The Seventh District Court of Appeals overturned the Monroe County trial court’s decision in Hupp v. Beck Energy Corporation finding that a standard oil and gas lease form was void as against public policy. The appeals court found that the delay rental provision did not allow the lease to be held in perpetuity by making nominal payments, that the phrase “capable of production” means that a well drilled on the leasehold must be capable of producing, and that where a lease allows production in paying quantities to be determined “in the judgment of the lessee” it does not allow a lessee to arbitrarily determine whether a well is capable of production because courts impose a good faith standard on the paying quantities requirement.
The appeals court made additional rulings which will be reported in a future post on Shale Energy Law Blog.
The Ohio Department of Natural Resources has opened the comment period on its draft rules for the construction of horizontal well sites. All interested parties may submit comments in writing by the close-of-business on Monday, October 06, 2014 to dogrm.rules@dnr.ohio.gov.
On Tuesday, September 23, 2014, the United Nations’ Climate and Clean Air Coalition (CCAC) announced the launch of an Oil and Gas Methane Partnership. The partnership includes representatives of the private sector, government members of CCAC and environmental groups who pledged to cut methane emissions from the oil and gas sector. Six oil and gas companies, including Southwestern Energy Co. and Statoil ASA, have signed on to the partnership, which aims to identify cost-effective ways for companies to reduce methane emissions during oil and gas production. The Oil and Gas Methane Partnership was one of five partnerships announced at the United Nations climate change summit that occurred on September 23.
A bill that would amend taxation on oil and gas drilling was referred to the Pennsylvania House Committee on Environmental Resources and Energy on Monday. House Bill 2508, which was introduced by Margo Davidson (Democrat, Delaware County) and others, seeks to impose a severance tax of 5% of the gross value of units severed at the wellhead during a reporting period, plus 5 cents per unit severed. Filing of a tax return would be required within 15 days following the end of a reporting period. Oil and gas producers would also be required under the Bill to apply to the Department of Revenue for a severance tax registration certificate prior to conducting operations, which must include, among other items, a declaration of all producing sites and nonproducing sites used by the producer for severance of natural gas. The Department may refuse to issue or revoke a registration certificate, and the Bill provides a process for appealing such determination. The violation of such provisions under the Bill would result in a producer being found guilty of a summary offense and sentenced to pay a fine. The Bill includes additional provisions regarding assessments, interest, and penalties. The Bill in its entirety can be found here.
PowerSource of the Pittsburgh Post-Gazette provided commentary discussing future economic opportunities regarding natural gas liquids (NGLs). Olefins plants or cracker facilities transform NGLs into products that are used in many industrial and consumer end applications. The commentary discussed the infrastructure challenge facing many regional policymakers, education institutions, thought leaders and business groups. The commentary suggested the development of an open-access midstream system will guarantee delivery of the region’s NGLs, specifically ethane, to planned Olefins plants and cracker facilities in the Appalachian Valley region to support downstream manufacturing within the local region.
On September 18, 2014, sixteen of the nation’s largest environmental advocacy groups joined forces in a letter to President Barack Obama calling for national standards aimed at reducing methane emissions from oil and gas operations. The letter urged the U.S. Environmental Protection Agency (USEPA) to exercise its authority under the Clean Air Act to develop “smart and reasonable” methane standards for the oil and gas industry. The letter also encouraged the U.S. Department of the Interior to update their policies for national gas and methane emissions on public lands. As reported earlier this year, USEPA has released technical white papers regarding methane and volatile organic compound emissions, and is currently developing a strategy to address emission sources in the industry.
As reported on Bloomberg.com, Spectra Energy Corporation, a Houston-based pipeline operator, and Northeast Utilities, a Connecticut-based utility provider, have partnered in proposing a $3 billion pipeline expansion that will increase natural gas supply to the six New England states. The project, known as “Access Northeast,” will provide fuel for power plants and home heating in an attempt to combat soaring energy prices in the New England region. According to the report, power prices in New England reached a 6-year high last spring due to extreme cold temperatures and a shortfall in pipeline capacity, which restricted gas supply. The proposed Access Northeast project plans to boost the capacity of Spectra’s existing Algonquin and Maritimes pipelines, by as much as 1 billion cubic feet per day and create additional delivery points for local distribution. The project is expected to be in service by November 2018.
According to the report, Access Northeast is not the only pipeline project aimed at connecting the booming Marcellus Shale gas formation with other states: (i) Kinder Morgan Energy Partners LP’s proposed “Northeast Energy Direct” project will also supply natural gas to New England, (ii) Duke Energy Corp., Dominion Resources, Inc., Piedmont Natural Gas Co. and AGL Resources Inc. have partnered to construct a $5 billion pipeline from West Virginia to North Carolina, (iii) NextEra Energy Inc. and EQT have paired up to build a 330-mile pipeline from West Virginia to the southeastern states, and (iv) Spectra is also seeking to expand its Texas Eastern pipeline system in Ohio pursuant to an agreement with American Electric Power Co. and Chesapeake Energy Corp.
The Pittsburgh Tribune Review reports that colleges located in Western Pennsylvania are creating programs to prepare students for jobs in the energy industry. For example, Kennedy Township’s Rosedale Technical Institute (soon to be re-named Rosedale Technical College) currently offers an industrial technician associate degree program, and it will add additional programs next year. Westmoreland County Community College offers an energy degree program and Butler County Community College recently added four energy classes to its course offerings. Allegheny County and Beaver County Community Colleges also offer classes geared toward the energy industry. According to the Pennsylvania Department of Labor and Industry, shale-related industries employed approximately 238,000 people in 2013.
Ohio Governor John Kasich increased his rhetoric regarding a new severance tax on shale oil and gas production. So far, the legislature has opposed any additional increase in the severance tax that was passed in House Bill 375 in May of this year. Governor Kasich describes the current 2.5 percent severance tax as “puny” and vows to push harder for an increase if he wins re-election this November. Governor Kasich previously advocated for a 2.75 percent tax with fewer deductions and credits.
Citing a recently decided case in Colorado, the bankruptcy trustee for Norse Energy filed a motion in early August urging the New York Court of Appeals to re-hear arguments in the case. In June, the Court of Appeals issued an opinion which affirmed local zoning laws adopted by two upstate towns that prohibited oil- and gas-related activities within their borders. The motion filed by the trustee in August asserted that a Colorado court’s rationale in striking down a voter-approved local law prohibiting hydraulic fracturing provides support for the position that municipal-wide drilling bans directly conflict with New York’s Oil, Gas and Solution Mining Law. In response, the environmental group Earthjustice recently filed a motion urging the Court of Appeals to reject the trustee’s request on the grounds that the motion for reargument was untimely and the Colorado decision was based on different laws and legal analyses.
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. Read our Administrative Watch for more information about the rulemaking and the AST Act.
On September 9, the U.S. House of Representatives voted to pass a bill introduced in response to the ‘Waters of the United States’ Proposed Rule that was prepared jointly by the U.S. Army Corps of Engineers (USACE) and U.S. Environmental Protection Agency (USEPA) and published in April 2014. The bill, known as the “Waters of the United States Regulatory Overreach Protection Act of 2014” (H.R. 5078), would prohibit USEPA and USACE from “developing, finalizing, adopting, implementing, applying, administering, or enforcing” the proposed rule. On September 8, the White House announced its objections to the bill, including concerns that H.R. 5078 would “derail” efforts to clarify the scope of the Clean Water Act. The announcement also noted that if the President were presented with H.R. 5078, his senior advisors would recommend that he veto the bill. Notwithstanding H.R. 5078, the public comment deadline for the proposed rule is fast-approaching. Comments are due to USEPA/USACE by Monday, October 20, 2014.
Natural Gas Intelligence reports that the Marcellus Shale Coalition has awarded Pennsylvania-based consulting firm Environmental Standards Inc. with a contract to manage a study that will analyze the presence of methane in groundwater samples. Specifically, the study will seek to establish a consensus standard for analyzing light gases in groundwater, both before and after the drilling process. Although there are several published procedures for analyzing methane in water sources, none are widely adopted, nor has the U.S. Environmental Protection Agency published any particular one. The goal is to establish uniform standards that will provide more reliable test results. The study will examine the practices of the Pennsylvania Department of Environmental Protection’s laboratory, as well as 10-15 other private laboratories across the country. The final report is expected by the end of the first quarter of 2015.
The Pittsburgh Business Times reported that Shell has drilled two producing wells in the Utica Shale formation in Tioga County, Pennsylvania. Shell credited its success to “solid technical work in [its] onshore business.” The two wells are many miles away from the majority of existing Utica wells and illustrate the potential of the Appalachian basin. The wells have demonstrated flowback rates of 11.2 million cubic feet per day and 26.5 million cubic feet per day. Shell is currently awaiting production results on four more recently drilled wells in Tioga County.
The federal Bureau of Land Management (BLM) has taken another step towards finalizing updated regulations for hydraulic fracturing on federal and Indian lands, by sending a revised final rule to the White House Office of Management and Budget (OMB) for review. The revised rule was published in the Federal Register in May 2013. During the subsequent public comment period, BLM received a large number of comments on the rule from both public interest organizations and industry groups. Any revisions will not become public until OMB completes its review and the final rule is published, perhaps by late fall of this year. The rule would apply to hydraulic fracturing operations conducted on the approximately 700 million acres of federal mineral estate and 56 million acres of Indian mineral estate overseen by BLM.