) applied to the board of supervisors of New Sewickley Township, Beaver County for conditional use approval to construct and operate a natural gas compressor station in the township’s A-1 agricultural district. Pursuant to the township’s zoning ordinance “compressor station” is permitted as a conditional use in the A-1 agricultural district, provided that the use meets certain express standards and criteria.

The township board of supervisors held a public hearing on Cardinal’s application, during which Cardinal presented testimony on: (1) its experience in the natural gas industry; (2) its operations; (3) compliance with the zoning ordinance’s express standards and conditions; (4) review and approval by the Pennsylvania Department of Environmental Protection of its erosion and sediment control plan and air permit; (5) incorporation of landscaping to block the site’s visibility from neighboring landowners and roads; (6) conformity to the township’s noise standards; (7) proposed driveway construction, traffic generation and road improvements.

Adjacent property owners, who operate an organic farm, and others opposed Cardinal’s application. During the public hearing, the property owners expressed concern over potential impacts of the compressor station on their produce, water and air, and the compatibility of natural gas drilling operations with agricultural uses. Township residents also expressed concern over the potential placement of pipelines in the township, light pollution from flares, the compatibility of compressor stations with uses in residential/agricultural areas, and the potential long-term effects of emissions generated by oil and gas operations. …

OOGA Bulletin

On October 14, 2015, the United States District Court for the Western District of Pennsylvania invalidated several sections of a Grant Township, Indiana County, Pennsylvania local ordinance that was enacted to prevent an oil and gas operator from operating an underground injection well that had been permitted by the United States Environmental Protection Agency. In Pennsylvania General Energy Company, L.L.C. v. Grant Township, Civil Action No. 14-209, 2015 U.S. Dist. LEXIS 139921 (W.D. Pa. Oct. 14, 2015), Pennsylvania General Energy Company, L.L.C. filed a complaint in federal court against Grant Township to challenge the constitutionality, validity and enforceability of a Grant Township ordinance that sought to establish a self-described Community Bill of Rights Ordinance (the Ordinance).

PGE drills for and produces natural gas in Grant Township and other municipalities in Pennsylvania. PGE took steps to reclassify an existing vertical gas well located in Grant Township as an underground injection well.  As background, in Pennsylvania, most produced fluid from natural gas operations, particularly unconventional operations, is recycled by using it down-hole to complete other wells.  Produced fluid that is not recycled is commonly treated at centralized wastewater treatment facilities or injected into permitted disposal wells.  Most of the injected material is brine and other produced fluid that returns to the surface after drilling and during operation of a well.  However, there are many fewer commercial and captive injection wells in Pennsylvania than there are in Ohio at this time.

In Pennsylvania, EPA is responsible for implementing the Underground Injection Control Program under the federal Safe Drinking Water Act, and for regulating the construction, operation, permitting, and closure of injection wells.  When reviewing a UIC permit application, EPA evaluates whether the proposed injection will protect underground sources of drinking water from the subsurface injection of fluids.  …

West Virginia Record

WASHINGTON, D.C. — The House Judiciary Committee’s Subcommittee on Constitution and Civil Justice will be holding a hearing today on the ACCESS (ADA Compliance for Customer Entry to Stores and Services) Act, which aims to protect small businesses from the widespread abuse of the Americans with Disabilities Act (ADA).

Congressman Ken Calvert (R-CA), who is sponsoring the bill, will testify before the committee in support of the bill he says will help prevent plaintiffs’ lawyers from “trying to enrich themselves on the backs of the disabled.”

The ACCESS Act, also known as H.R 241, would require an aggrieved person to notify a business of an ADA violation in writing, and give the business owner 60 days to provide the aggrieved individual a detailed description of improvements to remedy the violation. Then, the owner would have 120 days to remove the infraction. Failure to meet these conditions would be grounds to further the lawsuit.

Calvert told the West Virginia Record that as a property owner himself, he has had to deal with complaints from people who find minor discrepancy in a building or in following the regulations, and instead of being given time to correct the infraction, owners get slapped with lawsuits and “lawyers get rich.”

“We all want to have access (for) the disabled, we just don’t want to make this an excuse for lawyers to sue small business owners,” he said. “Nobody is objecting to making sure that we have access for the disabled.”

Calvert said some of the infractions are very minor, like not having a sign in the right location or neglecting to paint a line in the right way.

Instead of rushing to file lawsuits, Calvert said business owners should be given an opportunity to fix infractions and comply with the law. …

American Oil & Gas Reporter

WASHINGTON–A pipeline safety regulation published in April by the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration goes beyond traditional natural gas transmission to have serious implications for onshore gas gathering.

PHMSA published its long-awaited notice of proposed rule making for natural gas transmission and gathering pipelines on April 8. Under development for more than four years, the NOPR proposes significant changes to the regulations for gas pipeline facilities in 49 CFR Part 192, including regulations for onshore gas gathering lines.

Adopted a decade ago, the current regulations rely, in large part, on American Petroleum Institute Recommended Practice 80, Guidelines for the Definition of Onshore Gas Gathering Lines, which is a voluntary consensus standard for classifying onshore production operations and gas gathering lines. Current regulations contain an exemption for gas gathering lines in rural, Class 1 locations–i.e., areas where 10 or fewer buildings intended for human occupancy are located in the vicinity of a gathering line.

The NOPR proposes to change these regulations by:
• Modifying the requirements for determining whether a pipeline qualifies as an onshore gas gathering line;
• Applying portions of the Part 192 regulations to certain previously unregulated Class 1 gas gathering lines; and
• Applying federal reporting requirements to all gas gathering lines (whether regulated or not).

The PIOGA Press

Three years after the Pennsylvania Supreme Court rendered its controversial decision in Robinson Township v. Commonwealth, the plurality opinion is still front-and-center in battles over local regulation of oil and gas activities. The 2013 Robinson Township case, in which a three-justice plurality of the Supreme Court relied on a new and much more extensive interpretation of the Pennsylvania Environmental Rights Amendment (ERA) to invalidate certain provisions of Act 13, made its way back to the Supreme Court for consideration of new issues in 2016. In the intervening time, the Commonwealth Court, county courts of common pleas and local zoning hearing boards grappled with the meaning of the 2013 decision and its impact on local zoning authority. These cases continue to work their way through the appeals process.

Robinson Township Returns to the Pennsylvania Supreme Court

In March 2016 the Supreme Court heard argument in the Robinson Township challenge to Act 13, the General Assembly’s 2012 comprehensive update to the former Oil and Gas Act. When it first decided the case in 2013, a three-justice plurality of the Supreme Court relied on a novel and broad interpretation of the ERA (i.e. that the ERA imposes on the Commonwealth and its municipalities a fiduciary duty to “conserve and maintain” natural resources) to invalidate several sections of Act 13, including two key sections of Chapter 33 which placed limits on local government authority to regulate the oil and gas industry.

The Court remanded several undecided issues to the Commonwealth Court, including whether the remaining local government provisions of Act 13 could stand alone as “severable” from the invalidated ones, or whether they must fail alongside them. The remanded sections address the conferral upon the Pennsylvania Public Utility Commission (PAPUC) and Commonwealth Court of original jurisdiction to review local ordinances regulating the industry (as opposed to having such challenges filed with local zoning hearing boards or governing bodies), the imposition of attorney’s fees to prevailing parties in ordinance challenges in certain instances, and a municipality’s loss of its Act 13 impact fees if its ordinance was invalidated. …