As reported by the Charleston Gazette-Mail and Natural Gas Intelligence, the West Virginia Senate recently passed SB 419, which, if enacted, would eliminate certain volumetric fees that natural gas producers pay in addition to the state’s severance tax. The tax was implemented as part of the Workers’ Compensation Debt Reduction Act of 2005 in order to generate revenue to pay state workers’ compensation debts. It imposes a 4.7 cent per Mcf fee on natural gas production and a 56 cent per ton fee on coal producers. Although the fees generated $122 million for the state in fiscal year 2015, a spokesperson from Governor Earl Ray Tomblin’s office stated that the tax was only intended to be in force until the workers’ compensation debts were paid off. These debts have just about been repaid, more than 10 years ahead of schedule, due in large part to increased production from the Marcellus Shale in recent years. SB 419 was introduced on January 28, was unanimously passed by the Senate last Thursday and is now before the House of Delegates.
On January 29, 2016, the U.S. Environmental Protection Agency (EPA) published in the Federal Register a proposed rule that would amend the Greenhouse Gas Reporting Program for the petroleum and natural gas systems source category at 40 CFR Part 98, Subpart W, which was revised as recently as October 2015. Specifically, EPA now proposes to add new monitoring methods for detecting leaks from oil and natural gas equipment in order to achieve consistency with the leak detection methods in the agency’s pending New Source Performance Standards rulemaking for the oil and natural gas industry. In addition, EPA is proposing to add emission factors for leaking equipment for use in the calculation and reporting of greenhouse gas emissions. Comments regarding the latest Subpart W rulemaking are due February 29, 2016.
On February 3, 2016, the Pennsylvania Environmental Quality Board (EQB) adopted significant revisions to the Commonwealth’s oil and natural gas regulations by a vote of 15 to 4. EQB’s vote formally splits current Chapter 78 (Oil and Gas Wells) into new Chapter 78 (Conventional Oil and Gas Wells) and Chapter 78a (Unconventional Wells). Most of the significant revisions in the rulemaking package address Subchapter C (Environmental Protection Performance Standards), but the final rulemaking amends other Subchapters within Chapter 78 as well. Specifically, the revisions would alter or create new obligations for permit applications and renewals, water supply replacement, predrilling surveys and reviews, erosion and sediment control, water management plans, emergency response plans, wastewater management, disposal of drill cuttings, site restoration, spills and releases, and production reporting. In addition, the rulemaking includes 25 different requirements for electronic applications, electronic notifications, and electronic submittals.
Several amendments were offered from the floor but defeated.
If the rulemaking successfully completes review at the Pennsylvania Independent Regulatory Review Commission, the appropriate legislative standing committees, and the Attorney General’s Office, the revisions will become effective upon publication in the Pennsylvania Bulletin.
Energy Attorneys James Curry, Keith Coyle Join Firm as Shareholders
WASHINGTON, D.C. and PITTSBURGH, PA – January 25, 2016 – The law firm of Babst Calland today announced the opening of a new office in Washington, D.C., and the addition of two experienced energy attorneys, James Curry and Keith Coyle. Attorneys Curry and Coyle represent clients in the energy industry on a variety of matters, particularly in the areas of pipeline safety and the transportation of hazardous materials, and are joining the Firm’s Energy and Natural Resources Practice Group as shareholders. Adding to the Firm’s energy and environmental capabilities, these new attorneys bring deep experience in compliance, regulatory and legislative affairs, strategic counseling, enforcement, litigation, and audit preparation.
Attorneys Curry and Coyle are joining Babst Calland from a prominent D.C. environmental and energy law firm, where they played a critical in role in developing and expanding a nationally-recognized pipeline safety practice group. Both previously served as attorneys for the Pipeline and Hazardous Materials Safety Administration (PHMSA), the federal agency that oversees the safety of the country’s growing network of gas and hazardous liquids pipelines. Active in several pipeline trade organizations and a frequent speaker at industry events, Curry counsels clients throughout the United States on PHMSA compliance matters and other transportation-related issues. Coyle, a member of the Pennsylvania Governor’s Pipeline Infrastructure Task Force who also specializes in PHMSA and transportation matters, is returning to Babst Calland, where he was an associate attorney earlier in his career.
The opening of the Firm’s new Washington, D.C. office, its sixth location, marks a significant event in Babst Calland’s 30-year history. The new office will be located at The Southern Building at 805 15th Street NW, Suite 601, Washington, DC. Founded in 1986, the Firm has a nationally-recognized environmental practice and is a leading provider of legal services to the energy industry in the Appalachian Basin and beyond.
Commenting on these developments, Chester R. Babst III, managing shareholder of Babst Calland, said, “We are expanding the capabilities of our nationally-recognized energy and environmental practice through the addition of Jim Curry and Keith Coyle, and the creation of a Pipeline and HazMat Safety practice with a new office in our nation’s capital. We are very pleased to welcome these well-regarded attorneys to our Firm as they share similar values, experience and philosophy for serving clients, some with whom we have shared business relationships,” said Babst.
“It is an exciting time for us to join Babst Calland, a firm with a significant energy and environmental legal practice and reputation that will complement our Pipeline and HazMat Safety practice in support of clients across the United States,” said Attorneys James Curry and Keith Coyle.
To read more: click here.
Senate Bill 257 was introduced in the Ohio General Assembly on December 30, 2015. The Bill, introduced by Senators Bill Seitz and Michael Skindell and co-sponsored by Senator John Eklund, would revise current Ohio Revised Code Section 5301.07. The current version of Section 5301.07 provides that certain defects in recorded real property instruments, such as a defective acknowledgement or improper witnessing, are cured and the instrument is deemed to be valid and enforceable after 21 years after the instrument was recorded. Prior to 21 years, a challenge can be made to the enforceability of the instrument based on such defects. Under the proposed revisions in Senate Bill 257, there is a rebuttable presumption that the defective instrument which is signed and acknowledged by a person owning an interest in real property conveys or otherwise affects the interest of such person and is valid, enforceable and effective as if legally made without any defects. Such instrument shall also provide constructive notice to all third parties of the instrument, notwithstanding any defect. The presumption can only be rebutted by clear and convincing evidence of fraud, undue influence, duress, forgery, incompetency or incapacity. In addition, the time period after which such defects are cured is lessened from 21 years to 4. The changes proposed by the Bill also include an expansion of the type of defects which are covered by Section 5301.07. Under Senate Bill 257, the Section will apply to several specified defects, but is not limited to the defects listed, arguably expanding the application of the Code Section to any defect in a real property instrument. The Bill would also make the Code Section applicable to all “real property instruments,” which include deeds and leases. Therefore, if Senate Bill 257 is passed into law, litigation is likely to arise as to the section’s applicability to and effect on oil and gas leases.
The Ohio Supreme Court definitively decided a case that at one time threatened the validity of thousands of Ohio oil and gas leases. As previously reported in April of 2014, the Seventh District Court of Appeals overturned the decision of the Monroe County trial court in Hupp v. Beck Energy Corp., which originally held that a standard oil and gas lease form was void against public policy because it allowed a lease to be held in perpetuity. In January of 2015, the case was accepted for review by the Supreme Court of Ohio which issued a decision this morning affirming the District Court’s ruling. The Court held that the leases were not void against public policy and could not held in perpetuity because (i) delay rentals could only be used to maintain the leases during their stated primary term; (ii) the phrase “capable of being produced,” as used in the lease referred to the potential for production from a well drilled on the leased lands rather than the lands themselves; and (iii) that production “in the judgment of the Lessee” also applied to production from an existing well and not possible production from the leased lands. The Court also declined to read an implied covenant of reasonable development into the leases as they required development to commence within a certain period and contained specific language disclaiming implied covenants.
On January 19, 2016, Pennsylvania Governor Tom Wolf and the Department of Environmental Protection (DEP) announced a sweeping new regulatory strategy for reducing methane emissions from oil and natural gas operations in the Commonwealth. Methane, the primary constituent of natural gas, is considered by federal and state agencies to be a potent greenhouse gas which contributes to climate change. Governor Wolf stated that Pennsylvania, as the nation’s second-largest producer of natural gas, is “uniquely positioned to be a national leader in addressing climate change.”
The Pennsylvania methane reduction strategy is expected to result in significant changes to the air permitting and regulatory regime that currently applies to oil and natural gas industry sources. For more information, read our Administrative Watch.
On January 14, 2016, the U.S. Fish and Wildlife Service (“USFWS”) published in the Federal Register the Final 4(d) Rule for the Northern Long-Eared Bat. USFWS issues such rules pursuant to Section 4(d) of the Federal Endangered Species Act in order to promulgate regulations that are tailored to the conservation needs of specific threatened or endangered species. The final 4(d) rule issued by USFWS for the Northern Long-Eared Bat prohibits the incidental take of the species in certain circumstances, including incidental takes resulting from tree cutting activities that: (1) occur within 0.25 miles of a known hibernaculum; or (2) result from the cutting or destruction of “known occupied maternity roost trees,” or any other trees within a 150-foot radius of the maternity roost tree during pup season (June 1 through July 31). The final rule replaces the Interim 4(d) Rule issued by USFWS on April 2, 2015.
As previously reported, in November 2014, the Lycoming County Court of Common Pleas granted the condemnation of a temporary construction easement to UGI Penn Natural Gas, Inc., a public utility. As a result, UGI was allowed to use the easement to park and store vehicles, equipment and materials related to the construction and maintenance of a pipeline which is to provide gas service to the Moxie/Panda Electric Generation Plant. Law360 reported that the Commonwealth Court of Pennsylvania recently issued a pair of opinions upholding the decision of the trial court. CourtListener recently posted a copy of the opinions. Among other findings concerning the timeliness of the landowners’ claims, the Commonwealth Court concluded that: (1) a pipeline meant to supply a power plant could constitute a public utility service; and (2) the scope of UGI’s taking was not greater than necessary to acquire the property rights in connection with the easement. In short, the court determined that the landowners’ challenges were meritless.
Last week, the Pittsburgh Post-Gazette reported that OSHA may publish its final rule on occupational exposure to crystalline silica as soon as February 2016. Safety + Health Magazine further reports that OSHA has sent a draft of its final rule to the Office of Management and Budget (“OMB”), one of the final steps prior to the publication of a final rule. The proposed rule was under OMB review for nearly two-and-a-half years. OSHA’s proposed rule would set a permissible exposure limit of 50 micrograms of respirable crystalline silica per cubic meter of air, reducing the current limit for general industry in half, and set a permissible exposure limit of 250 micrograms for construction sites and shipyards. In addition, the rule also would require engineering controls to reduce exposure, air monitoring, medical surveillance, and worker training. The content of the final rule is not known, but may reflect changes in response to more than 2000 public comments received on the proposed rule.
As reported by Law360, the Pennsylvania Supreme Court will allow argument after the January decision by the Commonwealth Court in Pa. Envtl. Def. Found. v. Commonwealth, 108 A.3d 140, 45 ELR 20006, in order to determine how judges should approach government actions challenged under the Environmental Rights Amendment (Article I, Section 27) of the Pennsylvania Constitution. The Court said that it would consider “the proper standards for judicial review of government actions and legislation challenged under the Environmental Rights Amendment” and, specifically, the constitutionality of a pair of fiscal code amendments that gave the Pennsylvania Legislature control over revenue streams generated from the leasing of state land for oil and gas drilling. In January, the Commonwealth Court ruled that the Environmental Rights Amendment did not place fundamental restrictions on what the Commonwealth can do with revenues generated from public lands.
Babst Calland represents an oil and gas operator in Lycoming County, PA, where a recent court order requires an objector to a well pad to post a $5.69 million bond in order to move forward with a land use appeal. The basic facts of the case are described below. Inflection Energy (PA) LLC (Inflection) is an oil and gas operator that received conditional use approval for a well site in Loyalsock Township’s Agricultural Rural (A-R) zoning district. An objector appealed that approval to the Court of Common Pleas of Lycoming County. The appeal contained no allegations that Inflection failed to meet any of the objective requirements of the Loyalsock Township Zoning Ordinance. In response to that appeal, Inflection filed a petition for bond with the Court alleging that the primary purpose of the appeal was for delay, that the appeal was frivolous on the merits, and that the objector should post a bond to compensate Inflection for that delay if the objector chooses to move forward with the appeal. At the hearing before Senior Judge Brendan J. Vanston, Inflection presented as witnesses two Inflection employees who testified that the objector had stated that the appeal was brought only to delay the development of the well pad. On November 6, 2015, Sr. Judge Vanston entered an Order of Court finding that the appeal was frivolous and that the objector shall post a bond with the Court in the amount of $5.69 million by December 4, 2015 in order to proceed with the appeal.
In Chesapeake Exploration v. Buell, the Ohio Supreme Court held that oil and gas leases constitute “title transactions” under Ohio’s Dormant Mineral Act (“DMA”). Under the DMA a “title transaction” constitutes a saving event to preclude severed mineral rights from being deemed abandoned and reunited with rights to the corresponding surface property. Of critical importance is whether an oil and gas lease constitutes a “title transaction” under the law. While the DMA defines the term “title transaction” it did not state whether an oil and gas lease constitutes a title transaction. The Court concluded that a “title transaction” is any transaction affecting title to any interest in land and that oil and gas leases affected title to land.
On October 21, 2015, Judge Richard McCormick, President Judge of the Westmoreland County Court of Common Pleas, issued a decision and order upholding the validity of Allegheny Township’s zoning ordinance, which permits oil and gas well development in the Township’s R2 Agricultural/Residential Zoning District. The decision in Frederick v. Allegheny Township Zoning Hearing Board, No. 1898 of 2015 (Com. Pl. Westmoreland Co. Oct. 21, 2015), affirms a previous decision of the Township’s Zoning Hearing Board. Babst Calland represented CNX Gas Company LLC (CNX), an intervenor in the case, before both the Common Pleas Court and the Zoning Hearing Board.
CNX applied for and received a zoning compliance permit to develop an unconventional gas well pad in the Township’s R2 District, in which oil and gas well development is permitted as a use by right. Neighboring property owners Dolores Frederick, Beverly Taylor, and Patricia Hagaman appealed to the Zoning Hearing Board, challenging both the issuance of the permit and the validity of the Township’s zoning ordinance, alleging that permitting oil and gas well development in the R2 District violated the Pennsylvania Supreme Court’s plurality decision in Robinson Township v. Commonwealth of Pennsylvania. Following several nights of hearings and oral argument, the Zoning Hearing Board ruled that the zoning ordinance was valid and upheld the issuance of the zoning compliance permit. Objectors then appealed to Common Pleas Court.
Since the Robinson decision, zoning ordinances authorizing oil and gas development have been challenged in several municipalities, with objectors essentially arguing that those ordinances are invalid because they are not strict enough. In most of these cases, the objectors have asserted that the zoning ordinance violated the Pennsylvania Environmental Rights Amendment (as interpreted by the Robinson plurality) because it permitted oil and gas development, a use they characterize as “industrial”, in agricultural, residential and other non-industrial districts. To date, all of those challenges have been rejected by local zoning hearing boards, although several of those decisions have been appealed to Common Pleas Court. Frederick is significant in that it is the first case in which a Court has addressed a Robinson based ordinance validity challenge. This case is precedential in Westmoreland County and is instructive to Courts in the other counties of the Commonwealth.
In Frederick, Judge McCormick first observed that Robinson was not binding precedent because it was only a plurality decision. The Court also pointed out that that Robinson did not address the constitutionality of a local ordinance, but instead involved a statute of statewide application (Act 13) that was invalidated because it interfered with the right of municipalities to make local zoning determinations. In any event, the Court went on to conclude that the Allegheny Township zoning ordinance was consistent with the Robinson plurality. Significantly, citing the extensive record developed before the Zoning Hearing Board, Judge McCormick expressly rejected the objectors’ contention that the zoning ordinance’s authorization of oil and gas uses “is inconsistent with the agricultural and residential character of the Township.” That record established that (1) there was a long history of oil and gas development in the Township, including a number of wells and a pipeline in close proximity of the objectors’ properties, (2) in the R2 District approximately 75% of the land mass is leased to oil and gas operators, (3) having the well pad on his property enabled the surface owner to continue actively farming his property instead of developing it for a residential subdivision, and (4) permitting oil and gas operations in the R2 District enhances the Township’s ability to maintain its rural character. The Court also cited to expert testimony which concluded that oil and gas operations have safely coexisted within rural communities throughout the Commonwealth.
Judge McCormick also rejected several of the objectors’ related arguments. Specifically, the Court ruled that the Township zoning ordinance did not constitute illegal “spot” zoning and did not violate sections 604 and 605 of the Pennsylvania Municipalities Planning Code. In so concluding, the Court stated that the Township’s “legislative body sought to further the general welfare of its citizens by permitting them to benefit economically from oil and gas resources and royalites, and enabling them to retain the agricultural use and rural setting of their land.” Finally, the Court found that the authorization of oil and gas development did not violate the community development objectives of the Township zoning ordinance.
According to the Washington Observer-Reporter, a formal application for the Mountain Valley Pipeline was filed with the Federal Energy Regulatory Commission (“FERC”) last week. The pipeline will extend 301 miles and connect the shale gas fields of northwestern West Virginia with Pittsylvania in western Virginia. FERC has acknowledged receipt of the pipeline application and will soon set a 30-day public comment period.