“The 2014 Babst Calland Report – Appalachian Shale Industry in Transition: Evolving Challenges for Producers and Midstream Operators” comments on key issues facing producers and midstream operators from a legal and regulatory perspective, including:
- Governments and politics are playing a major role in shale energy. State elections will shape how the industry operates. In Ohio and Pennsylvania, the tax debate is still very much alive. In West Virginia, a gas severance tax has been in effect and has remained unchanged despite attempts to raise it. The industry faces increased budgetary and operational challenges from legislative sessions in all three states. Politically-driven developments continue to impact the prospects for new and existing underground injection wells, ranging from new seismic testing requirements to public objections to pending permit applications.
- Regulatory issues remain fluid for the Appalachian shale gas industry. There is no shortage of regulation for the burgeoning shale gas industry, particularly given the degree of transparency, public scrutiny and political influence for and against the extractive industries. A large number of regulatory issues remain, requiring constant attention to developments and details across a spectrum of subjects including: reporting, permitting, well site construction, impacts to species, and unique standards for water and air quality.
- Local government regulation of the industry is expanding. The line between state and local control is still being tested in the state of Ohio, while the implications of Post-Robinson Twp. (Act 13) local regulation in Pennsylvania will not be evident until later in 2014.
- Property rights and land use present more challenges than ever before. Myriad unresolved property rights, royalty disputes and land-related issues are pending in the courts. Producers in Ohio, West Virginia and Pennsylvania are facing a continuously evolving environment concerning property rights and land use.
- Safety and labor remain priorities. The industry’s workforce and supply chain partners are keys to productivity gains and maintaining the all-important license to operate. As the oil and gas industry must protect its workers 24/7, it must remain vigilant on safety compliance and labor matters.
- Next step in the transition: we are at the threshold of a manufacturing renaissance. The Appalachian Basin is playing a leading role in the United States’ production of record amounts of oil, gas and natural gas liquids. New business opportunities are rapidly developing, and the Appalachian Basin has the potential to evolve from our vastly successful resource extraction activities to reclaim its historic reputation as a manufacturing juggernaut.
To request a copy of “The 2014 Babst Calland Report,” contact info@babstcalland.com.
As reported by NGI’s Shale Daily on June 4, many descended upon Pittsburgh, Pennsylvania on Wednesday for the first day of Hart Energy’s Developing Unconventional Gas (DUG) East Conference, where representatives from industry leaders discussed recent industry trends occurring in Ohio, Pennsylvania and West Virginia. Of the speakers on Wednesday, Range Resources Corp.’s CEO Jeffrey Ventura, Randall Wright, President of the consulting firm Wright & Co., Inc., were most notable, discussing the explosive and unparalleled growth in the Appalachian Basin in the past decade. Range CEO Jeffrey Ventura attributed Range’s growth in the past 10 years to expanding pipeline infrastructure and the wealth of knowledge that it has acquired through years of exploration and production, but noted that the Utica Shale, Marcellus and Upper Devonian formations were responsible for helping Range to assemble an asset base that it expects will grow the company’s current reserves by seven to ten times. President Randall Wright mirrored these observations by noting that a new, advanced learning curve, developed through years of experience resulting in more efficient practices by operators has led to an increase of thousands of dollars in property value as well as vast increase in production from 1.5 bcf/d in 2007 to 15 bcf/d this month. The DUG East conference concluded on Thursday, June 5 at the David L. Lawrence Convention Center, located in Pittsburgh, Pennsylvania.
Dominion has asked the Federal Energy Regulatory Commission (FERC) to approve two transmission line projects that would increase Dominion’s ability to transport natural gas supplies to market from various regions. According to the Akron Beacon Journal, the two projects are designed to anticipate and meet the growing natural gas needs of customers while ensuring safe, reliable, and affordable means of transporting natural gas from the Appalachian Basin to market. The first project, the “New Market” project, would improve National Grid’s access to natural gas supplies to meet the growing need of its subsidiaries, Niagara Mohawk and Brooklyn Union, for additional natural gas supplies. The second project, the Clarington Project, would expand Dominion’s transport capabilities from the growing Utica and Marcellus Shale states of Ohio and West Virginia to markets outside the Appalachian Basin. Each of the projects, if approved by FERC, would begin construction in late summer/early fall 2015 and would be placed into service in fall of 2016.
Last week, Governor Tom Corbett announced that county and municipal allocations of the Act 13 well fee, which totaled $225 million for calendar year 2013, were available for review on the Pennsylvania Public Utility Commission’s website. The $225 million disbursement represents an 11% increase from 2012 and is in addition to the nearly $2 billion in corporate and personal income tax revenue paid by oil and gas companies in the past seven years. Approximately $123 million will be distributed to county and municipal governments that host shale activity. The county and municipal governments can use the money received from the Act 13 well fees on various expenses such as construction and repair of roads, emergency response preparedness, and sewer system construction and repair. Additionally, state and county agencies responsible for overseeing the natural gas industry, including the Department of Environmental Protection, will receive $17 million in funding from the well fee revenue. Another $82 million will be distributed by the Marcellus Shale Legacy Fund to counties for parks and recreation as wells as competitive grants awarded to local governments and non-profit organizations for environmental projects.
Well Fee County and Municipality Disbursements for 2013 (B1612296xAB63C)
On June 4, 2014, North Carolina Governor Pat McCrory signed into law the Energy Modernization Act, which lifts a 2012 moratorium that blocked the issuance of oil and gas drilling permits in the state. In addition to allowing for the permitting of hydraulic fracturing and horizontal drilling, the law also prevents local governments from prohibiting oil and gas exploration, development and production activities and criminalizes the unauthorized disclosure of chemical trade secrets, including the chemicals which are used in the hydraulic fracturing process. As a result of this new law, hydraulic fracturing is expected to begin in North Carolina as early as next year.
Yesterday the New York Court of Appeals heard oral arguments in two cases challenging the authority of a municipality to ban certain oil and gas activities within its jurisdiction. The Court is reviewing two lower court decisions from May 2013 which held that New York’s Oil, Gas, and Solution Mining Law (OGSML) does not preempt local zoning laws.
During the oral arguments, Chief Judge Jonathan Lippman stated that both sides present valid public policy issues. “On the one hand, you’re saying yes, we should have a comprehensive strategy to deal with such an important issue to our state–energy,” Lippman said. “And on the other hand, municipalities believe (they can) determine how they’re going to live. They want some voice in how they live.” Attorneys representing the parties challenging the bans argued that New York’s interests in pursuing a uniform energy policy are paramount. In response, the attorneys for the municipalities argued that because the OGSML does not expressly supersede zoning laws, local governments are free to regulate land use within their borders as they see fit. The Court of Appeals is expected to issue its decisions in July 2014.
PRWeb announced that Marcellus Drilling News and ShaleNavigator have released the first volume of a three part series of the 2014 Marcellus and Utica Shale Databook, an in-depth research report geared towards those with a stake in oil and natural gas drilling in the Appalachian Basin. The Databook includes maps, drilling data, analysis of trends, and new information about the appraisal of mineral rights.
The Wall Street Journal reported that MarkWest Energy Partners, L.P. recently announced that a new cryogenic processing facility called Bluestone II will be commenced in Butler County, Pennsylvania. The new facility will increase the processing capacity for Marcellus producers in northwest Pennsylvania to 210 million cubic feet per day. MarkWest Energy Partners, L.P. is involved in gathering, processing and transporting natural gas and the fractionation, storage and marketing of natural gas liquids.
Pennsylvania Senate Bill 1378 was recently referred to the Senate’s Environmental Resources and Energy Committee. If adopted, the bill would require the Environmental Quality Board to differentiate regulations between those relating to conventional oil and gas wells and those relating to unconventional gas wells under Title 58 of the Pennsylvania Consolidated Statutes and other related laws. The Bill defines “conventional oil and gas well” as including any of the following:
(i) a well drilled to produce oil;
(ii) a well drilled to produce natural gas from formations other than shale formations;
(iii) a well drilled to produce natural gas from shale formations located above the base of the Elk Group or its stratigraphic equivalent;
(iv) a well drilled to produce natural gas from shale formations located below the Elk Group where natural gas can be produced at economic flow rates or in economic volumes without the use of vertical or non-vertical well bores stimulated by hydraulic fracture treatments or by using multilateral well bores or other techniques to expose more of the formation to the well bores; and
(v) irrespective of formation, a well drilled for collateral purposes, such as monitoring, geologic logging, secondary and tertiary recovery or disposal injection.
The Bill defines an “unconventional gas well” in the same manner as in the Oil and gas Act of 2012 (Act 13), which is a bore hole drilled for the purpose of producing gas from an unconventional formation (existing below the base of the Elk Sandstone or geologic stratigraphic equivalent where natural gas generally cannot be produced at economic flow rates or in economical volumes except by vertical or horizontal well bores stimulated by hydraulic fracture treatments or by using multilateral well bores or other techniques to expose more of the formation to the well bore).
The Seventh District Court of Appeals issued a decision concerning the automatic termination of an oil and gas lease. The case involved an oil and gas lease which required two wells to be put into production by November of 1989 or the lease would automatically terminate. The second well was not put into production until 1995. Despite the fact that the property owner received free gas and accepted certain de minimus royalty checks, the court held that no waiver or ratification occurred and the lease automatically terminated.
While Marcellus Shale gas continues to be developed in the area, West Virginia is also experiencing a Utica Shale boom in its northern counties. According to Natural Gas Intelligence, multiple operators are investing more capital and manpower into developing Utica Shale wells in Tyler, Marshall, Wood and Wetzel Counties. Several operators are in varying stages of permitting, drilling, and testing deep wells straddling the Ohio-West Virginia Utica boundaries. Additionally, initial data suggests that Utica Shale core dry gas shows significant promise for gas development in the state.
As reported by The Times-Tribune in Scranton, four winners were chosen in the 3rd Annual Shale Gas Innovation Contest. The winners were KCF Technologies, Inc., NG Innovations, Inc., OPTIMUM Pumping Technology, and TM Industrial Supply, and each received a prize of $25,000. The contest received 80 entries, of which there were 13 finalists. The four companies submitted projects that included a wireless system for monitoring oil and gas equipment, a tracking system for the transportation of fluids using satellites, a high-performance manifold for natural gas compressors, and a filter system for the removal of substances from natural gas.
On Thursday, a group of Pennsylvania state legislators, led by Sen. Vincent Hughes (D-Philadelphia), unveiled a proposal that would impose a 5% severance tax on drillers operating in Pennsylvania’s Marcellus Shale industry. According to the legislators, this severance tax would net $720 million for Pennsylvania during the 2014-2015 budget year and be used for environmental protection, economic development, job training initiatives and education. Senator Hughes hopes that some of the revenue received from the severance tax would prevent the state from having to lease public land for gas drilling and exploration. Under the proposal, the severance tax would be levied in addition to the Act 13 well fees already imposed upon the natural gas drillers. Senator Hughes said that the severance tax and well fees together would generate $937 million for Pennsylvania in the 2014-2015 fiscal year. Senator Hughes’s proposal is one of numerous proposals recently introduced in the state legislature aimed at implementing a severance tax on the Marcellus Shale industry. Additionally, all four major candidates in the Democratic gubernatorial primary have also proposed a natural gas severance tax.
Today the U.S. Environmental Protection Agency (USEPA) published in the Federal Register its advance notice of proposed rulemaking regarding the disclosure of chemicals and mixtures associated with hydraulic fracturing (see previous post). Public comments will be accepted through August 18, 2014.
On May 9, 2014, the Ohio Division of Oil and Gas Resources Management announced changes in the procedure for obtaining orders approving drilling units. The procedure, established by R.C. 1509.28, authorizes the Division to approve drilling units that contain unleased properties and properties leased to operators who decline to agree to inclusion in the proposed drilling unit. The procedure is most often used to assemble units for horizontal drilling. The changes include extending the minimum period of time between the filing of an application and the hearing on the application from 45 to 120 days, requiring the submission of additional information by affidavit in the application, and providing additional notice to the public of the hearing. The changes appear in the Division’s guidelines for administering the unitization statute.