Updating our previous post, a representative of the Center for Sustainable Shale Development (CSSD) indicated at a recent workshop that CSSD leaders want to begin certifying compliance with the CSSD Performance Standards later this year. The CSSD represents a collaborative effort by Chevron Corp., Shell Oil Co., EQT Corp., and Consol Energy Inc., as well as various environmental advocacy groups and philanthropic organizations, to support innovative practices and continuous improvement in the way companies develop shale gas. The CSSD Performance Standards focus on preventing potential water and air pollution issues. Compliance with the Performance Standards is voluntary and will be certified by independent auditors.
The compressed natural gas (CNG) services company IGS Energy recently announced that its CNG fueling station in Bridgeport should be open by September 1st, and that it began construction on another station in Charleston on August 6th, the State Journal reported. The company has committed to building a $10 million dollar CNG fueling corridor in West Virginia and Pennsylvania to provide the infrastructure for the use of the region’s abundant natural gas resources by companies and consumers interested in adopting CNG-powered vehicles. As reported by West Virginia Public Broadcasting, the adoption of CNG-powered vehicles is expected to increase in the region due to Ford Motor Company’s release of a CNG compatible version of its popular F-150 truck.
New York Governor Andrew Cuomo reportedly stated in a radio interview on August 19, 2013 that although the economic benefits of shale gas drilling are “obvious,” the question of whether such benefits outweigh potential environmental and public health impacts remains unanswered. Governor Cuomo was asked about the support of shale gas drilling by President Obama, who is scheduled to visit Upstate New York this week. “The President’s point that fracking has economic benefits, energy benefits for this country—that’s inarguable,” Cuomo responded. “The question is: is there a cost to the environment, et cetera? And that’s what has to be assessed and that’s what has to be weighed and that’s what we’re going through now,” added Cuomo.
The Pennsylvania Environmental Quality Board, the Commonwealth’s environmental rulemaking body, will consider proposed rulemaking to Subchapter C to Chapter 78 of Pennsylvania’s oil and gas regulations during its next meeting on August 27, 2013.
On August 13th, the United States District Court for the Middle District of Pennsylvania granted partial summary judgment in favor of Chief Exploration & Development and other defendants (Chief) in a consolidated case regarding the extension of three oil and gas leases in which the primary terms had expired. Three landowners filed lawsuits in the Court of Common Pleas against Chief in order to terminate the oil and gas leases. Chief then removed the suits to the federal district court based on diversity jurisdiction, and filed a motion for summary judgment arguing that it had extended the term of the leases pursuant to the habendum clause and unitization clause by performing various predrilling activities.
The habendum clause of the lease provided that “the lease shall remain in force for a primary term of five (5) years . . . for as long thereafter as operations are conducted on the Leasehold in search of production of oil, gas or their constituents . . .” The court recognized this provision as a ‘commence clause’. The plaintiffs argued that the habendum clause was ambiguous and that parol evidence was required to determine the intention of the parties. The plaintiffs further argued that Chief failed to commence operations prior to the expiration of the primary term and failed to proceed to the completion of a well with due diligence.
The court first concluded that the habendum clause was not ambiguous. It summarized the rules of contract interpretation and how they apply to oil and gas leases. In doing so, it stated that while it is common for commence clauses to condition a lease extension explicitly on the commencement of operations, the failure to use the word commencement or commence does not render such a clause ambiguous. It further provided that a reference to operations standing alone is generally sufficient to make the meaning of the clause distinct. Therefore, the court found that it was the intent of the parties to condition the extension of the leases on the commencement of operations and that the habendum clause was unambiguous.
The court then held that Chief adequately commenced operations in order to extend the term of the lease. It first stated that commencement of operations does not mean actual drilling of the well. It noted that lessees must be given “great leeway” in manifesting their intent to drill. The court held that the quantum or nature of the lessee’s preparatory activities do not in themselves matter much to the commencement inquiry. The material issue is, rather, whether the activity – minimal or extensive – is undertaking “in good faith, and with a determination on the lessee’s part to prosecute with due diligence the work the lessee was authorized by the lease to do.” The court held that Chief’s activities were sufficient to trigger the lease extensions. Specifically, Chief established the location of the well on a neighboring tract, conducted field surveys, staked the well location, obtained a vertical drilling permit and Erosion and Sediment Control General Permit from the Department of Environmental Protection, and finalized several necessary regulatory submissions prior to unitizing the plaintiffs’ leaseholds. After creating the unit, Chief surveyed the tract of land in which the well was to be located, placed a bulldozer on the property and began to clear lumber.
As expected, the recent increase in shale production and exploration has caused a major increase in job creation in the oil and gas industry, recent reports show. According to data released by the Energy Information Administration and the U.S. Department of Labor, over a six year period ending in 2012, industry employment jumped 40%, or approximately 162,000 jobs. By comparison, the entire private sector in America grew by just 1%, or approximately one million jobs.
The Labor Department numbers show that the job creation seen in the “extraction” and “support” subcategories of the industry have grown the most. Extraction jobs, which range from exploration through some aspects of production, grew by nearly 40%. Similarly, support jobs, which are limited to areas like excavation and well construction and maintenance, and do not include housing and manufacturing data, grew by approximately 55% between 2007 and 2012.
The growth in industry employment is necessary to sustain the nation’s rising energy production; over the same six-year period, domestic crude oil production grew 39%, while natural gas production increased by 25%.
Essroc Cement Corporation, with locations scattered across the Midwest and Northeast, has filed a federal lawsuit in Pittsburgh, seeking to stop a planned pipeline from crossing property in Lawrence County. The pipeline is a joint venture operation between NiSource Inc., of Indiana, and Hilcorp Energy Co., of Texas, and is planned to travel upwards of 50 miles from Utica Shale wells in Pennsylvania and Ohio to a liquids processing plant in Ohio.
According to Essroc, the 20-inch pipeline would materially affect its ability to extract valuable coal and limestone from Essroc’s property. The company, which holds nearly 4,000 acres of subsurface rights around the North Beaver plant, is attempting to sell the property, according to the lawsuit.
On August 16, 2013, the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) published a notice of proposed rulemaking (NPRM) in the Federal Register that contained a package of periodic updates to the voluntary consensus standards that are incorporated into the federal pipeline safety regulations by reference, as well as several non-substantive, miscellaneous amendments. As PHMSA explained in the NPRM, the National Technology Transfer and Advancement Act of 1995 (Publ. L. 104-113) requires federal agencies to adopt voluntary consensus standards by regulation where appropriate, and there are 64 such standards incorporated by reference into the federal pipeline safety regulations. PHMSA also explained that a congressional mandate in the recent reauthorization of the federal pipeline safety laws requires the agency to make these industry standards available to the public, free of charge, on the Internet. Among the noteworthy changes in the NPRM is a proposal to incorporate the first edition of API Recommended Practice 5LT, “Recommended Practice for Truck Transportation of Line Pipe,” into the federal pipeline safety regulations. A variety of other applicable industry standards would also be updated, including those that apply to the transportation of line pipe by rail, barge, marine vessel; the specifications for line pipe, pipeline valves, and storage tanks; and the methodology for conducting pipeline external corrosion direct assessments. PHMSA is also proposing to clarify the text of three regulations by making non-substantive changes.
Recently confirmed U. S. EPA Administrator Gina McCarthy spoke at a forum at the University of Colorado School of Law on August 14 and addressed President Obama’s Climate Action Plan before participating in a panel discussion. In her remarks, McCarthy emphasized that climate change is not an “ancillary environmental concern” and stated that the EPA will work with states and representatives of the oil and gas industry to ensure that natural gas extraction will not harm public health and the environment. “The President has asked us to bring leaders in oil and gas to the table … natural gas is part of the energy future for this country, but natural gas extraction has to be done in an environmentally safe way.”
The Ohio Department of Natural Resources has released information regarding oil and gas permitting and drilling activity, indicating that 32 drilling rigs are currently operating in the state and that 832 total horizontal well permits have been issued since record keeping began. The ODNR issued 80 new horizontal drilling permits in July of 2013, the highest number of which (15) were issued in Belmont County.
During a recent radio interview, New York Governor Andrew Cuomo said that additional initiatives beyond hydrofracking, including reducing taxes and increasing tourism and manufacturing, will be required to improve the economy of Upstate New York. “If we approved hydrofracking today, that is not in and of itself going to change the trajectory of the upstate economy,” Cuomo said. Governor Cuomo also indicated that the New York Department of Health has not provided an update on its review of the potential health impacts of hydrofracking, which Cuomo previously said needs to be completed before a decision is made on lifting the state’s five-year-old moratorium.
As reported by the Pittsburgh Business Times, Pennsylvania Representative Michele Brooks (R-Crawford) issued a memorandum on August 12, 2013 to all House members regarding her intent to introduce two pieces of legislation regarding pooling in the near future. She stated that the legislation would repeal the pooling provisions of the Oil and Gas Conservation Law (Act 359 of 1961) and Section 2.1 of the Oil and Gas Lease Act (Act 60 of 1979 as amended by Act 66 of 2013). Section 2.1 of the Oil and Gas Lease 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. Representative Brooks did not indicate when she will introduce the legislation.
The Beaver County Commissioners have approved the creation of a 325-acre tax-exempt zone aimed at enticing Shell to proceed with the construction of an ethane cracker plant in the region. According to one commissioner, “It’s an important piece of the puzzle, but it still doesn’t guarantee a final decision.” Not only would Shell be exempt from property taxes, but also, its earned income, net profits, business privilege, and mercantile taxes would be abated. Read more here.
EnerVest announced details of the sale of over 22,500 acres in Harrison, Guernsey and Noble counties. EnerVest did not identify the buyer of the acreage, but confirmed the sale amount of $284.3 million or $12,900 per acre. The publicly held portion of EnerVest, EV Energy, will retain an overriding royalty interest on the property.
On August 8, 2013, the Pennsylvania Department of Environmental Protection (PADEP) announced significant changes to its air permitting policy regarding unconventional gas well sites. Pursuant to the state Air Pollution Control Act, PADEP may identify sources or categories of sources that are exempt from plan approval (i.e., source construction or modification permit) requirements. Since 1996, PADEP offered a broad “automatic” exemption for oil and gas exploration and production facilities and operations. This exemption was narrowed considerably this week when PADEP published a revised version of its “Air Quality Permit Exemption List.”
Specifically, PADEP has revised the exemptions for Category No. 33, pertaining to compressed natural gas fueling, and Category No. 38, pertaining to oil and gas exploration, development, production facilities and associated equipment and operation. The most notable change is with respect to Category No. 38: PADEP will now require unconventional operators to satisfy criteria stricter than federal air regulations – namely 40 CFR 60 Subpart OOOO, issued by U.S. EPA last year and currently being revised – in order to qualify for the plan approval exemption. For example, the operator will need to implement a leak detection and repair (LDAR) program across the entire well pad and facility, although the federal regulations require LDAR for storage vessels only.
Unconventional operators have a choice between demonstrating satisfaction of the stringent criteria in exemption Category No. 38 or seeking a plan approval from PADEP. Conventional well operations remain broadly exempt from the plan approval requirement. For purposes of the Air Quality Permit Exemption List, PADEP defines a conventional well as any well that does not meet the statutory definition of “unconventional well” in Act 13 of 2012. Even when a well site is exempt from the requirement to obtain a plan approval, it is still subject to all other applicable air quality regulations, such as the reporting and recordkeeping requirements of 40 CFR 60 Subpart OOOO.
PADEP received 651 comments on the revisions to its Air Quality Permit Exemption List. A comment response document is available.