As reported by The State Journal, the West Virginia Senate has passed Senate Bill 280 (“SB 280”) which, if it becomes effective, would allow the Secretary of the West Virginia Department of Environmental Protection to transfer well work permits from one business entity to another, a process that has been previously prohibited by State Code. SB 280 was ultimately pushed in favor of Southwestern Energy, a company that has invested more than $5 billion to purchase wells in West Virginia and Pennsylvania. To become effective legislation, SB 280 must first pass through West Virginia House of Representatives before ultimately needing the approval of West Virginia Governor Earl Ray Tomblin.
The Ohio legislature has clarified that oil and gas leases create an interest in real property. Ohio’s Substitute House Bill 9 includes a provision amending Ohio’s lease recording statute (R.C. 5301.09) as follows:
In recognition that such leases and licenses create an interest in real estate, all leases, licenses, and assignments thereof, or of any interest therein, given or made concerning lands or tenements in this state, by which any right is granted to operate or to sink or drill wells thereon for natural gas and petroleum or either, or pertaining thereto, shall be filed for record and recorded in such lease record without delay, and shall not be removed until recorded.
While oil and gas leases are traditionally thought to create an interest in real property, one recent federal court case called the status of oil and gas leases into question. In Wellington Resource Group v. Beck Energy Corp., a district court for the Southern District of Ohio ruled that oil and gas leases merely constitute the right to search for oil and gas on a property and are not an interest in the real property. The amendment in House Bill 9 would appear to supersede the court’s decision and conclusively establish the status of oil and gas leases in Ohio real property law. The bill is set to go into effect on March 20, 2015.
On October 22, 2014, Pennsylvania Governor Tom Corbett signed House Bill 2278, The Unconventional Well Report Act, into law. The Act requires operators of unconventional wells to submit monthly production reports to the Department of Environmental Protection. The change is to revise Act 13, which had required semi-annual production reporting for unconventional wells. The initial report under the Act is due to the DEP on March 31, 2015, and thereafter monthly production reports are due 45 days after the close of the reporting period. The DEP will make the submitted reports available on its website and may use the reports in enforcement proceedings.
On October 22, 2014, Pennsylvania Governor Tom Corbett signed House Bill 402, also known as the Recording of Surrender Documents from Oil and Natural Gas Lease Act, into law. The Act imposes a duty on a lessee to deliver a surrender document to a lessor within 30 days of the termination, expiration or cancellation of an oil and gas lease. Read our Administrative Watch to learn more.
Two bills primarily sponsored by PA Representative Tina Pickett (Republican, Bradford/Sullivan/Susquehanna) have recently passed the State House and Senate. House Bill (HB) 2278, Unconventional Well Report Act, would require the operator of an unconventional well to file a monthly report specifying the amount of production with the Department of Environmental Protection. Currently, production is reported to the Department every six months. HB 402, Recording of Surrender Documents from Oil and Natural Gas Lease Act, states that a lessee shall deliver to a lessor a surrender document not more than 30 days after the termination, expiration or cancellation of an oil or gas lease. If a lessor does not receive such notice within the 30 day time period, the lessor is permitted to serve notice on the lessee. A lessor who has served notice and fails to receive a timely challenge from the lessee may record an affidavit of termination, expiration or cancellation of a lease in the recorder’s office of the applicable county. The bills are awaiting review by Governor Tom Corbett.
On September 22, 2014, New York Governor Andrew Cuomo signed into law the “Community Risk and Resiliency Act”, which amends several provisions of the Environmental Conservation Law (ECL) to incorporate consideration of potential climate change impacts, including physical risks due to sea level rise, storm surges and/or flooding, when evaluating projects under a number of existing programs. The law amends ECL Article 23, also known as New York’s Oil, Gas and Solution Mining Law, in a manner that will prompt the New York State Department of Environmental Conservation (DEC) and applicants for oil and gas well permits to consider the effects of climate change. One provision within the law requires DEC, in consultation with the Department of State, to prepare guidance on implementing the law’s requirements, including development of “relevant data sets and risk analysis tools and available data predicting the likelihood of future extreme weather events,” by January 1, 2017. Applications and/or permits received after the adoption of the Department’s guidance must comply with the law. However, the statute also sets a final effective date of January 1, 2017, indicating that applicants must comply with the law even if the Department has not completed its guidance by that date.
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.
On August 25th, Rep. White (D-Allegheny, Beaver and Washington) introduced House Bill 2403 (2014) in order to repeal Section 2318 of Title 58 (Oil and Gas) of the Pennsylvania Consolidated Statutes. Section 2318 provides that upon the imposition of a severance tax on unconventional gas wells in the Commonwealth of Pennsylvania, the Secretary of the Commonwealth shall submit for publication a notice of the imposition of the severance tax and that Chapter 23 (Unconventional Gas Well Fee) shall expire upon the publication of the notice. Repealing Section 2318 would allow a severance tax and the impact fee to co-exist.
Two pieces of proposed legislation were introduced to the Pennsylvania Senate on Thursday, July 31. Each has been referred to the Senate Environmental Resources and Energy Committee. Senate Bill 1458, if passed, would amend Title 58 by requiring that steel casings (or other steel safety devices) used in in the drilling of an oil or gas well only use steel products produced in the United States. Senate Bill 1460, provides that products containing both foreign and United States steel shall be determined to be a United States steel product if at least 75% of the cost of the articles, materials and supplies have been mined, produced or manufactured in the United States.
New York Assembly Speaker Sheldon Silver announced that the Assembly passed a bill on June 16, 2014, that would impose a moratorium on hydraulic fracturing for a period of three years. The legislation, which passed by a vote of 96 to 37, calls for the New York Department of Environmental Conservation to suspend issuing permits for hydraulic fracturing until 2017. The bill’s memo indicates that the delay is necessary to provide the legislature with additional time to review the effects of hydraulic fracturing on public health and the environment, citing several ongoing national studies that are not expected to be finalized within the next three years. “We do not need to rush into this. The natural gas deposits within the Marcellus Shale are not going to go anywhere,” Silver said. The Assembly passed similar legislation in 2013 that would have established a two-year moratorium, but that measure died in the Senate and was returned to the Assembly in January 2014. Observers believe that the Senate is unlikely to act on the bill before the lawmakers adjourn for the summer.
As reported by Law360, Representative Rick Mirabito, D-Lycoming, recently introduced House Bill 2318, which, if passed into law, would require the Pennsylvania Department of Conservation and Natural Resources to provide notice and require public input before leasing state forest lands for unconventional gas development. Specifically, the bill provides for a public comment period and at least one public hearing or meeting before any land could be leased by the DCNR. In addition, the public would have access to detailed development plans, including locations of well pads, impoundments, access roads, pipelines, compressor stations and other related structures and facilities, during the comment period. The DCNR would also have to provide an analysis of potential impacts of the proposed development on ecological, recreational, cultural and aesthetic resources.
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.
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).
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.
As part of his off-year budget bill, Ohio governor, John Kasich, has proposed a top severance tax rate increase on horizontal drilling to 2.5% as part of a tax package designed to lower income-tax rates. The bill, which is expected to be supported by the Ohio Oil and Gas Association, will allow for a broader exemption for drillers from the commercial activity tax, and it would implement a gross-receipts tax at the first point of sale, after deductions for costs such as gas transportation and processing.
Since early 2012, Kasich has been pushing to increase Ohio’s severance tax on horizontal hydraulic fracturing, but has met with unwillingness by Republican legislators. His latest attempt is set to be introduced in committee today and Kasich hopes to see a full House vote on May 14, 2014. Under Kasich’s plan, Ohio would still have the lowest effective tax rate in the United States, 63% below the average tax rates of other states that have significant drilling activity.