Articles, Alerts & Perspectives

Administrative Watch

In a highly-anticipated decision, the U.S. District Court for the Middle District of Pennsylvania has granted a motion for summary judgment in favor of a Pennsylvania natural gas operator in an air aggregation case filed by a citizen group. The decision was issued on February 23, 2015 in Citizens for Pennsylvania’s Future v. Ultra Resources, Inc., and is the latest development in the debate over single source determinations. The Court found in favor of the operator, agreeing with the permitting decision made by the Pennsylvania Department of Environmental Protection (DEP) that the compressor stations at issue were not located on adjacent properties. The Court disagreed with the Citizens for Pennsylvania’s Future’s (PennFuture) arguments that the compressor stations were interrelated and, therefore, should be aggregated as a single source. While the Court left some room for the consideration of functional relationships in making single source determinations, such a determination would need to have unique facts that are outside the normal oil and gas configurations contemplated by DEP.

In 2011, PennFuture filed suit in federal district court against Ultra Resources, Inc. (Ultra), alleging that Ultra violated the nonattainment new source review (NSR) air permitting requirements by constructing a major source of nitrogen oxides (NOx) without the appropriate NSR permit. PennFuture contended that Ultra’s construction of eight compressor stations in Tioga and Potter counties without obtaining the appropriate NSR permit violated the Clean Air Act, despite the fact that Ultra obtained separate authorizations to use the General Plan Approval/General Operating Permit known as “GP-5” from DEP for each of its compressor stations. PennFuture viewed the compressor stations as functionally interrelated, operating in concert with a metering station as a single facility with potential NOx emissions exceeding the major source threshold of 100 tons per year, thus subjecting Ultra to heightened permitting requirements. …

Administrative Watch

On February 17, 2015, the Pennsylvania Supreme Court issued Harrison v. Cabot Oil & Gas Corp., a significant opinion in which the Court refused to apply equitable tolling principles that other oil and gas jurisdictions have adopted. Such principles prevent oil and gas leases from expiring during the pendency of lease litigation.

The lessors in this case filed a declaratory judgment action and a fraudulent inducement claim in federal court challenging the validity of their lease, which was two years into its primary term. Out of an abundance of caution, the operator refrained from all operations during the pendency of the litigation. It then asserted a counterclaim seeking to equitably toll the lease in the event it prevailed. Though the operator successfully defeated the lessors’ claims, the District Court denied its equitable tolling claim. As a result, the lease expired while the case was being litigated.

The operator appealed to the Third Circuit, which certified the case to the Pennsylvania Supreme Court on the grounds that it was an issue “of first impression and of significant public importance, given that its resolution may affect a large number of oil-and-gas leases in Pennsylvania.”

In a unanimous decision, the Pennsylvania Supreme Court upheld the District Court’s decision not to toll the lease. In so ruling, the Court noted that its decision went against other jurisdictions that have decided this issue. The Court also noted that the operator should have addressed the issue in its lease by adding a tolling provision. The Court also held that the result may have been different if the lessors had prevented the operator from entering the property to conduct operations.

The case is significant in several respects. First, it opens the door for lessors to try to “run out the clock” on leases by filing frivolous lease litigation. …

Administrative Watch

The Ohio Supreme Court rendered a decision on February 17, 2015, in a closelywatched case on the extent to which local governments may regulate oil and gas drilling and production operations, State, ex rel. Morrison v. City of Munroe Falls, 2015-Ohio-485. At issue was whether Beck Energy Corporation, having obtained a drilling permit from the Ohio Division of Oil and Gas Resources Management, must also comply with ordinances of the City of Munroe Falls in Summit County, Ohio, that required a well driller to obtain a drilling permit from the City, post a performance bond, and go through the process of obtaining a conditional zoning certificate for the well. The certificate may issue only upon demonstration of compliance with the permitting and bonding requirements and only upon approval of City council and several City agencies. The Court, voting four to three, held that the state oil and gas regulatory program preempted the City’s permitting, bonding, and conditional use ordinances imposed upon oil and gas operations, and Beck Energy is therefore not subject to those ordinances. The City’s ordinances addressing the use of City streets, however, were not preempted, and Beck Energy is subject to those ordinances insofar as those ordinances are indiscriminately and fairly applied to oil and gas activities.

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Administrative Watch

The U.S. Environmental Protection Agency (EPA) recently revised its rules governing the recycling of spent materials, listed hazardous sludge and listed by-products associated with the Resource Conservation and Recovery Act (RCRA) definition of solid waste (DSW). See 80 Fed. Reg. 1693-1814 (Jan. 13, 2015). The revised rules now require generators of recyclable hazardous secondary materials (HSM) to send these materials to RCRA permitted treatment, storage and disposal facilities or to approved “verified recyclers.” In addition, generators of any hazardous materials that are destined for recycling will now be required to: (1) comply with new rigorous recordkeeping requirements designed to prevent the speculative accumulation of recyclable materials; and (2) demonstrate that the recycling of the material is legitimate. EPA also formalized its long-standing policy prohibiting sham recycling and introduced a requirement that HSM must be “contained” in order to prevent releases of the material during storage. Further, generators of and facilities that store or recycle HSM will be required to comply with new notification and emergency preparedness and response requirements.

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Administrative Watch

On November 25, 2014, the U.S. Environmental Protection Agency (EPA) signed a proposed rule to promulgate more stringent primary and secondary National Ambient Air Quality Standards (NAAQS) for ozone. The proposed rule would limit air ozone concentrations to between 65 and 70 parts per billion (ppb), down from the current 75 ppb human health-based primary NAAQS standard that was enacted in 2008. The proposal would also tighten the environmental effects-based secondary NAAQS standard to between 13 and 17 parts per million-hours (ppm-hrs) under the W126 index, which determines a three-year average daily ozone concentration during a three-month summer time period.

These revisions to the ozone NAAQS were released by EPA following an order by a federal district court to propose revised standards by December 1, 2014. The order was issued pursuant to a lawsuit brought by several environmental groups after EPA withdrew a proposal to lower the ozone NAAQS to between 60 and 70 ppb in 2011, which was estimated to impose compliance costs of up to $90 billion.

To attain the ozone standards under the current proposal, many states and local jurisdictions will ultimately be required to implement significantly stricter limits on nitrogen oxides (NOx) and volatile organic compound (VOC) emissions from industrial sources, which are precursors of ground-level ozone formation. As a result, many industrial facilities will likely be required to implement alternative work practices or install control equipment to comply with emissions limitations. EPA projects that enactment of these lowered ozone standards would cumulatively cost between $4.7 billion for the 70 ppb standard and $16.6 billion for the 65 ppb standard by 2025.

EPA will hold three public hearings on the proposal in January 2015 and will accept public comments until 90 days after the proposal is published in the Federal Register. …

Administrative Watch

On December 19, 2014, the U.S. Environmental Protection Agency (EPA) issued an advance notice of a final rulemaking that will regulate coal combustion residuals (CCR) as solid waste under Subtitle D of the Resource Conservation and Recovery Act (RCRA). The rulemaking will apply to CCR generated by coal-fired power plants.

Although CCR will not be regulated as hazardous waste under Subtitle C of RCRA, the rulemaking does provide a number of requirements related to CCR disposal. The rulemaking will establish minimum criteria for the placement of CCR in landfills and surface impoundments; however, the rulemaking will not impact CCR disposed in coal mines. According to the EPA, the U.S. Department of the Interior will address the placement of CCR in minefills as a separate regulatory action.

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Administrative Watch

On October 1, 2014, the West Virginia Department of Environmental Protection (WVDEP) conducted an unusual day-long “Stakeholders” meeting at the Charleston Civic Center to discuss the agency’s pending regulations implementing the Aboveground Storage Tank (AST) Act, W.Va. Code § 22-30-1, et seq., enacted earlier this year in the wake of the Freedom Industries’ release into the Elk River on January 9, 2014. Approximately 70 people were in attendance, including industry representatives, trade group leaders, media, public interest group representatives, consultants, attorneys and others. Nearly 20 WVDEP staff participated. The Stakeholders were divided into three groups, with WVDEP staff presenting a series of three rotating workshop/listening sessions on different sections of the draft Emergency Rule.

Generally, there are substantial concerns with the WVDEP’s approach of adopting much of the Underground Storage Tank regulations and making them applicable to ASTs, without adequately considering the relative risks and number of affected facilities that will have to comply with the new rules. Although it is believed that most covered ASTs associated with oil and gas production will fall within the “Level 2” tank classification that is intended to be less stringent than Level 1, the draft rule imposes numerous performance standards, recordkeeping, and reporting obligations on owners of Level 2 ASTs that would still require considerable management attention and effort. Oil and gas tanks classified as Level 1 will be subject to the most detailed and demanding requirements. As of September 30, 2014, WVDEP representatives indicated that more than 45,000 tanks have been registered using the agency’s on-line registration system, and estimated that less than six percent of those fall within the Level 1 category.

The WVDEP plans to take comments on the draft Emergency Rule until October 24, 2014, after which the agency will revise and formally file it as a proposed Emergency Rule, with a final version likely to take effect in early 2015. …

Administrative Watch

On October 22, 2014, Pennsylvania Governor Tom Corbett signed House Bill 402 into law, also known as the Recording of Surrender Documents from Oil and Natural Gas Lease Act (the “Act”). The Act imposes a duty on a lessee to deliver a surrender document to a lessor within 30 days of the termination, expiration or cancellation of an oil and gas lease.

Under the Act, if a lessee fails to timely provide the surrender document to a lessor, the Act sets forth a procedural process by which a lessor may serve notice on a lessee. The lessor’s notice should contain the following statements: (i) the lease has terminated, expired or been canceled, (ii) the lessor has failed to receive a timely surrender document from the lessee, and (iii) the lessor has the right to record an affidavit of termination, expiration or cancellation of an oil or natural gas lease. Additionally, the notice shall include leasehold information, such as the name or description of a corresponding unit, if any, and the name or number of a well drilled under the lease, if any. The lessee has 30 days from the date of receiving notice to deliver a written challenge to the lessor. A lessor who has served notice and has failed to receive a timely challenge from the lessee may then record an affidavit of termination, expiration or cancellation. The Act does not apply when the parties have expressed their intent to renew the lease or to negotiate a new lease in writing. The Act shall take effect on December 22, 2014.

According to a memorandum on the Pennsylvania General Assembly’s website, the purpose of the Act was to create a process for the lessor to obtain a release for an expired oil and gas lease that may not be renewed under the terms of the lease, so that the lessor may then enter into a new lease with another operator in an effort to advance the development of the oil and gas under the lessor’s property. …

Administrative Watch 

The West Virginia Department of Environmental Protection (WVDEP) has released a draft “Interpretative Rule” to implement certain inspection, certification, and spill prevention – response plan provisions of the Aboveground Storage Tank Act (AST Act) enacted earlier this year. The AST Act requires that all qualifying aboveground tanks (generally those with a capacity of 1,320 gallons or more) be inspected and certified as suitable for use by January 1, 2015. Owners of such tanks must also submit a “Spill Prevention Response Plan” to WVDEP by December 3, 2014.

The proposed rule creates three categories of tanks. Level 1 tanks are those that WVDEP believes “have the potential for high risk of harm to public health or the environment[.]” Level 1 includes tanks that are: (1) in a “zone of critical concern” (close to a public water supply intake on a stream) or near a water well or spring that supplies public water; (2) contain “hazardous substances” as defined by the federal Comprehensive Environmental Response, Compensation and Liability Act (also known as the “Superfund” law); or (3) have a capacity of 50,000 gallons or more. Level 3 tanks are those that WVDEP determines to have a low risk of harm to the public’s health or environment because of their contents or location, or their coverage under another “strict” regulatory program. All tanks subject to the AST Act, not designated as either Level 1 or Level 3, will be considered Level 2 tanks (as well as other tanks specifically designated as Level 2 by the WVDEP).

Under the proposed Interpretive Rule, each tank category has different requirements for the initial inspection and certification that must be completed by January 1, 2015. Level 1 tanks must be inspected and certified by at least one of the following persons: (1) a professional engineer; …