Earlier this week, U.S. EPA published final revisions to the New Source Performance Standards for the Oil and Natural Gas Sector (i.e., 40 CFR 60, Subpart OOOO). As discussed in a previous post, EPA has made significant changes to the provisions affecting storage tanks. The revised regulations are effective immediately. Additional information is available here.
Last week the University of Texas, in conjunction with the Environmental Defense Fund and 9 companies involved in natural gas production, released a study which found that 0.42% of natural gas produced in the U.S. is emitted into the atmosphere as methane (the main component of natural gas). This estimate is lower than the leak rates found in a 2010 Cornell University study, which estimated leakage at between 0.6 to 3.2%, and U.S. EPA’s review of 2011 data which showed that gas leaked from wells at a rate of 0.47%. Researchers in the University of Texas study recorded direct measurements of actual emissions at 190 well sites, whereas Cornell and U.S. EPA researchers used data provided by drillers. This is the first of multiple studies to be completed by the University of Texas.
The U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) published a final rule in today’s edition of the Federal Register that amends its administrative procedures for federal enforcement actions effective October 25, 2013. The final rule is intended to comply with a mandate in Section 20 of the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, the most recent reauthorization of the federal pipeline safety laws. Section 20 directed PHMSA to issue regulations that (1) require hearings to be convened before a dedicated “presiding official,” a term defined by statute as an attorney on the staff of the Deputy Chief Counsel that is not engaged in investigative or prosecutorial functions; (2) ensure the expedited review of corrective action orders, which are issued in cases where a pipeline facility is hazardous to life, property, or the environment; (3) create a separation of functions between agency personnel who perform investigatory and prosecutorial duties and those who are responsible for deciding the final outcome of cases; and (4) prohibit ex parte communications on relevant matters by the parties to those actions. The final rule addresses these issues and includes some changes to the draft regulations that the agency published in an August 13, 2012 notice of proposed rulemaking. The changes are largely based on comments submitted by industry trade organizations and the federal committee that advises PHMSA on pipeline safety matters.
On September 20th, Governor Corbett announced that he nominated Ellen Ferretti of Luzerne County as Secretary of the Department of Conservation and Natural Resources (DCNR) and E. Christopher Abruzzo of Dauphin County as Secretary of the Department of Environmental Protection (DEP). Ms. Ferretti had been serving as deputy secretary for parks and forestry until she was named interim secretary of the DCNR in June. Mr. Abruzzo was serving as Governor Corbett’s deputy chief of staff until he was appointed interim secretary of the DEP in April. The Pittsburgh Post-Gazette reports that both nominations will be subject to state Senate approval.
U.S. EPA recently revised its oil spill prevention, control, and countermeasure (SPCC) program guidance to help promote consistency in the way SPCC rules are administered by different EPA regions. The SPCC rules mandate the implementation of professionally-developed, facility-wide spill prevention plans, and apply to facilities that meet all of the following: (1) store, transfer, use or consume oil or oil products; (2) store more than 1,320 gallons in above-ground containers or more than 42,000 gallons in buried containers; and (3) have a reasonable potential to discharge oil or oil products to waterbodies or adjoining shorelines. EPA revised the program guidance in response to criticism from EPA’s inspector general. Earlier this year, the inspector general found that EPA regions lacked guidance or direction on coordinating regional responses to oil spills. The regulated community may comment on the revised guidance. Additional information is available here.
West Virginia Senate President Jeff Kessler is leading the drive to create an oil and natural gas trust fund named the “Future Fund” that would support education, economic development or tax relief decades from now, reports the Global Post. Kessler recently led a group of West Virginia lawmakers to visit North Dakota, where 30 percent of oil and gas tax collections are placed into the state’s Legacy Fund, which cannot be spent until 2017. Kessler indicated that he would like to present the Future Fund proposal as a constitutional amendment in January 2014, stating that he believes that constitutional protections would lock down the fund from lawmakers and interest groups that would like to spend the money prematurely.
The Pennsylvania Department of Environmental Protection will publish its final technical guidance document “Addressing Spills and Releases at Oil & Gas Well Sites or Access Roads” in the September 21, 2013 Pennsylvania Bulletin. The proposed Spill Policy was originally published in the April 14, 2012 Pennsylvania Bulletin for public comment, and the Department’s responses to the 67 comments from 12 commentors are included in a Comment and Response document published on the Department’s website today. The final Spill Policy is effective as of September 21, 2013.
WFMJ reports that State Sen. Jim Ferlo (D-Allegheny) announced that he will introduce Senate Bill 1100 next week, which will place a moratorium on new permits for hydraulic fracturing. The bill, known as the Natural Gas Drilling Moratorium Act, will also seek to create a commission to analyze the agricultural, economic, environmental and social effect of Marcellus Shale drilling. WESA indicates that such a commission would be comprised of seven individuals from various backgrounds, including a nonprofit environmental organization, an academic institution, the oil and gas industry, a geologist, a medical or public health expert, the Pennsylvania Secretary of Environmental Protection and the Pennsylvania Secretary of Conservation and Natural Resources. The bill would halt any new permits for natural gas drilling. StateImpact reports that the bill does not provide a time limit on the proposed moratorium.
The Bowling Green City Council unanimously passed an ordinance banning “fracking” and the disposal of waste fluids within the city limits. In an apparent move to side-step the authority of the Ohio Department of Natural Resources, which maintains authority to issue drilling permits throughout the state, Bowling Green’s ordinance is part of the city’s criminal code instead of its zoning code. It is unknown whether Bowling Green’s new ordinance will face a legal challenge because it is well outside of the established Utica shale play.
EQT Corporation and Green Field Energy Services announced on Monday that they had achieved a major milestone in the hydraulic fracturing field. Using pumps powered entirely by “field” gas, or gas supplied from a separate (and previously drilled) natural gas well, Green Field successfully completed multiple stages in the hydraulic fracturing process on lands leased by EQT Corp.
What this means for the industry is a potentially cleaner method of operating some of the machinery necessary in the hydraulic fracturing process. Rather than relying on diesel-powered trucks and pumps, Green Field’s Turbine Frac Pump technology uses natural gas, a cleaner and more environmentally friendly fuel than diesel. Steve Schlotterbeck, Senior VP and President of EQT Exploration and Production noted that this new technology allows companies to “reduce emissions of carbon monoxide, carbon dioxide, nitrogen, and sulfur oxides; as well as decrease the amount of truck traffic on local roads.”
EQT began a program in 2012 to convert a number of their drilling rigs to natural gas-powered rigs, and so far four such rigs have been converted.
An environmental advocacy group reportedly filed a lawsuit against the New York Department of Health on September 13, 2013, seeking to force the release of documents related to the agency’s public health review of hydraulic fracturing. The Seneca Lake Pure Waters Association filed the action after the Department of Health rejected the group’s earlier request to obtain the documents under the State Freedom of Information Law. Groups on both sides of the debate on whether the state’s hydraulic fracturing moratorium should be lifted have criticized the lack of transparency in the Department of Health’s public health review. Currently the State has no timetable for completion of the public health review.
Platts.com reports that Dominion has begun talks regarding farming out 100,000 acres in West Virginia in the Marcellus Shale located near Dominion’s gas storage assets near the Ohio and Pennsylvania borders. Thomas Farrell, CEO of Dominion, indicated that this acreage has potential gas reserves of 1 trillion cubic feet and that Dominion retained the ownership of the gas rights in order to ensure that drilling in the area would not compromise its storage facilities.
On August 14th, the United States District Court for the Middle District of Pennsylvania adopted a magistrate judge’s report and recommendation that recommended granting SWEPI, LP’s (“SWEPI”) motion to dismiss a lawsuit regarding the extension of a lease by tendering shut-in royalties. In a case titled Mesner v. Swepi, LP, a landowner filed a lawsuit in the Court of Common Pleas against SWEPI in order to terminate the oil and gas lease. SWEPI then removed the suit to the federal district court based on diversity jurisdiction, and filed a motion to dismiss arguing that it had extended the term of the lease by tendering the shut-in royalty pursuant to the terms of the oil and gas lease.
The shut-in provision of the lease provided that “[i]f during or after the primary term of this lease, all wells on the leased premises or within a unit that includes all or a part of the leased premises, are . . . otherwise not producing for any reason whatsoever for a period of twelve (12) consecutive months, . . . Lessee may maintain this lease in effect by tendering to Lessor a shut-in royalty equal to the delay rental as found elsewhere in this lease . . . Upon payment of the shut-in royalty as provided herein, this lease will continue in force during all of the time or times while such wells are shut in.” The plaintiff argued that SWEPI did not extend the lease by tendering the shut-in royalty payments because shut-in royalty provision may only be applied to “wells capable of producing gas in paying quantities” and the two wells shut-in on the leased property were not capable of producing gas in paying quantities. The plaintiff further argued that automatic termination rule should be found applicable to the lease and result in the denial of SWEPI’s motion to dismiss.
Based on the language of the shut-in provision, the court first concluded that SWEPI complied with the provision and extended the term of the lease. The court began its analysis by summarizing the rules of contract interpretation and how they apply to oil and gas leases. In doing so, the court said it must ascertain and give effect to the intent of the parties and that the lease should be given its accepted and plain meaning. Accordingly, the court concluded that the shut-in provision permits SWEPI to tender the shut-in royalty payment to the lessor when all of the wells on the property or in the unit are (1) shut-in, (2) suspended, or (3) otherwise not producing for any reason whatsoever. The court stated it was irrelevant whether the wells shut-in on the leased premises were or were not capable of production. Therefore, it held that SWEPI extended the lease pursuant to the shut-in provision when it tendered the shut-in royalty payment to the lessor. In making his argument, the plaintiff relied on case law from other jurisdictions. The court found these cases to be inapplicable to this case.
The court then held that the automatic termination rule has no affect in this case. Under the automatic termination rule, a lease will terminate if no hydrocarbons are produced in paying quantities, unless the lease contains a savings clause. Since the lease permits SWEPI to extend the term of the lease by tendering a shut-in royalty, regardless of whether the wells are capable of producing gas in paying quantities, the court held that the automatic termination rule was not applicable. Therefore, the court held that SWEPI extended the term of the lease by tendering the shut-in royalty payment.
In one example of how development of the Utica and Marcellus shale formations are contributing to the Ohio economy, one expanding business has recently been awarded approval to use microbes to rehabilitate soil contaminated by petroleum products. Long used to reclaim soil from gas stations and other industrial sites, Ohio Soil Recycling of Columbus, Ohio is now using microbes to reclaim drill cuttings from well sites, preserving material that would otherwise be taken to a landfill. The process uses naturally occurring bacteria to break down the petroleum products in as quickly as 24 hours. Ohio Soil Recycling has only recently received approval for the process, but is reporting great interest from oil and gas producers in Ohio.
Chesapeake Energy Corp. and lease partner StatoilHydro have reportedly agreed to end a two-year legal battle to extend 200 natural gas drilling leases covering approximately 13,000 acres in southern New York, near the Pennsylvania border. In a settlement announced on September 9, 2013, the companies agreed to drop the appeal of a November 2012 federal district court ruling in Aukema v. Chesapeake Appalachia LLC, which found that New York’s moratorium on high-volume hydraulic fracturing was not a force majeure event capable of unilaterally extending the leases. New York officials recently told a state legislative committee that there is still no timeframe for a decision on whether to lift the moratorium.