December 20, 2013

The Pennsylvania Supreme Court Invalidates Key Provisions of Act 13

Administrative Watch

In a far-reaching decision that may reverberate far beyond the oil and gas industry, the Pennsylvania Supreme Court has ruled that several critical provisions of Act 13, the General Assembly’s 2012 comprehensive update to the former Oil and Gas Act, are unconstitutional. In addition to invalidating a key section of Act 13 placing limits on the regulatory authority of local governments, the Court’s ruling also struck down a number of the legislation’s well location restrictions administered by the Department of Environmental Protection (“DEP”).

The decision of the Supreme Court in Robinson Township v. Commonwealth is the culmination of litigation filed in early 2012 by seven municipalities, along with two local elected officials, the Delaware Riverkeeper Network, and a physician challenging the legality of Act 13, primarily contending that the legislation unconstitutionally limited the authority of local governments to regulate the oil and gas industry. The challenge also asserted that a section of Act 13 that authorized DEP to grant waivers from certain well location restrictions was unconstitutional because it did not set forth any standards to be considered in addressing such requests.

Limits on Local Regulation

By far the most contentious issue in the litigation was the petitioners’ claim that Section 3304 of Act 13, which placed limits on the powers of local governments, was invalid. Section 3304 requires that all local ordinances provide for the “reasonable development of oil and gas resources,” specifically that they: (1) authorize most oil and gas operations as permitted uses in all zoning districts, with the exception that wells located in residential districts may be prohibited or required to go through the conditional use process if the well bore is located within 500 feet of an existing building; …

November 6, 2013

Ohio House Bill 72: Revisions to Procedures Under ORC § 5301.332 (Lease Forfeiture) and § 5301.56 (Dormant Mineral Act)

Administrative Watch

On October 31, 2013, Ohio Governor Kasich signed Substitute House Bill 72 (HB 72) into law. HB 72 amends various Sections of the Ohio Revised Code (the Code), in part, to modernize the county recorder requirements. Regarding Sections of the Code which set forth procedural requirements for the forfeiture of oil and gas leases (Section 5301.332) and the abandonment of severed mineral interests (Section 5301.56 (2006), also known as the Dormant Mineral Act), HB 72 adds the requirement that a Notice of Failure to File be recorded in order to effectuate the forfeiture of an oil and gas lease or the abandonment of a mineral interest under the Dormant Mineral Act. This replaces the current procedural requirement that the recorder place a marginal notation on the lease or on the record of which the severed mineral interest is based to complete a claim under these Sections of the Code. HB 72 becomes effective on January 30, 2014.

Lease Forfeiture
Section 5301.332 of the Code provides a lessor with the right to pursue the forfeiture of a lease so long as there are no producing or drilling oil or gas wells, and: (i) the lease term expired, or (ii) the lessee failed to comply with the covenants of the lease. Currently, the lessor is required to serve notice of the lessor’s intent to declare the lease forfeited, and subsequently file an affidavit of forfeiture. If the lessee, or the lessee’s successors or assigns fail to provide notice to the lessor that the lease is still effective within 60 days of the lessor’s notice, then the lessor may cause the county recorder to note upon the margin of the lease that “This lease cancelled pursuant to affidavit of forfeiture recorded in Lease Vol. …

September 6, 2013

Compliance With the Clean Air Act May Not Be Enough

Administrative Watch

A recent Third Circuit decision indicates that compliance with the requirements of the Clean Air Act (CAA) may not be sufficient to protect an owner or operator from state common law tort claims. In Bell v. Cheswick Generating Station (Aug. 20, 2013), the Court of Appeals for the Third Circuit held that the CAA does not preempt state common law claims that are based on the law of the state where the source of the pollution is located. Therefore, the Court allowed the Bell plaintiffs to proceed with state tort claims against the Cheswick Generating Station, despite comprehensive regulation of the power plant’s emissions under the CAA.

Bell involves a class action complaint, with a putative class consisting of at least 1,500 individuals living within one mile of the Cheswick Generating Station, a coal-fired electrical generation facility in Springdale, Pennsylvania (the Plant). The Bell plaintiffs allege that the Plant’s emissions led to the deposition of ash and other contaminants on their properties, and they seek damages under common law tort theories, including nuisance, negligence and trespass. The Plant argued that it is extensively regulated by federal, state and local authorities under the CAA, and that state tort law is preempted because its use would undermine the comprehensive design of CAA regulation and disrupt the work of regulators. The Bell plaintiffs argued that the plain text of two savings clauses in the CAA authorizes state law tort claims related to air emissions.

The Court applied the Supreme Court’s opinion in International Paper Co. v. Ouellette (1987), which interpreted the savings clauses of the Clean Water Act. Because the Clean Water Act and CAA savings clauses use almost identical language, the Court restated the Ouellette holding in the context of the CAA, and held that the CAA “does not preempt state common law claims based on the law of the state where the source of the pollution is located.” Therefore, the Bell claims, brought under Pennsylvania law against a source located in Pennsylvania, are not preempted. …

August 6, 2013

EPA Allows New Standard for Conducting Environmental Due Diligence

Administrative Watch

On August 15, 2013, the United States Environmental Protection Agency (EPA) published a proposed and “direct final” rule that expands the options available to parties seeking to qualify for certain defenses to liability under Superfund and other laws. This change will provide prospective purchasers with additional choices when conducting environmental due diligence. Although it will take some time for the market to catch up with this change, it is likely that conducting due diligence using this newest approach will add additional cost and time to a proposed real estate transaction.

Background
When acquiring commercial or industrial real estate, it is critical to conduct due diligence into the environmental conditions and prior uses of the target property. Understanding these conditions not only allows the purchaser to evaluate the potential limitations and risks associated with the property, but this due diligence can also be used to establish defenses to environmental liability. For example, under the federal Superfund law (CERCLA), bona fide prospective purchasers and other “innocent” landowners can be protected from certain environmental liability if they undertake “all appropriate inquiry” (AAI) into the prior ownership and uses of a property before acquiring it.

EPA has established specific standards and practices for conducting AAI (the AAI Rule), and in doing so, specifically recognized ASTM’s 2005 Standard for conducting Phase I Environmental Site Assessments (ASTM E1527-05) as being compliant with the AAI Rule. ASTM is currently revising its 2005 Standard, which will be published as ASTM E1527-13 (the 2013 Standard) when finalized. EPA’s proposed rule would provide parties with the option of using either the 2005 Standard or the new 2013 Standard when conducting AAI.

The 2013 Standard
EPA noted in the proposed rule’s preamble that the agency reviewed the 2013 Standard and determined that there are only “slight differences” between the AAI Rule, the 2005 Standard and the 2013 Standard. …

August 6, 2013

Owners and Operators of New Unconventional Wells in Pennsylvania are Subject to New Air Emission Control Requirements

Administrative Watch

On August 8, 2013, the Pennsylvania Department of Environmental Protection (DEP) announced that unconventional gas well sites will no longer be unconditionally exempt from the requirement to obtain an air quality plan approval. The Air Pollution Control Act authorizes DEP to exempt certain sources from the requirement to obtain a plan approval, i.e., the state air quality “permit” which authorizes the construction and temporary operation of air emissions sources. DEP had previously provided a blanket exemption for both conventional and unconventional well sites, such that operators did not need to obtain a plan approval from DEP prior to constructing wells, wellheads and associated equipment. DEP’s new policy retains the existing broad exemption for conventional well sites, but makes significant changes with respect to unconventional well sites.

DEP released a revised final technical guidance document entitled, “Air Quality Permit Exemptions,” which lists plan approval exemptions by category of emission sources. The newly revised list reflects changes to Exemption No. 33, pertaining to compressed natural gas fueling, and Exemption No. 38, pertaining to conventional and unconventional oil and gas exploration, development, production facilities and associated equipment and operation. Although revised Exemption No. 38 still exempts both conventional and unconventional “wells, wellheads, and associated equipment,” DEP will now require unconventional well operators to meet several criteria in order to qualify for the exemption. These new criteria involve controls and practices that are more stringent than federal air regulations. The new conditions on Exemption No. 38 include:

• Owners and operators must conduct an annual leak detection and repair (LDAR) program for valves, flanges, connectors, storage vessels, and compressor seals that are in natural gas or hydrocarbon liquids service—essentially, LDAR must be implemented across the entire well pad;
• Storage vessels/storage tanks must meet 95% or greater emissions reductions for VOCs; …

July 6, 2013

Oil and Gas Lease Act Signed Into Law, Addresses Joint Development

Administrative Watch

On July 9, 2013, Governor Corbett signed into law Senate Bill 259, also known as the Oil and Gas Lease Act (Act), amending the Guaranteed Minimum Royalty Act. In addition to providing new rights and requirements as to payments resulting from the production under oil and gas leases, the Act authorizes an oil and gas operator to combine contiguous leased acreage for more efficient development unless any such lease expressly prohibits unitization or pooling. Section 2.1 of the Act provides:

Where an operator has the right to develop multiple contiguous leases separately, the operator may develop those leases jointly by horizontal drilling unless expressly prohibited by a lease. In determining the royalty where multiple contiguous leases are developed, in the absence of an agreement by all affected royalty owners, the production shall be allocated to each lease in such proportion as to the operator reasonably determines to be attributable to each lease.

Accordingly, if the leases are silent as to pooling and unitization, operators are authorized to pool or unitize contiguous leases and develop such leases by horizontal drilling without acquiring the consent of the lessor. However, if a lease expressly prohibits pooling and unitization, the Act does not alter the terms of such lease and an operator would still be required to obtain an amendment of lease from the lessor to permit the pooling and unitization of the leasehold acreage. Similarly, the Act does not provide an operator with the right to compel the pooling or unitization of unleased acreage. Although most modern leases address the lessee’s right to pool and unitize leaseholds, the Act provides those operators working under leases that are silent as to pooling with new rights to move forward with the efficient development of contiguous leaseholds. …

July 1, 2013

Ohio Enacts Biennial Budget Bill With oil and Gas Regulatory Changes

Administrative Watch

After months of negotiation, the state of Ohio’s biennial budget was signed into law on June 30, 2013 by Governor John Kasich. The new budget covers a wide range of topics, but it is notable for what it does not include – an increase in the oil and gas severance tax. The budget also makes several changes to oil and gas industry regulations. The changes include:

• Horizontal well owners must report production on a quarterly basis rather than an annual basis;

• Beginning on March 31, 2015, well owners must disclose the country of origin of all steel pipes used in the drilling process;

• Only synthetically lined pits or impoundments may be used for temporary storage of brine and other fluids;

• After January 1, 2014, the storage, recycling, treatment, processing or disposal of brine or other waste substances must be in accordance with a permit issued by the chief of the Ohio Department of Natural Resource’s Division of Oil and Gas Resources Management, and the chief is required to adopt rules addressing the issuance of the permits;

• The owner of a horizontal well must test drill cuttings for the concentration of radium-226 and radium-228 if the material is technologically enhanced naturally occurring radioactive material (TENORM) and is not reused in connection with the well, disposed of by injection or transported out of Ohio;

• The owner or operator of a solid waste facility may accept material containing TENORM if the material contains less than five picocuries per gram above natural background of radium-226 or radium-228; and

• Material that is not TENORM, but has come in contact with refined oil-based substances, may only be disposed at an authorized solid waste facility or used in accordance with rules adopted by the director of environmental production. …

June 1, 2013

Ohio Department of Natural Resources Publishes Guidance on Unitization Applications

Administrative Watch 

The Ohio Department of Natural Resources, Division of Oil & Gas Resources Management, recently published new guidelines for applications for a unitization order under Revised Code Section 1509.28. That Section provides the method preferred by the industry for creating units for horizontal drilling where parcels within the proposed unit are unleased. The guidelines are intended to formalize the unitization application process and provide consistency and efficiency in the review process. The guidelines provide notice to applicants that applications lacking information listed in the guidelines will be considered to be incomplete, and will not be processed by the division.

Fifteen unitization application requirements are listed, and can be found at http://www.oilandgas.ohiodnr.gov/industry/unitization. Several requirements of particular importance are:

• Applicants must provide an affidavit setting forth a detailed account of the attempts to lease the unleased properties that includes the date of each attempt, identification of both the person contacted and the person who made the contact, and identification of how the contact was made;

• Applicants must provide a list of all uncommitted working interest owners in the unit which includes the name, address, parcel numbers and the respective acreage of each owner;

• Applicants must submit a statement of why unitization is necessary, a description of the plan for development of the unit, identification of the formation to be produced, estimated value of the recovery of oil and gas for each proposed well, an estimated cost of drilling and operating a well and a designated contact person for the applicant; and

• Applicants must bring large exhibits or slides of maps, cross-sections, gamma ray-density logs identifying the proposed formations to be produced and reserve calculations to the hearing.

The published guidelines also provide additional information concerning revisions and updates to applications, the hearing procedures, requests for continuances of the hearing and the division chief’s action on applications. …

February 1, 2013

U.S. EPA Finalizes Revisions to Boiler, Process Heater and Incineration Unit Rules

Administrative Watch

Numerous sources, from elementary schools to chemical manufacturers will be affected by recently finalized rules governing boilers, process heaters and incineration units. In late December 2012, the U.S. Environmental Protection Agency (EPA) signed the long-awaited final revisions to its combustion air rules affecting boilers, process heaters, incinerators and kilns at a wide variety of facilities and institutions. This rulemaking package includes a revised: (1) Major Source Boiler Rule; (2) Area Source Boiler Rule; (3) Commercial and Industrial Solid Waste Incineration (CISWI) Units Rule; and (4) Non-Hazardous Secondary Materials (NHSM) Rule. After nearly two years of deliberation and legal challenges, the EPA published the final revisions in the Federal Register in late January and early February. The changes to the regulations are effective on different dates.

EPA issued the four rules together because they are interrelated. The two Boiler Rules control emissions of hazardous air pollutants from boilers and process heaters located at industrial, commercial and institutional facilities, while the CISWI Rule controls air pollutants from devices at commercial and industrial facilities (regardless of Major or Area Source designation) that combust “solid waste.” The NHSM Rule defines “solid waste” for purposes of determining which air pollution control rule applies, whether it be the CISWI Rule or one of the Boiler Rules. If, for example, a boiler located at a Major Source facility combusts “solid waste,” which the NHSM Rule defines broadly to include liquids, semisolids and contained gases, then the boiler is subject to the CISWI Rule—not the Major Source Boiler Rule. Generally, the regulated community has preferred to avoid the CISWI Rule, because it imposes tougher requirements than the Boiler Rules’ regime.

The recent revisions should prompt owners and operators of boilers and other combustion devices to evaluate whether their devices are subject to one of these rules. …

February 1, 2013

Ohio Supreme Court: Issuance of a Drilling Permit is Not an “Order” Which Can Be Appealed to the Oil and Gas Commission

Administrative Watch

On January 30, 2013, the Ohio Supreme Court ruled that the issuance of a permit to drill a new well, deepen a well, reopen, convert or plug a well is not considered to be an “order of the chief” of the Ohio Department of Natural Resources’ Division of Oil and Gas Resources Management (DOGRM), Chesapeake Exploration, LLC, v. Oil & Gas Comm., 2013-Ohio-224 (January 30, 2013). As such, the Court held that the Ohio Oil and Gas Commission has no jurisdiction to hear an appeal of such permit under Ohio’s oil and gas law.

The case was brought before the Court by a drilling company seeking a writ of prohibition to prevent the Oil and Gas Commission from exercising jurisdiction in a landowner’s appeal of a permit to drill issued by DOGRM. In determining the Commission’s jurisdiction, the Court was asked to reconcile one provision of Ohio’s oil and gas law authorizing the Commission to hear appeals of any “order of the chief” of DOGRM (R.C. § 1509.36) with another, recently amended, provision of the statute stating that the issuance of a permit to drill “shall not be considered an order of the chief” (R.C. § 1509.06(F)). The Court concluded that R.C. 1509.06(F) manifestly divests the commission of appellate jurisdiction over the chief’s decisions to issue permits for oil and gas wells. An issue not addressed by the Court is whether a permit to drill may be appealed to state court under Ohio’s administrative procedure law.

If you would like to discuss this decision or other issues related to natural gas exploration and production in Ohio, please contact David E. Northrop at 412-394-6590 or dnorthrop@babstcalland.com, Robert W. Thomson at 412-394-5656 or rthomson@ babstcalland.com, Michael H. …

March 1, 2012

EPA Proposes Regulation to Cap Carbon Emissions From New Electric Generation Units

Administrative Watch

On March 27, 2012, EPA Administrator Lisa Jackson signed a Proposed Rule to establish New Source Performance Standards for emissions of Carbon Dioxide (CO2) from new affected fossil fuel-fired electric generating units (EGUs). The Proposed Rule is due, in part, to the U.S. Supreme Court’s 2007 opinion in Massachusetts et al. v. Environmental Protection Agency and the EPA’s subsequent 2009 “endangerment” finding.

The Proposed Rule would apply to EGUs that commence construction after publication of the Proposed Rule in the Federal Register. More specifically, the Proposed Rule would require “new fossil fuel-fired EGUs greater than 25 megawatt electric (MWe) to meet an output-based standard of 1,000 pounds of CO2 per megawatt-hour (lb CO2/MWh) . . . .” EPA reports that this standard is “based on the performance of widely used natural gas combined cycle (NGCC) technology.” EPA opines that, even without the Proposed Rule, no new coal-fired EGUs will be constructed through 2030 without “Carbon Capture and Storage” (CCS) technology.

EPA states that new coal-fired or pet coke-fired units could meet the standard by either employing CCS to approximately 50 percent of the CO2 in the emissions at startup, or through later application of CCS to meet the standard over a 30-year period. The Proposed Rule would not apply to existing EGUs whose CO2 emissions increase as a result of installation of pollution controls for conventional pollutants, or to proposed EGUs that have acquired a complete preconstruction permit by the publication date of the Proposed Rule and commence construction within 12 months of the publication.

Comments on the Proposed Rule will be due 60 days after publication in the Federal Register. The pre-publication copy of the Proposed Rule is available online at http://epa.gov/carbonpollutionstandard/pdfs/20120327proposal.pdf. …

December 1, 2022

Allegheny County Bans Future Oil and Gas Development of County Park Land

FNREL Mineral and Energy Law Newsletter

Pennsylvania – Oil & Gas

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

On July 19, 2022, the Allegheny County Council voted 12-3 to override County Executive Rich Fitzgerald’s veto on Bill No. 12162-22. The bill, which the Council originally passed on July 5, and Fitzgerald vetoed on July 12, bans new natural gas drilling and other industrial activity, including hydraulic fracturing, mining, and commercial forestry, within and underneath county-owned parks. The ban, which does not apply to existing leases, but does prevent expansion of existing operations at Deer Lakes Park, took effect immediately.

In his veto message, Fitzgerald described his opposition to the measure, stating it prevents the County from negotiating environmental protections for any future oil and gas or other industrial activity in the vicinity of county park land. See Fitzgerald Veto Message (July 12, 2022). Specifically, Fitzgerald said passage of the bill prevents

  • baseline water testing before, during, and after extraction activities;
  • air monitoring requirements during natural gas drilling and other industrial activity; and
  • limiting hours of operation and setting noise, dust, trucking, and light pollution limits from natural gas drilling and other industrial activity.

Id. Moreover, Fitzgerald said future legislation authorizing natural gas extraction under county land would act to repeal the ban. Id. Fitzgerald supported a separate bill, Bill No. 12357-22, that would have prevented surface drilling within county parks but allowed leasing of subsurface rights deeper than 7,000 feet. It would have also mandated that the County include environmental protections, including bad actor provisions, in any future lease agreements. …

December 1, 2022

EQB Adopts Regulations Reducing Emissions from Unconventional and Conventional Operations

FNREL Mineral and Energy Law Newsletter

Pennsylvania – Oil & Gas

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

During its June 14, 2022, meeting, the Pennsylvania Environmental Quality Board (EQB) voted 15-3, with one abstention, to adopt Part I of a revised final regulation reducing volatile organic compound (VOC) and methane emissions from unconventional wells and facilities. See Final-Form Rulemaking Preamble, EQB, “Control of VOC Emissions from Unconventional Oil and Natural Gas Sources” (June 14, 2022). This regulation establishes reasonably available control technology (RACT) requirements for 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. Id. at 1.

A substantially similar rule approved by the EQB in March 2022 did not distinguish between conventional and unconventional emission sources. That rulemaking had advanced to the Pennsylvania House and Senate Environmental Resources and Energy (ERE) Committees and the Independent Regulatory Review Commission (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 the Pennsylvania Department of Environmental Protection (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. …

June 28, 2022

PADEP Publishes and Requests Comments on Draft Environmental Justice Policy

FNREL Mineral and Energy Law Newsletter

Pennsylvania – Mining

(By Joseph K. Reinhart, Sean M. McGovern, Gina N. Falaschi and Christina Puhnaty)

On March 12, 2022, the Pennsylvania Department of Environmental Protection (PADEP) published a revised draft of its Environmental Justice Policy (Draft EJ Policy) for public comment. See 52 Pa. Bull. 1537 (Mar. 12, 2022); PADEP, Draft EJ Policy (Mar. 12, 2022). Publication of the Draft EJ Policy comes approximately four years after PADEP published a revised version of its then-current EJ Policy focused on enhancing public participation during permit reviews in identified environmental justice (EJ) areas. PADEP withdrew that revision after public comments indicated that the proposed revisions were beyond the scope of PADEP’s stated focus. See 50 Pa. Bull. 5920 (Oct. 24, 2020). With the withdrawal, PADEP indicated that it intended to develop and integrate a broader EJ policy into its policies and practices. Id. The Draft EJ Policy incorporates, refines, and expands on the withdrawn 2018 revisions, relying on many of the developments that have occurred in the intervening years, and proposes to make significant changes to the current EJ Policy. See PADEP, Environmental Justice Public Participation Policy (Apr. 24, 2004). Below are some of the most significant changes.

Incorporation of Executive Order and Expansion of OEJ’s Role

The Draft EJ Policy incorporates Governor Tom Wolf’s October 28, 2021, executive order on EJ by citing it as an authority and addressing the requirements of the order. See Executive Order 2021-07, “Environmental Justice” (Oct. 28, 2021); Draft EJ Policy at i; see also Vol. …

Top