Tort Risks Related to California Fracking

This post was written by Todd Maiden, Marilyn Moberg, and Michael Mandell.

A few months ago, we discussed the Fiorentino case where Pennsylvania plaintiffs alleged an oil and gas company improperly conducted hydraulic fracturing, which allowed the release of toxic chemicals on their land and into their groundwater. At the time, the Fiorentino court was unwilling to dismiss the plaintiffs’ claims until the record was more fully developed. Among those claims was a claim for strict liability whereby the plaintiffs claimed that hydraulic fracturing is an abnormally dangerous activity under Pennsylvania law. Fiorentino v. Cabot Oil & Gas Corp., 750 F. Supp. 2d 506 (M.D. Pa. 2010). Recently, the Fiorentino court rendered a decision declining to “take a step which no court in the United States has chosen to take, and declare hydraulic fracturing to be an ultra-hazardous activity that gives rise to strict tort liability.” Fiorentino, No. 3:09-cv-02284, Doc. 489 at 1.
 

The court, adopting the magistrate judge’s report and recommendation, went through the six factors set forth in the Restatement (Second) of Torts § 520 to determine whether hydraulic fracturing legally qualifies as an ultra-hazardous activity giving rise to strict liability. Id. at 23. These are the same six factors that California courts use when evaluating whether strict liability should apply to individual cases without precedent. Edwards v. Post Transp. Co., 228 Cal. App. 3d 980, 985 (1991).
 

In short, Fiorentino found that the plaintiffs failed to meet any of the six factors because they had presented no evidence that a properly constructed and completed gas well would still lead to water contamination or fluid migration. Fiorentino, Doc. 489 at 29. Instead, the plaintiffs’ limited evidence consisted only of an expert report describing the possible negligence of the defendants (i.e., that fluid migration from the wells was “likely” due to a lack of due care relating to “faulty well design and/or construction”). Id. The court was also persuaded by the “surplus of evidence not only attesting to the relative safety of natural gas drilling operations, but also to the fact that such operations are a common, growing, and important part of a modern, highly industrial society . . . .” Id. at 10. Accordingly, the court granted the defendants’ motion for summary judgment on the plaintiffs’ claims for strict liability. Id. at 37.
 

That said, although strict liability may be an uphill battle for plaintiffs, other causes of action still remain viable. In April, a Texas family was awarded 2.9 million in the first toxic tort jury verdict over fracking. They succeeded on an intentional nuisance claim. Parr v Aruba Petroleum Inc., Tex. County Ct., No. CC-11-01650-E. Whether causes of action alleging intentional nuisance or strict liability can be successful in California courts has yet to be tested for fracking. However, when coupling the increased use of hydro-fracturing and other well stimulation techniques in California along with the rising tide of community opposition to such operations, upstream developers and landowners need to closely monitor the litigation risks associated with these activities.

Slides and Audio for November 6th Environmental and Energy Law Teleseminar

 Pennsylvania Shale Gas Update:
Criminal Enforcement of Pennsylvania Environmental Laws

Did you know that violation of Pennsylvania environmental laws can result not only in civil fines and court ordered supplemental environmental projects, but also in criminal convictions, both for the charged entity and the people who manage it?

On November 6th, we discussed criminal enforcement of environmental laws that impact the Shale Gas Industry in Pennsylvania. The teleseminar was designed to help companies identify when a criminal penalty might be applicable to violations of environmental law, the internal guidelines which should be in place to deal with potential criminal actions and how the criminal process works in Pennsylvania.

Topics included:

  • A discussion of the criminal provisions of Pennsylvania’s environmental statutes, including the strict liability provisions of the Solid Waste Management Act
  • The procedural aspects of criminal enforcement in Pennsylvania
  • A discussion of the ways you can minimize the potential for criminal enforcement actions and the relationship with civil enforcement actions.

The slides and audio are available here for download.

 

Pennsylvania Environmental Quality Board Approves Proposed Oil and Gas Regulation

This post was written by Stefanie Lepore

The Pennsylvania Environmental Quality Board recently approved a proposed regulation that is intended to reduce potential environmental impacts from oil and gas activities. The proposed regulation is comprehensive and affects gathering lines, temporary pipelines, waste management, spill prevention, and well restoration. There will be a 60-day comment period and at least six public hearings on the proposed regulation. For more information, please click here.

Oil and Gas Companies Partner with Environmental Groups to Develop Performance Standards for the Industry

This post was written by Stefanie Lepore and Nicolle Snyder Bagnell.

The Center for Sustainable Shale Development (“CSSD”), an environmental organization located in Pittsburgh, Pa., has announced a program of Performance Standards that has been mutually agreed to by a number of environmental groups and oil and gas companies. The program is voluntary and does not create any new requirements or restrictions for oil and gas companies. However, it is possible that state regulators will look to the Performance Standards when drafting new regulations and permitting requirements, or that the Performance Standards will become unofficial “best practices” in the industry.

To read the full entry, please click here.

Slides and Audio from Reed Smith's February 14 Environmental and Energy Law Resource Teleseminar

On February 14, 2013 Reed Smith presented a half-hour program discussing revisions to General Permit for Natural Gas Compression and Processing Facilities, proposed revisions to Exemption for Oil and Gas Exploration and Production Facilities and Operations, and New Greenhouse Gas Reporting Requirements.

Topics:

  • Background regarding GP-5
  • Proposed changes to the new GP-5, highlighting the differences between the existing permit and the March 2012 draft permit
  • New requirements to demonstrate that a facility is a minor source and not subject to aggregation.
  • Proposed changes to the permitting exemption for Exploration and Production facilities, including requirements that well sites will only be eligible for the exemption for the air quality plan approval process if the wells will meet emission control and monitoring criteria that are stricter than federal air quality rules for controlling wellhead emissions.
  • The new GHG reporting requirement

The slides and audio are available for download.

Be sure that we will monitor and analyze these issues and many other environmental and energy issues through the year on our blog and in future teleseminars.
 

Slides and Audio from Reed Smith's January 10 Environmental and Energy Law Resource Teleseminar

On January 10, 2013 Reed Smith proided a repeat presentation and update on a Pennsylvania Federal Court’s recent allowance of Aggregation Claims against an established and DEP Permitted gas field.

Topics included:

  • Background regarding aggregation and recent DEP Guidance
  • Status of Aggregation Cases before the Pennsylvania Environmental Hearing Board
  • Summit Petroleum Corporation v. United States Environmental Protection Agency, et al. (United States Court of Appeals for the Sixth Circuit, August 7, 2012)
  • A surprise in Citizens for Pennsylvania's Future v. Ultra Resources, USDC for the Middle District of Pennsylvania, September 24, 2012
  • Updates since November 2012 presentation

The slides and audio are available for download.

Be sure that we will monitor and analyze these issues and many other environmental and energy issues through the year on our blog and in future teleseminars.
 

Slides and Audio from Reed Smith's November 6 Environmental and Energy Law Resource Teleseminar

On November 6, 2012 Reed Smith focused on aggregation in the Pennsylvania shale gas industry  during its quarterly teleseminar.

Topics included:

  • Background regarding aggregation and recent DEP Guidance
  • Status of Aggregation Cases before the Pennsylvania Environmental Hearing Board
  • Summit Petroleum Corporation v. United States Environmental Protection Agency, et al. (United States Court of Appeals for the Sixth Circuit, August 7, 2012) 
  • A surprise in Citizens for Pennsylvania's Future v. Ultra Resources, USDC for the Middle District of Pennsylvania, September 24, 2012

The slides and audio are available for download.

Be sure that we will monitor and analyze these issues and many other environmental and energy issues through the year on our blog and in future teleseminars.

Final Guidance on Oil and Gas Aggregation to Be Published in PA Bulletin October 6, 2012

This post was written by Nicolle R. Snyder Bagnell

The Pennsylvania Department of Environmental Protection will publish the final guidance on air quality permitting decisions for oil and gas operations in tomorrow’s Pennsylvania Bulletin

The guidance will apply to emission sources from the exploration, extraction and production of oil and gas and will discuss how the Department decides when to permit sources separately or in the aggregate. The agency published an “interim final” version of the air aggregation guidance for a 30-day public comment period last fall and began implementing it Oct. 21, 2011 which was the subject of two earlier blog posts:

Commonwealth Court of Pennsylvania Strikes Down Zoning and Setback Waiver Provisions of Act 13

This post was written by Emily Thomas and Kevin Abbott

Last week, a divided Commonwealth Court of Pennsylvania judicial panel struck down the provisions of the recent Pennsylvania Oil and Gas legislation, known as "Act 13," that created statewide uniform zoning for purposes of oil and natural gas development in Pennsylvania as unconstitutional by a vote of 4–3. The entire judicial panel also held that the portions of Act 13, which authorized the DEP to grant a waiver of certain setback requirements from water bodies and wetlands, were null and void. This Reed Smith client alert summarizes and analyzes the July 26 court opinion, and provides guidance related to the future procedural path of the case.

Minard Run Litigation Continues With a Small Victory for the U.S. Forest Service

This post was written by Nicolle Bagnell and Lucas Liben.

On March 23, a Pennsylvania federal district court denied a motion by drilling operators to hold the U.S. Forest Service in contempt of the court’s 2009 ruling that requires the Forest Service to process oil and gas lease development proposals in accordance with that ruling. See Minard Run Oil Co. v. U.S. Forest Service, 2012 WL 994641 (W.D. Pa. Mar. 23, 2012). The court noted that although “there is some evidence to suggest that delay has replaced diligence as the hallmark of the Forest Service’s processing of drilling proposals,” there was not “clear and convincing evidence” sufficient to find the U.S. Forest service in contempt for these activities.

Here’s some background: Federal litigation regarding oil and gas drilling in Pennsylvania’s Allegheny National Forest dates back to a 1980 decision that mineral rights owners in the forest had the right to enter the property and access the minerals, but must provide the U.S. Forest Service with certain information at least 60 days prior to doing so. In a 2009 settlement with an environmental organization, the Forest Service revised its policy and agreed to perform environmental analyses before drilling could go forward. Owners of mineral rights sued the Forest Service and a federal court granted a preliminary injunction against the policy on the basis that they had been denied access to their holdings. In 2009, the U.S. Third Circuit Court of Appeals upheld the injunction, ruling that the Forest Service policy had the effect of causing severe economic hardship to the plaintiffs.

U.S. Department of Interior Releases Draft Rule on Public Disclosure of Chemicals Used in Hydraulic Fracturing on Public and Indian Lands

This post was written by David Wagner

A few months ago, our blog previewed this year's top 10 environmental legal issues related to shale gas. Late last week, there were developments in two of them. On May 4, the U. S. Department of the Interior (DOI) released its proposed rule to require companies to publicly disclose the chemicals used in hydraulic fracturing operations on public and Indian lands. The proposed rule, from DOI’s Bureau of Land Management (BLM), will soon be published in the Federal Register. At that point, a 60-day public comment period will begin, during which the public, governments, industry and other stakeholders can provide their input.

The proposal identifies requirements for extensive information filings prior to drilling and reporting of what was done after the fracturing. For example, the proposed rule would require BLM’s approval of all well stimulation activity. In addition, an operator would be required to submit a drilling plan, including elements such as a detailed description of the well stimulation engineering design for BLM approval.

An operator would also have to submit the estimated or calculated fracture length and height anticipated as a result of the stimulation. The actual total volume of fluid used would have to be reported after the fracturing was performed. Further, the operator would have to report the actual handling and disposal of recovered fluids.

The information obtained by BLM is intended to be posted on a public web site, and BLM is working with the Ground Water Protection Council to determine whether the disclosure can be integrated into website FracFocus.org.
 

USEPA's Draft Guidance for Diesel Fuel in Hydraulic Fracturing Clarifies Compliance with Safe Drinking Water Act

This post was written by Jennifer Smokelin

Here's another environmental legal development we previewed at the beginning of the year. In 2005, Congress exempted hydraulic fracturing from requirements to obtain an underground injection permit under the Safe Drinking Water Act (SDWA), but still required a permit when diesel fuel is used as a fracturing fluid. On May 4, the U.S. Environmental Protection Agency (USEPA) published draft guidance for SDWA permits issued to oil and gas companies that use diesel fuels during hydraulic fracturing. The draft guidance outlines requirements for diesel fuels used for hydraulic fracturing wells, technical recommendations for permitting these wells, and a description of diesel fuels for USEPA underground injection control permitting. Note that the draft guidance only applies to USEPA permit writers and where USEPA is the permitting authority, The draft guidance includes six categories of fuels (based on CAS abstract numbers) deemed to be considered diesel, while stopping short of an outright ban on the use of the fuel. If these categories of fuels are being used, drillers will need to apply for a specific permit and this could delay drilling. The guidance does not address possible liability for companies that used diesel fuel in the past to fracture rock formations to free trapped natural gas.

USEPA will take public comment on the draft guidance for 60 days upon publication in the Federal Register to allow for stakeholder input before it is finalized.
 

"Best Practices" Guidance Released for Marcellus Shale Operators

This post was written by Jennifer Smokelin

In order to reduce liability for natural gas development, it is a given that companies "know the rules and make sure you comply with them." A corollary to this maxim is that companies understand the industry's "best practices" and strive to follow them. For hydraulic fracturing, the American Petroleum Institute had issued industry guidance/best practices on hydraulic fracturing and, a few days ago, the Marcellus Shale Coalition (MSC) released its first recommended practices (RP) that offers guidance on site planning, development and restoration. The RP will assist industry professionals operating in the Appalachian basin in improving their effectiveness in the site planning, development and restoration aspects of responsible natural gas exploration and production. The RP was developed by the MSC’s Land Affairs Committee and it set forth 11 steps in the site preparation, development and restoration process for natural gas development, beginning with identifying the need for a new well site, compressor station or pipeline, and ending with site monitoring, maintenance and repair. The guidance document is the first of many that MSC is expected to release in the coming months, and the additional guidance is expected to cover topics from well construction to air quality and water management.
 

Slides and Audio from Reed Smith's Teleseminar on Shale Gas

This post was written by David Wagner

With all of the recent attention given to shale gas, we featured the issue in our quarterly Environmental and Energy Teleseminar. Here are the slides and audio from yesterday’s event. In particular, we discussed:

  • Recent developments related to aggregation and U.S. Environmental Protection Agency’s new air emission rules for the oil and gas industry
  • Hydraulic fracturing and chemical disclosure requirements, especially in state jurisdictions
  • Overview of fracking regulations and developments on federal level
  • Pending shale gas legislation in California
  • Overview of international shale plays

Look for our next quarterly teleseminar this summer.
 

USEPA's New Air Emission Rules for Oil and Gas Industry Address Some Industry Concerns but Raise Others

This post was written by Jennifer Smokelin

On April 17, the U.S. Environmental Protection Agency (EPA) promulgated the first-ever final regulation setting limits on air pollution from natural gas production aimed at reducing toxic air pollution from the natural-gas drilling process called fracking. EPA updated its New Source Performance Standards (NSPSs) and National Emission Standards for Hazardous Air Pollutants (NESHAPs) to include emissions from oil and gas production. The new standards will reduce the amount of methane, volatile organic compounds, and other emissions coming from fracking operations by requiring that all newly fractured or refractured wells incorporate reduced emissions controls (RECs). The regulations will also target emissions from compressors, oil storage tanks and other oil-and-gas sector equipment.

The biggest news is that, under the final rules, EPA delayed the deadline for requiring the use of RECs or “green completions”. In its proposed rule, “green completions” were required 60 days after final publication of the rule in the Federal Register. Now, under the final rule, well operator and owners have until January 1, 2015 before they need to conduct green completions. Between now and 2015, compliance with the rules can be achieved via reductions using flaring or other approved combustion methods, although early adoption of green completion is "encouraged".

In addition, there are a few other exemptions from compliance under the final rules. For example, wells drilled in low-pressure areas, such as coal-bed methane reserves, are exempt because these wells release less pollution during completion. And companies that choose to re-fracture wells using the pollution-reducing equipment prior to the January 2015 deadline would not be covered by the NSPS. These are significant changes from the rule as proposed in July 2011.

Despite these changes, industry still remains concerned about federal regulation of the oil and gas industry, including issues of “regulation overlap” (that is, where one federal agency will require one thing while another federal agency will regulate the industry another way). As we reported on the blog last week, President Obama announced the formation of a high-level task force last week charged with coordinating oversight of fracking in an effort to reassure industry groups that are concerned about overlapping federal regulations. Of course, it remains to be seen whether this will be successful.
 

 

President Obama Intends to Strengthen Federal Oversight of Hydraulic Fracturing Process

This post was written by Christopher Rissetto and Ariel Nieland

On April 13, the White House released an Executive Order calling for the creation of an "Interagency Working Group" (Working Group) charged with "overseeing the safe and responsible development of unconventional domestic natural gas resources." The Order defines the functions of the Working Group to include: (i) coordination of agency policy activities; (ii) coordination of the sharing of scientific, environmental, and technical and economic information; (iii) engagement in long-term planning with respect to research, natural resource assessment, and infrastructure development; (iv) promotion of interagency communications with outside stakeholders; and (v) consultation with other agencies and offices. The Working Group will be comprised of members from 13 different high-level agencies and departments, including, among others, the Department of Defense, the Environmental Protection Agency, the Department of Energy, the Department of Transportation, and the Department of Homeland Security.

The Order was issued approximately two months after the American Petroleum Institute requested that the Administration designate an agency to take the lead in coordinating federal policy and regulation efforts with regard to unconventional oil and gas. According to news reports, the unconventional gas policy group will be led by President Obama's top energy and climate advisor, Heather Zichal.

The Administration's efforts precede issuance of rulemakings by the Bureau of Land Management and the Environmental Protection Agency that will also impact oil and natural gas production.
 

Water Quality OK in USEPA Report on Wells in Dimock, Pennsylvania

This post was written by Nicolle Bagnell and Ariel Nieland

In 2010, according to the Pennsylvania Department of Environmental Protection (DEP), natural gas drilling activities in Dimock, Pennsylvania were believed to be the source of gas migration and water contamination problems allegedly affecting residents' water wells. Since then, the U.S. Environmental Protection Agency (USEPA) has been investigating and now reports that about 31 of the water wells tested so far do not have dangerous levels of contamination. Last week, USEPA published the results of additional tests conducted on approximately 20 water wells in Dimock, which showed that the water underlying those homes contained no elevated levels of contamination. These results supported USEPA's similar findings from last month regarding tests from 11 other residential water wells in the area. USEPA began testing water wells in January of 2012 for 61 homes within a 9-square-mile radius of Dimock and will continue to publish results from those tests as they become available.

Local Zoning Laws Remain in Place for the Pennsylvania Oil and Gas Industry - For Now

This post was written by Nicolle Bagnell and Luke Liben

When Pennsylvania’s new Marcellus Shale drilling law (known as Act 13) goes into effect on April 14, the section that preempts local drilling ordinances will be temporarily put on hold. Although Act 13 specifically overrides local zoning laws related to oil and gas operations, yesterday the Pennsylvania Commonwealth Court granted an injunction of the enactment of all provisions addressing the state’s preemption of oil and gas zoning laws. In the matter Robinson Township, Washington County, Pennsylvania v. Commonwealth of Pennsylvania, No. 284 M.D. 2012, the court issued a 120-day injunction that will extend the time period that municipalities have to craft new ordinances to comply with Act 13. The plaintiffs in the case, mostly municipal officials and two individuals, stated that the injunction was necessary to avoid any uncertainty that would otherwise arise in this 120-day period. No other aspects of Act 13 will be affected by the injunction.

 

Pennsylvania Issues New General Permit for Oil and Gas Wastewaters

This post was written by Mark Mustian

On March 24, the Pennsylvania Department of Environmental Protection (DEP) revised and reissued General Permit WMGR123, which authorizes the processing and beneficial use of processed liquid wastes generated on oil and gas well sites and associated infrastructure. WMGR123, issued under the authority of the Bureau of Waste Management, replaces the three existing general permits which previously regulated the recycling and reuse of oil and gas wastewaters.

Wastewater generated from well sites that is sent off-site for reuse is regulated as a residual waste, and requires permitting by DEP's Solid Waste Group. Prior to the issuance of the new general permit, there were 3 different general permits applicable to oil and gas operations: WMGR119, WMGR121, and WMGR123. The required permit was based upon the source of the water, the type of treatment, and the use of the recycled water, but the permits were generally very similar. WMGR119 and 121 are now revoked and all off-site activities will be authorized under the new WMGR123 permit. In addition, the on-site reuse of drilling wastes has previously been authorized by the Oil and Gas Program through submittal of Form 5500-PM-OG0071. There is no indication that this procedure has changed, but it is a question that will need to be answered.

The new general permit removes some current restrictions on the recycling of oil and gas wastewaters, and also adds some new requirements. For facilities that plan to recycle and reuse relatively dilute waters, the new permit should be helpful. In particular, for wastewaters with low total dissolved solids (TDS) (i.e., less than 500 mg/l) that are in compliance with standards found in Appendix A of the permit, the operator will not have to manage the waste as a residual waste, and should be able to utilize existing designs for impoundments and handling of the water. This approach would work for water generated at a well site and stored prior to transport to a recycling facility, and for recycled water which has been treated and transported to a well site for reuse. These wastewaters with low TDS will no longer have to be transported as a residual waste.

However, for high TDS wastewater which does not comply with the Appendix A standards, both the generators and users of the recycled water will potentially have new compliance standards. Until the processed oil and gas liquid waste has been transported to a well site and is actually used to develop a well, it must be managed as a residual waste. From the language of the permit, it appears that the requirement to manage the wastewater as a residual waste would apply to both the operator generating the waste and the operator reusing the waste. This will require the operators at both sites to comply with the regulations on storage and transportation found at 25 Pa Code § 299, and in particular the permitting and design requirements for impoundments found in Section 299.141 through 299.145. If either the generator of the waste, or the party beneficially reusing the waste wishes to store the waste prior to either shipment or reuse, they will need to comply with storage requirements that are generally more stringent than the requirements under the oil and gas regulations.

Moreover, the permit holder must comply with several other requirements associated with the general permit. They include: a bonding requirement; sampling requirements to determine whether the wastewaters comply with the Appendix A standards; facility siting requirements; and inspection and records requirements. Overall, the new general permit appears to be designed for permanent recycling facilities that are receiving water from various drill sites, processing it, and then sending it out for reuse at other sites. It does not appear that the general permit will work effectively for individual well sites that want to just transport their water to another well site for reuse.

Key Environmental and Safety Provisions in New Pennsylvania Gas Act

This post was written by Jennifer Smokelin

On February 14, 2012, Pennsylvania Governor Corbett signed House Bill 1950 into law as Act 13 of 2012, the Unconventional Gas Well Impact Fee Act (Act 13). This long bill (174 pages) provides for an impact fee, Oil and Gas Act (Title 58) amendments and local ordinance standards. We followed the legislative progression of the Act and, as promised, offer more detailed analysis of the environmental aspects of the Act here. In short, Act 13 provides for new well fees to be assessed on unconventional wells as well as restrictions on local government’s authority to impose burdens on oil and gas activities over and above those required by the state (which some municipalities are preparing to challenge). There are also new environmental and safety provisions for both surface and subsurface activities, some of which will be effective immediately while other will require a rulemaking by the Environmental Quality Board before becoming effective. This article discusses five significant “specifics” of the new environmental and safety provisions imposed by Act 13 and the implications on future permitting and operation of unconventional natural gas development.

 

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U.S. Shale Gas in 2012: Top 10 Environmental Legal Issues to Watch

This post was written by David Wagner and Jennifer Smokelin.

This article was published in Rigzone on February 16, 2012.

In his State of the Union address in late January, President Obama offered his support to further develop natural gas as an energy source and stated that “my administration will take every possible action to safely develop this energy.” The president also underscored that this development requires environmental safeguards. He added: “I'm requiring all companies that drill for gas on public lands to disclose the chemicals they use. America will develop this resource without putting the health and safety of our citizens at risk.” In this context, what can we expect from environmental regulators this year? In our outlook for 2012, we identify 10 environmental legal issues to watch.

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Legislative Watch: Pennsylvania Governor Signs Marcellus Shale Regulatory and Impact Fee Legislation

This post was written by Jennifer Smokelin

Yesterday, Pennsylvania Governor Tom Corbett announced he signed into law House Bill 1950, the Marcellus Shale bill. Under the legislation, Pennsylvania's counties will have the option of imposing a flat fee on well operators for each natural gas-producing well located in their county. It is likely that all counties will impose the fee. The flat fee, which may be retroactive in some cases, will be $40,000 to $60,000 for each well in its first year of operation, depending on the price of natural gas and inflation, with the annual fee declining over 15 years. In addition to the retroactive revenue-raising provisions in the legislation, there are also reporting requirements imposed on well operators. We will provide a detailed analysis in a later post, but high points of the legislation include:

  • Establishes an impact fee (tax) on a sliding scale over 15 years for each well drilled, to be split 60/40, with 60 percent going to the county and 40 percent to the state.
  • Municipalities can no longer regulate gas drilling in their borders, but they can still enact zoning restrictions to address truck traffic, noise, light and other industrial effects from drilling. If a driller believes a local zoning law is too restrictive, the driller can appeal it to the Public Utility Commission, who now becomes the referee for such disputes.
  • Property owners within 3,000 of a well permit must be notified of the new permit (used to be 1,000 feet).
  • New wells must be drilled at least 500 feet away from existing buildings or water wells (used to be 200 feet), and if it’s a supply point for public water supplies, the setback must be 1,000 feet.
  • New wells must be drilled at least 300 feet away from streams, springs, bodies of water or wetlands greater than one acre (used to be 100 feet).
  • Increases the amount of blanket bonds from $25,000 up to $600,000.
  • Drillers must start using FracFocus.org to publicly disclose all chemicals used in the fracking of individual wells.
  • Creates a Natural Gas Energy Development Program with incentives to convert truck fleets to compressed natural gas, liquefied natural gas, or bi-fuel vehicles. At least 50 percent of the funds must be used for grants to local transportation organizations, including mass transit agencies.

In terms of timing, the provisions authorizing counties to adopt ordinances imposing an impact fee go into effect immediately, and the remainder of the law takes effect in 60 days from February 14.
 

Legislative Watch: Pennsylvania Senate Approves Proposed Shale Gas Legislation

This post was written by Jennifer Smokelin

On Tuesday, February 7, the Pennsylvania Senate voted 31-19 to approve HB 1950, a Marcellus Shale regulatory and impact fee bill. As we previously discussed, the bill would fund road work and environmental clean-ups and give local governments the power to decide if the fee would be imposed on their local wells. The Senate vote approved a conference committee report issued late Monday. Next, the Pennsylvania House of Representatives must pass the bill before it could go to the desk of Governor Tom Corbett for his signature.

Deal Expected in Pennsylvania Shale Gas Legislation

This post was written by Jennifer Smokelin

As we've discussed, the Pennsylvania House of Representatives and the Pennsylvania Senate passed versions of shale oversight legislation last November. The measures differ in several ways, including how to update the state's environmental rules and method for implementing and distributing a drilling impact fee. The House proposal, which mirrors much of what the governor outlined in his Marcellus Shale policy announcement, would allow for a fee on producing wells of up to $40,000 per well in the first year and decreasing annually to $10,000 in years four through ten. The Senate has offered a fee that starts at $50,000 per well, decreasing through a period of 20 years -- twice as long as the assessment in the House bill. Recent negotiations between Republicans and the Governor appear to have resulted in a proposal that meshes aspects from the bills that passed the House and Senate, with a few new twists. The recent proposal would vary the per-well fee dependent on the price of natural gas. This new proposed system would raise between $190,000 and $355,000 per well over 15 years, compared with the House version's $160,000 over 10 years and the Senate's $360,000 over 20 years. Fees would begin to be assessed this year for wells drilled in 2011 and be due when drilling begins, thus increasing the number of wells subject to the fees. Previous plans would have charged drillers for producing wells.

The proposal would also change zoning and certain Pennsylvania Department of Environmental Protection (DEP) regulations. In particular, the proposal would increase bonding fees and penalties, and require the disclosure of chemicals used in hydraulic fracturing. You can find additional information here.
 

Upcoming in 2012: 10 Environmental and Energy Issues to Watch in the United States

This post was written by Lawrence Demase, Douglas Everette, Robert Frank, Arnold Grant, Todd Maiden, Jennifer Smokelin, Robert Vilter and David Wagner.

As we look forward to 2012, the environmental and energy attorneys at Reed Smith will be on top of a range of issues, and offer the following analysis of what we view, in no particular order, to be 10 key issues likely to affect you and your business in 2012. This post is based on input and analysis from Reed Smith attorneys across the United States. The 10 issues to watch are:

  1. Offshore wind power generation
  2. Renewable energy incentive programs
  3. Hydraulic fracturing regulation
  4. Aggregation
  5. Greenhouse gas litigation
  6. California's cap-and-trade program
  7. California's Green Chemistry program
  8. New mercury standards for coal and oil-burning power plants
  9. Fallout from CERCLA decision in Burlington Northern and Santa Fe Railway Co. v. U.S.
  10. Conflict minerals and disclosure requirements

Please return to blog regularly and participate in our quarterly teleseminar to get updates and analysis on these and many other environmental and energy issues.

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Slides and Audio from Reed Smith's January 25 Environmental and Energy Law Resource Teleseminar

On Wednesday, Reed Smith held its quarterly environmental and energy law resource teleseminar and the slides and audio are available for download. We were ambitious and discussed 10 key issues likely to affect you and your business in 2012. Our high level discussion was on the following:

  1. Offshore wind power generation
  2. Renewable energy incentive programs
  3. Hydraulic fracturing regulation
  4. Aggregation
  5. Greenhouse gas litigation
  6. California's cap-and-trade program
  7. California's Green Chemistry program
  8. New mercury standards for coal and oil-burning power plants
  9. Fallout from CERCLA decision in Burlington Northern and Santa Fe Railway Co. v. U.S.
  10. Conflict minerals and disclosure requirements

Be sure that we will monitor and analyze these issues and many other environmental and energy issues through the year on our blog and in future teleseminars.

Pennsylvania Seeks Comment on Revised Oil and Gas Erosion Control Permit

This post was written by  Jennifer Smokelin.

On January 20, the Pennsylvania Department of Environmental Protection (DEP) announced it will publish a revised version of its erosion and sediment control general permit for earth disturbance associated with oil and gas activities, along with four other supporting documents, including a draft permit application and a policy explaining the permit requirements. Look for publication in the Pennsylvania Bulletin. In reviewing the draft technical guidance, note that DEP will no longer offer expedited review of permit applications for projects that: have the potential to discharge sediment and runoff to exceptional-value or high-quality watersheds; have well pads that lie within floodplains; or would take place on contaminated lands. This may have a significant effect on some proposed oil and gas projects. The revisions mandate that staff will complete the non-expedited review within 60 days but DEP maintains the right to "stop the [60 day] clock" on a permit application if it has certain administrative or technical problems. The draft technical guidance also changes some documentation necessary when submitting a notice of intent to construct and provide guidance on "best management practices" for (1) erosion and sedimentation control, and (2) restoration after completion of the well.

DEP will accept comments on the documents from January 21 to March 21, 2012. Here's the fine print: written comments may be submitted on the draft technical guidance document for 60 days after publication in the Pennsylvania Bulletin. DEP will accept comments submitted by email; no comments submitted by facsimile will be accepted. Written comments should be submitted to Joseph Adams, DEP Office of Oil and Gas Management, P.O. Box 8765, Harrisburg, PA 17105-8765 or by email to josepadams@pa.gov. Be sure to include a return name and address in each email transmission.

Legislation Adopted in West Virginia Raises Rates on Shale Drills

This post was written by Luke Liben and Nicolle Bagnell.

As anticipated, on December 22, West Virginia’s Governor Earl Ray Tomblin signed the Natural Gas Horizontal Wells Control Act, calling it “a milestone piece of legislation and a significant achievement in [West Virginia’s] history.” You can find a summary of the Act in an earlier post but note that this legislation increases the fee for wells from $400 per well to $10,000 for an initial well, and another $5,000 for each additional well placed on a single pad. It also requires the disclosure of fracking additives to the West Virginia Department of Environmental Protection.

Proposed Legislation in Pennsylvania Would Give Public Utility Commission Regulatory Powers over Gas Lines

This post was written by Luke Liben and Nicolle Bagnell.

The Pennsylvania Senate recently approved House Bill 344 that would give the state’s Public Utility Commission (PUC) regulatory oversight of any and all natural gas pipelines in Pennsylvania. Pursuant to this power, the PUC would be permitted to conduct safety inspections and investigations with the U.S. Department of Transportation’s Pipeline and Hazardous Material Safety Administration. PUC would not, however, be required to deem any pipelines as public utilities, and the bill therefore avoids the extension of eminent domain powers. The bill’s sponsor, Representative Matt Baker, emphasized that “[o]ut of the 31 natural gas producing states in the nation, we are one of only two that does not have statutory authority to regulate natural gas pipelines within its boundaries.” Apparently agreeing with Rep. Baker that “[t]his is a public safety issue that needs to be corrected as soon as possible,” the bill was supported by the PUC, the United States Department of Transportation, and the Pennsylvania Consumer Advocate, among others.

The bill now goes back to the Pennsylvania House for concurrence.

Proposed Legislation in West Virginia Would Raise Rates on Shale Drills

This post was written by Luke Liben and Nicolle Bagnell.

Earlier this week, the West Virginia House of Delegates approved the Natural Gas Horizontal Wells Control Act that would increase the fee for wells from $400 per well to $10,000 for an initial well, and another $5,000 for each additional well placed on a single pad. These funds, in part, would be used by the state to hire additional well inspectors. The legislation also increased the presumption of contamination as a result of water wells to a distance of 500 feet, and would require the disclosure of fracking additives to the West Virginia Department of Environmental Protection. Well casing and drilling requirements, survey notices and other operator obligations to surface owners, and permit requirement and water management plans would also be altered by the legislation.

The governor is expected to sign the legislation.

Shale Oversight Legislation in Pennsylvania Could Be Approved This Year - Stay Tuned

This post was written by Jennifer Smokelin.

As we've dicussed, the Pennsylvania House of Representatives and the Pennsylvania Senate passed versions of shale oversight legislation last month. The measures differ in several ways, including how to update the state's environmental rules and method for implementing and distributing a drilling impact fee. The House proposal, which mirrors much of what the governor outlined in his Marcellus Shale policy announcement, would allow for a fee on producing wells of up to $40,000 per well in the first year and decreasing annually to $10,000 in years four through ten. The Senate has offered a fee that starts at $50,000 per well, decreasing through a period of 20 years -- twice as long as the assessment in the House bill. There are other differences in the two bills that need to be discussed as well. Supporters had talked about getting a compromise piece of legislation on to the governor's desk by end of the year and time is running out -- the Senate has three session days left on the calendar for 2011, with six for the House. We'll keep you posted.

USEPA Comments on Pennsylvania's Draft Aggregation Policy

This post was written by Luke Liben and Nicolle Bagnell.

As we've discussed, the Pennsylvania Department of Environmental Protection (PADEP) issued a draft policy regarding limitations on aggregating emissions from Marcellus shale gas facilities on October 12, 2011. The draft policy utilizes a distance of 1/4 mile as the main criteria for determining if plants in proximity to one another should be viewed as individual minor sources of emissions, or one major source of emissions. In a letter dated November 21, 2011, Diana Esher of the Environmental Protection Agency (EPA), Region III Air Protection Division, reportedly said the new draft policy “appears to alter the conventional way in which aggregation determinations have been made federally and by PADEP.” Ms. Esher also reportedly indicated that the draft policy could be interpreted to allow emissions sources to escape otherwise strict emission standards by shaking the designation of a “major” source. However, as noted by Kathryn Klaber, head of the Marcellus Shale Coalition, the bright line 1/4 mile test provides an easy to understand, easy to enforce, and predictable rule. The public comment period for PADEP’s draft policy closed on November 21, 2011.

USEPA Plan to Study Fracking Criticized by House Republicans on Energy and Environment Panel

This post was written by Luke Liben and Nicolle Bagnell.

This past Thursday, in a hearing titled "Fostering Quality Science at EPA: The Need for Common Sense Reform," Republicans on a U.S. House of Representatives energy and environment panel criticized a recently released U.S. Environmental Protection Agency plan to study any potentially detrimental effects of fracking on drinking water supplies. Perhaps informed by Secretary Krancer's Capitol Hill testimony from the day before, the Republican panel members were quick to point out that roughly 1.2 million wells have already been drilled using this technique, and there has yet to be a documented report of drinking water contamination. As such, these committee members found the EPA's suggested use of government funds to be lacking in common sense. The EPA responded by noting that until studies were done, or evidence of detrimental effects were sought, it was clear that no such evidence could be found. You can find more information here.

Pennsylvania's Department of Environmental Protection Defends States' Ability to Regulate Hydraulic Fracturing

This post was written by Luke Liben and Nicolle Bagnell.

Last week Secretary Michael Krancer of Pennsylvania's Department of Environmental Protection testified before the U.S. House of Representatives' Subcommittee on Water Resources and Environment regarding his stance that federal intervention was unnecessary to aid state regulation of hydraulic fracking processes. Citing the unique geographic and geologic features of each individual state where fracking was taking place, Mr. Krancer stated that a "one-size-fits-all" approach would not be appropriate to ensuring safe and practical fracking procedures. Secretary Krancer also made the Subcommittee aware that despite the roughly 1.2 million wells that have been drilled using this process, there has yet to be a report of drinking water contamination. Mr. Krancer cited this process as yielding both jobs and cheaper energy costs, and reiterated his stance that the individual states were doing a good job with their own regulatory regimes. For more information, click here.

Legislative Watch: Pennsylvania Impact Fee - November 18

This post was written by Jennifer Smokelin and Nicolle Bagnell.

By a vote of 107-76, the Pennsylvania House of Representative approved a Marcellus Shale impact fee and regulatory measure yesterday, House Bill 1950. Under the House version, counties would be allowed to implement a fee on producing wells at a rate of up to $40,000 per well in the first year and decreasing annually to $10,000 in years four through ten. The House bill includes environmental provisions, including a measure that would increase the setback distance between a well and any nearby waterways or buildings, as well as an increase in bonding requirements and penalties, and increase the required information to be released on hydraulic fracturing chemicals. Similar to the Senate bill that was passed earlier in the week, the House bill would set a state standard for local zoning ordinances related to oil and gas operations, and authorize the attorney general to determine whether municipal rules go too far. Find more information here.

As referenced above and as we reported earlier this week, the Pennsylvania Senate also passed a bill this week that would enact a slightly heftier impact fee and address certain environmental concerns. Differences between the two proposals will be reconciled over the next few weeks in an aim to get a bill to the governor's desk before session end in mid-December.

Legislation Watch: Pennsylvania's Impact Fee - November 17 Update

This post was written by Jennifer Smokelin and Nicolle Bagnell.

The Pennsylvania Senate approved an impact fee as well as other regulatory measures with regard to drilling in the Marcellus shale by a vote of 29-20. The Senate bill is the first comprehensive legislation on natural gas drilling to be approved in the Senate since the Marcellus Shale boom began. The measure would assess a decreasing fee of $50,000 per well annually, strengthen environmental regulations, and allow for the attorney general's office to review local zoning rules related to natural gas extraction. Measures proposed earlier this week were unsuccessful including measures to rearrange how that fee is assessed and its revenues distributed, increase bonding requirements, and prevent state involvement in local drilling rules. The Senate bill was widely and lengthily debated.

The focus now shifts to the other chamber as the Senate bill heads to the state House of Representatives. The House is also separately engaged in a debate over its own a drilling oversight measures this week and is expected to vote on their measure by week's end. House lawmakers approved an amendment on a vote of 110-85 that incorporates the zoning standardization approach contained in the Senate bill. Read more about the legislation here.

Legislation Watch: Pennsylvania's Impact Fee - November 16, 2011

This post was written by Jennifer Smokelin and Nicolle Bagnell.

Are the Pennsylvania House and Senate setting up to pass legislation to assess an impact fee on natural gas drillers and strengthen oversight of the industry by week's end?

On Monday, legislation to assess an impact fee on natural gas drillers was approved by a key Pennsylvania state Senate panel. It is headed for a final vote in the Senate chamber today. The new state-assessed impact fee would levy an initial base cost of $50,000 per well, which would decrease annually until year 11 of production. Year 11 through year 20 of production would then cost $10,000 per well. The levy would increase if natural gas prices went up. The fee proposal would raise $94 million from wells that were producing this year and would rise to $155 million next year.

Across the Rotunda in Harrisburg, the state House of Representatives began debate on potential amendments to the House's proposed drilling impact fee and regulatory measure. Discussion on the House-drafted measure is expected to continue this week in an effort to pass legislation by the end of the week.

The debate on these Senate and House measures focuses on the amount of the impact fee and how much deference is given to local zoning laws regarding drilling. Democrats tend to voice opposition to allowing state government to determine whether local drilling rules via zoning are reasonable. Republicans and Governer Corbett's administration, however, favor an approach that would entirely preempt local regulation of drilling operations, arguing that standardized rules on a state level would encourage natural gas companies to continue creating jobs in Pennsylvania. Additional details are here.

Stay tuned this week for follow-up on this breaking legislation….

Pennsylvania Regulators Aim to Improve Consistency in Oil & Gas Inspections and Enforcement

This post was written by David Wagner.

The Pennsylvania Department of Environmental Protection (DEP) released its findings yesterday on improving DEP’s statewide consistency when conducting site inspections at well sites, enforcing DEP regulations and tracking compliance. DEP also released a new Surface Activities Inspection Report that will be used statewide when conducting surface-related inspections or investigation activities. DEP indicated that it is simplifying the electronic data entry system used for violations, known as eFACTS, and developing a field manual for staff. Moreover, plans are in the works to increase the number of compliance staff in each region’s Office of Oil and Gas Management and to provide the industry with additional compliance assistance information.

As part of the initiative, members of an internal DEP review team from Harrisburg and the regional offices (Southwest, Northwest and North Central) that regulate oil and gas activity tracked and evaluated inspection data and enforcement actions taken for Marcellus activities statewide from January 18, 2011 to June 24, 2011. Inspection records were examined to identify trends in the number of inspections completed, violations found, and the type of violations noted. For that five month period from January to June, here’s some of the data the review team reported:

  • During the time period, DEP water quality specialists performed 4,157 inspections of Marcellus Shale exploration and production sites.
  • Broken down by region, the inspections were as follows:
    • North Central – 2727 total inspections
    • Southwest – 1101 total inspections
    • Northwest – 329 total inspections
  • During time period, 324, or 7.79%, of the inspections resulted in on-site violations. By region, here’s the breakdown:
    • North Central – 269 (9.86%)
    • Southwest – 38 (3.45%)
    • Northwest – 17 (5.17%)
  • Of the overall inspections with violations noted, a total of 633 individual violations in all three regions were found on-site. The five most often identified violations were:
  1. Improper storage, transportation, processing or disposal of residual waste (83 violations
  2. Poor erosion and sediment controls (79 violations)
  3. Lack of capacity in pits or tanks (55 violations)
  4. Lack of pollution prevention measures (36 violations)
  5. Defective, insufficient or improper casings (36 violations)

Pennsylvania to Issue Guidance on Wastewater Treatment Regulations

This post was written by Nicolle Bagnell and Ariel Nieland.

On November 3, 2011, the Pennsylvania Department of Environmental Protection ("DEP") announced that it plans to release technical guidance regarding Pennsylvania's updated wastewater treatment regulations, which took effect in August 2010, for new or expanded sources of natural gas wastewater. The guidance will clarify the requirements that facilities accepting shale gas wastewater must meet under the regulations, including effluent standards for total dissolved solids in treated wastewater and radiation monitoring prior to discharge of wastewater that was not fully pre-treated.
 

 

USEPA Announces Final Study Plan to Assess Hydraulic Fracturing

This post was written by Jennifer Smokelin.

This week, the U.S. Environmental Protection Agency (USEPA) announced its final hydraulic fracturing study plan and indicated that initial research results are expected by the end of 2012 with a final report in 2014. The overall purpose of the study is to understand the relationship between hydraulic fracturing and drinking water resources. The final study plan looks at the full cycle of water in hydraulic fracturing, from the acquisition of the water, through the mixing of chemicals and actual fracturing, to the post-fracturing stage, including the management of flowback and produced or used water as well as its ultimate treatment and disposal. Earlier this year, USEPA announced its selection of locations for five retrospective and two prospective case studies.

This study got its start in a 2010 budget report in which the U.S. House of Representatives Appropriation Conference Committee identified the need for a focused study of hydraulic fracturing. Since then, USEPA has held a series of public meetings across the nation to receive input from states, industry, environmental and public health groups, and individual citizens.

USEPA Announces Schedule to Develop Natural Gas Wastewater Standards for Shale Gas and Coal Bed Methane under Clean Water Act

This post was written by Jennifer Smokelin.

The U.S. Environmental Protection Agency (USEPA) announced today that it will propose a rule for wastewater from coal bed methane in 2013 and a proposed rule for shale gas wastewater in 2014. The announcement is part of the effluent guidelines program (Clean Water Act § 304(m)), which sets national standards for industrial wastewater discharges based on best available technologies that are economically achievable.

To ensure that these wastewaters receive proper treatment and can be properly handled by treatment plants, USEPA will gather data, consult with stakeholders, including ongoing consultation with industry, and solicit public comment on a proposed rule for coal bed methane and for shale gas. The time frame for coal bed methane is shorter because USEPA feels it already has a leg up on data necessary for the coal bed rule whereas there is more information to gather with regard to shale gas wastewater.

A Few More Details

Hydraulic fracturing is a method of releasing natural gas from highly impermeable rock formations by injecting large amounts of fracturing fluids at high pressures to create a network of fissures in the rock formations and provide the natural gas a pathway to travel to the well for extraction. Geologic pressure within the shale formation forces these fracturing fluids back to the surface, where they are referred to as “produced water” or shale gas wastewater. Based on a review of available data, USEPA is initiating a rulemaking to control wastewater produced by natural gas extraction from underground shale formations. Under this proposed rulemaking, EPA will consider standards based on demonstrated, economically achievable technologies, for shale gas wastewater that must be met before going to a treatment facility.

Analysis of Pennsylvania's Proposed Aggregation Guidance

This post was written by Larry Demase, Lou Naugle and Jennifer Smokelin.

Yesterday, we reported on the Pennsylvania Department of Environmental Protection’s (DEP) announcement of a proposed technical guidance for single stationary source determinations for oil and gas operations (the Single Source Guidance). Here’s our analysis of the proposal, including some background information, a discussion of the guidance and our thoughts on its potential impact.

Background

First, you should know that aggregation is the process of determining whether emissions from multiple operations should be aggregated into a single source for air permitting purposes. A significant issue related to oil and gas operations is whether emissions from individual operations such as wells, processing plants and compressor stations should be combined so that they become major sources for permitting purposes, subject to Title V requirements and New Source Review. When aggregation is at issue, individually the operations are not considered “major” for any contaminant.

Continue Reading...

Pennsylvania Submits New Air Aggregation Guidance for Public Comment

This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

The Pennsylvania Department of Environmental Protection announced today that it has submitted its technical guidance for single source determinations for oil and gas operations to the Pennsylvania Bulletin for public comment. The Department's guidance deals with the determination of whether two or more stationary sources should be aggregated together and treated as a single source of air emissions for the purposes of air permitting requirements. Specifically, the guidance involves three sets of regulations: the federal Prevention of Significant Deterioration, or PSD, regulations; the Pennsylvania nonattainment New Source Review regulations; and the Title V program. Click here for the full text of the technical guidance.

The public may comment on the air aggregation determination guidance until November 21, 2011.

Slides and Audio from Reed Smith's Quarterly Environmental and Energy Law Resource Telesiminar

This post was written by David Wagner.

On Wednesday, Reed Smith held its quarterly environmental and energy law resource teleseminar and the slides and audio are available. We discussed current or emerging issues under five general categories. The categories and discussion included:

  • Legislation/Rules — We reviewed the key points and effective dates related to the New Source Performance Standards for the oil and gas industry as well as for utilities and refineries.
  • Litigation — A big environmental litigation issue involving the oil and gas industry is the aggregation of air emissions from diverse sources and we discussed recent challenges to air permits involving this issue. We also discussed the U.S. Supreme Court's recent denial of certiorari in Morrison Enterprises v. Dravo Corporation and the implications on CERCLA cost recovery and contribution claims.
  • Policy and Technology — On this front, our presentation focused on a recent DOE report on the need for additional disclosure, and the policy implications related to the interplay between the U.S. Environmental Protection Agency and Federal Energy Regulatory Commission.
  • International Issues — Here we provided a brief preview of the upcoming COP in South Africa and the fate of the Kyoto Protocol
  • State Issues — On the state level, we focused on California and summarized recent developments regarding the implementation of the California Global Warming Solutions Act (aka AB32) and California's “Green Chemistry” Initiative.
     

Federal "Frack Panel" Testifies on State vs. Federal Regulation of Shale Gas

This post was written by Jennifer Smokelin.

Our blog has discussed the U.S. Department of Energy's creation of a panel to examine exploration and extraction in the Marcellus Shale (and I discussed the matter in more detail in my July article in The Legal Intelligencer ’s annual Energy Law report -- titled "The Frack Panel: Drilling Down on Representation and Timing Issues"). On October 4, members of the Frack Panel testified in front of the Senate Energy and Natural Resources Committee and would not commit to endorsing either state or a federal regulation as preferable for shale drilling. The panel, created earlier this year by Steven Chu, the Secretary of the U.S. Department of Energy Secretary, was originally tasked to make recommendations about how to make drilling safer, particularly hydraulic fracturing and offer advice to other agencies on how they could better protect the environment from shale gas drilling. Increasingly, the panel has been brought into the state-vs.-federal regulation of shale gas drilling debate.

The testimony comes on the heels of an Intermim Report drafted by the 7 member panel that was published in August. Four of the seven subcommittee members who wrote the report testified at the Senate hearing this week, including Chairman of the IHS Cambridge Energy Research Associates Dr. Daniel Yergin. While the group recommended some federal oversight of safety standards and best practices, and outlined 20 recommendations for the hydraulic fracturing, or "fracking," industry, the witnesses generally expressed opposition to federal regulation of fracking, suggesting state level oversight and industry self-regulation was, in nearly all cases, preferable.

Pennsylvania Governor Releases Plan for Marcellus Shale Impact Fee and New Drilling Regulations

This post was written by Nicolle Bagnell and Ariel Nieland.

Yesterday, Pennsylvania Governor Tom Corbett finally released his new Marcellus Shale oversight plan, much of which is based on the Marcellus Shale Advisory Commission's report provided to him in July. Gov. Corbett's plan provides for a county-assessed annual impact fee of $40,000 per well during the first year of production. The fee would decrease to $30,000 and then $20,000 for the second and third years of production respectively. After that, producers would be assessed at $10,000 per well for the subsequent seven years. The estimated $120 million in revenue generated from the fee in its pilot year would be distributed primarily to counties and municipalities hosting natural gas drilling, with the remainder going to state agencies such as PennDOT, the Pennsylvania Emergency Management Agency, the State Fire Commissioner, the Department of Health, the Public Utility Commission, and the Department of Environmental Protection. The Corbett administration estimates that the fee would generate up to $195 million by the sixth year.

In addition to the impact fee, Gov. Corbett also proposes to increase the minimum setback distance between gas wells and water supplies as well as expand the presumption of liability distance for producers from 1,000 feet to 2,500 feet. In addition, bond payments and penalties for civil violations would be stepped-up. The Governor's plan also incentivizes schools and mass transit systems to convert to natural gas for fuel and provides for natural gas fueling stations every 50 miles along new "green corridors" throughout the state.

The next step is for the plan to go before the Pennsylvania legislature for approval and state agencies for execution.

Is Pennsylvania Township's Ballot Initiative Banning Fracking a Violation of State Law?

This post was written by Steve Regan and Jennifer Smokelin.

As reported in last week's Wall Street Journal, challengers to natural gas drilling in Peters Township, Pennsylvania are taking a new approach: township residents will vote this fall on an initiative seeking to ban drilling in the Marcellus Shale basin that amends the township's home rule charter on the ballot. This is believed to be the nation's first voter initiative seeking to ban fracking activity. The amendment to the Peters Township home rule charter was drafted by the Community Environmental Legal Defense Fund, the same organization that drafted the City of Pittsburgh's ordinance banning natural gas drilling. The Peters Township charter amendment contains some of the same subject-to-challenge provisions as the City of Pittsburgh ordinance, including provisions that purport to deny corporations their rights under the commerce and contracts clauses of the United States and Pennsylvania constitutions and the right to challenge the Peters Township charter amendment in court. Moreover, a drilling ban ordinance substantially similar to the Peters Township charter amendment, and drafted and advocated by the same advocacy group, was struck down by the U.S. District Court for the Western District of Pennsylvania in a case involving another Washington County municipality, Blaine Township.

More than 100 towns in the state have already passed ordinances related to drilling. But the drilling industry argues that complete bans are pre-empted by state mineral extraction laws. Moreover, Peters Twp is attempting to ban drilling through an amendment to its home rule charter. Under the Pennsylvania Home Rule Charter and Optional Plans Law (Home Rule Law), a municipality that has adopted a home rule charter may exercise any powers and perform any function not denied by the Constitution of Pennsylvania, statute or by its home rule charter. Here, Peters Township's attempt to ban the exploration and production of natural gas through an amendment of its home rule charter is subject to challenge because such a ban is a violation of the Home Rule Law. Under the Home Rule Law, a municipality may not exercise powers that are contrary to, or in limitation or enlargement of, powers granted by statutes applicable in every part of the state. For instance, the Pennsylvania Oil and Gas Act is applicable in every part of Pennsylvania, and Peters Township's charter amendment banning the extraction of natural gas would be contrary to the Oil and Gas Act - including the Oil and Gas Act's stated purpose to permit the optimal development of oil and gas resources in Pennsylvania.

Peters Township's proposed charter amendments also rest on shaky legal ground because home rule municipalities may not determine the duties, responsibilities or requirements placed on businesses, occupations and employers. The Peters Township charter amendment, which bans the extraction of natural gas in Peters Township and deprives corporations engaged in the extraction of natural gas rights and protections afforded under the United States and Pennsylvania constitutions, arguably impermissibly regulates businesses and employers by prohibiting an activity that is expressly permitted and regulated by Pennsylvania law.
 

Inceasing Costs in Marcellus? A New Application of Recorders' Fee is Proposed in Pennsylvania

This post was written Nicolle Bagnell and Ariel Nieland.

With Pennsylvania courts looking to increase administrative costs, it may get more expensive to be involved in Marcellus Shale leasing activity. On July 30, 2011, the Administrative Office of Pennsylvania Courts (AOPC) published an announcement that it intends to recommend that the state Supreme Court amend current financial regulations already providing for, inter alia, recorders of deeds to impose a fee of $23.50 on the recording of documents for purposes of funding the Judicial Computer System/Access to Justice/Criminal Justice Enhancement Account (JCS/ATJ/CJEA). The amendments will specify that the $23.50 JCS/ATS/CJEA fee should be imposed on each individual property interest conveyed in a filing, including all individual leases conveyed in a single blanket assignment.

The reasoning behind the proposed amendment is the inconsistent application of fees by recorders' offices, specifically with regard to the filing of oil and gas leases, assignments, and "bundled" memorandum filings (a/k/a blanket assignments). The AOPC has explained that under the proposed amendments, a "separate fee shall be imposed for each such referenced, incorporated or listed property transfer at the time of filing.''

The public may submit suggestions, comments, or objections concerning the proposal no later than August 30, 2011 by contacting: Administrative Office of Pennsylvania Courts, ATTN: Financial Regulations Comments, 1515 Market Street, Suite 1414, Philadelphia, PA 19102, financialregscomments@pacourts.us.

Marcellus Shale Report Released by Pennsylvania

This post was written by Nicolle Bagnell.

As mentioned in our earlier blog post, Pennsylvania Governor Tom Corbett's Marcellus Shale Advisory Commission issued their written report today. The 137 page document identifies the numerous recommendations including enacting an impact fee, increasing setbacks from public water sources, increasing fines for environmental violations and minimizing disruption to surface area in state forest lands. A copy of the full report can be found at this link.

What to Know about Aggregation in Marcellus Shale

This post was written by David Wagner.

Aggregation is the process of determining whether emissions from multiple locations should be aggregated into a single source for air permitting purposs. In the Marcellus Shale play, it's a big environmental issue and Reed Smith environmental attorneys are focused on it in a few ways. Reed Smith represents a defendant in an aggregation case and we also examined aggregation issues in a teleseminar yesterday. The teleseminar, presented with AECOM, discussed U.S. Environmental Protecton Agency guidance, federal aggregation cases, state aggregation cases and some of the pitfalls of aggregation. Feel free to review the slides and the audio from the event.

Update on Pennsylvania Governor's Marcellus Shale Commission Recommendations

This post was written by Ariel Nieland and Nicolle Snyder Bagnell.

In Pennsylvania, Governor Corbett's Marcellus Shale Commission met on Friday, July 15, 2011 to review and vote on a list of recommendations compiled by various government, industry and environmental stakeholders over the past four months regarding various regulatory issues in Pennsylvania. The Commission ultimately approved a set of 96 recommendations and is now in the process of preparing a report to be presented to Gov. Corbett this Friday, July 22, 2011. The list of recommendations will be made available to the public only after the Governor has reviewed them.

According to news reports from those in attendance at the meeting on Friday, some of the major topics and recommendations included the following:

  • Enacting an impact fee (no specific amount recommended)
  • Allowing for forced pooling
  • Increasing setbacks from wells to 500 ft. and up to 1000 ft. near public water sources
  • Extending a well operator's presumptive liability for pollution or water loss from 1,000 feet to 2,500 feet.
  • Doubling the fines for environmental violations
  • Creating an intrastate pipeline system
  • Encouraging development of ethylene processing plants
  • Minimizing disruption to surface area in state forest lands
  • Evaluating the need to reconnect railroad spurs to aid the industry
  • Locating national gas fueling stations at set distances along highways
  • Advocating a regional approach to work force training
  • Requiring well pads to have a 911 address
  • Providing for specialized firefighter training under the state fire commissioner's office
  • Having a "one-stop" agency to expedite the gas pipeline permitting process
  • Increasing penalties for violations of the Oil and Gas Act
  • Creating a public health registry to track health of residents living in proximity to wells

In Case You Missed It, Here Are Slides and Audio from Reed Smith's June 16 Climate Change Event

This post was written by David Wagner.

Last week, we discussed recent international and U.S. developments related to greenhouse gas regulation, and here are the slides and audio from the event. In particular, we addressed:

  • How the uncertain future of the Kyoto Protocol and the Clean Development Mechanism affect U.S. business (You can also find details on this issue here)
  • What your business needs to know for compliance and planning related to step 2 of USEPA's greenhouse gas Tailoring Rule
  • Implications of the court's "cap and trade" ruling in Association of Irritated Residents v. California Air Resources Board
  • Developments in state courts including upcoming decisions on insurers' obligation to defend and/or indemnify covered insureds for public nuisance, and other types of claims based on third-party allegations of damages from climate change
     

Proposed Pennsylvania Legislation Imposes Natural Gas Impact Fee

This post was written by Nicolle Bagnell and Ariel Nieland.

Last week, Pennsylvania State Senator Joe Scarnati (R) expanded upon a bill he introduced last month, Senate Bill 1100, which proposes to levy a $10,000 base impact fee on natural gas drillers in the Marcellus Shale. Senator Scarnati's expansions provided additional details for how the money collected from the fee would be distributed and how penalties for non-compliance would be assessed. Under the new version of SB 1100, the majority of the funds obtained from the fee are to be distributed among local counties, municipalities, and conservation districts. A portion of the funds would also be used to address statewide infrastructure and environmental impacts. The bill provides for impact fees to be retroactively assessed, meaning that drillers would be responsible for paying fees for last year's production. Bill opponents have expressed concern that the bill would chill development in the Marcellus. The Pennsylvania Senate Environmental Resources and Energy Committee will consider SB 1100 on June 14.

New Pennsylvania Law Establishes Spacing Requirements Between Natural Gas "Well Clusters" and Workable Coal Seams

This post was written by Nicolle Bagnell and Ariel Nieland.

On May 13, 2011, Pennsylvania Governor Tom Corbett signed Senate Bill 265 into legislation. SB 265 sets a minimum distance between natural gas "well clusters" (defined as the area within a well pad holding horizontal wells and comprising an area of no more than 5,000 square feet) overlying workable coal seams, and provides for coordination of gas well drilling and coal mining. Under the new legislation, the Department of Environmental Protection (DEP) will issue no new permits for any well unless that well's cluster is at least 2,000 feet from the nearest well cluster or the operator of the well and owner of any workable coal seams underlying the proposed well provide written consent to spacing of less than 2,000 feet. In addition, no permits will be issued for wells located less than 1,000 feet from any other wells (excluding injection wells not penetrating workable coal seams, plugged wells, nonproducing wells drilled prior to November 30, 1955, or storage wells). The bill also requires well operators intending to drill in any operating coal mine to attach the written consent of the mine operator to permit applications.

Pennsylvania Department of Environmental Protection Rescinds Policy; Secretary No Longer to Approve All Marcellus Field Enforcement Actions

This post was written by Nicolle Bagnell and Ariel Nieland.

In late April, the Pennsylvania Department of Environmental Protection (DEP) rescinded its policy requiring field inspectors to obtain approval prior to taking enforcement actions against Marcellus Shale drilling operators. The stated purpose of the "pilot" policy, which went into effect on March 23 and was regarded as an unusual step for the DEP to take, was to promote consistency throughout the state with regard to Marcellus development, permitting, and enforcement. In response to the agency's rollback of the policy, a DEP spokesperson explained that the notice of violation process is now "just as it was."

State Report Indicates No Impact on Short-Term Air Quality from Marcellus Operations in Northcentral Region of Pennsylvania

This post was written by Nicolle Bagnell and Ariel Nieland.

Yesterday, Pennsylvania Department of Environmental Protection (DEP) announced today the results of the latest in a series of air quality studies near Marcellus Shale natural gas operations. This study, which was conducted in Bradford, Lycoming, Sullivan and Tioga counties, did not find any emission levels that would pose a public health concern. “The results show there are no emission levels that would be of concern to the health of residents living and working near these operations,” DEP Secretary Mike Krancer said. “They are consistent with the results of our air monitoring in southwest and northeast Pennsylvania, the other two areas of the state with the most Marcellus drilling.”  

New Federal Energy Subcommittee to Review Fracking; Group Includes Former Pennsylvania Department of Environmental Protection Chief Kathleen McGinty

This post was written by Jennifer Smokelin.

Following through on President Obama’s request to look at shale gas drilling safety, Steven Chu, the Secretary of the U.S. Department of Energy Secretary, expanded a panel of experts and ordered recommendations. After the Secretary’s Energy Advisory Board created a three-member Natural Gas Subcommittee in January, it expanded to seven members last week. It was also given the mandate to make recommendations within 90 days about how to make drilling safer, particularly hydraulic fracturing. Within six months, the group is to offer advice to other agencies on how they could better protect the environment from shale gas drilling. The four new members are former Pennsylvania Department of Environmental Protection chief Kathleen McGinty, Stephen Holditch, chairman of the Department of Petroleum Engineering at Texas A&M University, Environmental Defense Fund President Fred Krupp, and Stanford University geophysics professor Mark Zoback.

It's Official: the Environmental Law Resource is a Top 50 Environmental Law Blog

This post was written by David Wagner.

We’re in – LexisNexis has selected Reed Smith's Environmental Law Resource blog as one of the Top 50 Environmental Law & Climate Change Blogs for 2011. We were recognized as "preeminent thought leaders in the blogosphere" who "offer some of the best writing out there." LexisNexis found that our blog contains "a wealth of information for all segments of the environmental law and climate change industry, and includes timely news items, expert analysis, practice tips, frequent postings and helpful links to other sites and sources."

The 50 honorees were grouped into 10 categories and our blog was one of just 4 blogs honored under the "Litigation" category.

We’re thrilled and certainly appreciate the recognition. Even more importantly, we appreciate your interest in our blog.

Pennsylvania Department of Environmental Protection Calls on Marcellus Shale Drillers to Stop Taking Wastewater to Treatment Plants

This post was written by Nicolle Bagnell and Ariel Nieland.

Last week, Pennsylvania Department of Environmental Protection (DEP) Secretary Michael Krancer gave Marcellus Shale natural gas drilling operators a deadline of May 19 by which to voluntarily stop delivering wastewater produced from natural gas extraction to water treatment facilities. This request from the DEP comes as a result of concerns over increased levels of bromides detected in the Allegheny and Beaver rivers in western Pennsylvania. In August 2010, the prior administration implemented new regulations addressing the potential for contamination from "total dissolved solid" (TDS), a by-product of natural gas extraction. Bromides, which are also present in wastewater containing TDS, can become toxic when combined with chlorine used for water disinfection at treatment facilities. The 2010 TDS regulations imposed more stringent standards on publicly owned treatment works and centralized waste treatment facilities for the treatment of TDS discharges. However, the regulations included a "grandfather clause" allowing for facilities that had historically accepted drilling wastewater to continue to do so, provided that the total amount of wastewater they received did not increase. Out of the 27 "grandfathered" facilities, nearly half have voluntarily ceased accepting Marcellus Shale wastewater in the past year. DEP's request calls upon operators to stop delivering wastewater to the remaining 15 facilities in hopes that concentrations of bromides will "quickly and significantly decrease" as a result.

Second of Three Teleseminars on Marcellus Shale Clean Air Permits Examined Greenhouse Gas Issues

This post was written by David Wagner.

This week, Reed Smith teamed up with AECOM to present its second seminar on clean air permit issues related to oil and gas development in the Marcellus Shale. At the event, we discussed greenhouse gas (GHG) emission sources, GHG reporting requirements, the federal Tailoring Rule (including Prevention of Significant Deterioration and Title V issues), New Source Performance Standards, and single stationary source determinations for the oil and gas industry. If you missed it, here are the slides and audio. The event featured Jennifer Smokelin and David Wagner of Reed Smith and Tom Bianca of AECOM.

At the first teleseminar, we discussed the Pennsylvania Department of Environmental Protection’s (DEP) air permitting process, focusing on the general permits applicable to oil and gas activities (GP-5, GP-9, GP-11), requests for determinations, and the permit exemption list, as well as DEP’s proposals to narrow the oil and gas permit exemption list and modify GP-5. Check back for details on the remaining teleseminar that will address aggregation issues.

Proposed Marcellus Related Legislation in Pennsylvania Proposes Arbitrary Two Mile Spacing Requirement

This post was written by Steven Regan.

On March 28, 2011, House Bill No. 1211 (Printer’s No. 1321) (“HB 1211”) was referred to the Pennsylvania House Committee on Environmental Resources and Energy. HB 1211 would amend section 205 of the Pennsylvania Oil and Gas Act (58 P.S. § 601.205) to add an arbitrary two mile well location restriction. Under the proposed amendment, “[A] permit for a well intending to produce from an unconventional shale formation shall not be issued by the department unless it is located not less than two miles from the nearest well drilled into an unconventional shale formation. . . The well spacing requirements under this subsection shall not be waived.” HB 1211 defined an unconventional shale formation as a “shale formation that typically produces natural gas through high volume hydraulic fracturing or horizontal well bores,” and includes the Rhinestreet, Burket, Marcellus, Mandata and Utica shale formations and other formations designated by the department (DEP)”.

Rather than impose a strict, arbitrary well spacing requirement, the purpose of the Oil and Gas Act to “permit the optimal development of the oil and gas resources of Pennsylvania . . .” (58 P.S. § 601.102(1)) could be easily served if wells producing from unconventional shale formations were governed by the existing well spacing requirements under Section 407 of the Oil and Gas Conservation Law (58 P.S. § 407), e.g., factors such as the surface topography, a well spacing plan and other available geological and scientific data.

Pennsylvania Department of Environmental Protection Secretary to Approve All Actions Regarding Marcellus Development

This post was written by Nicolle Bagnell and Ariel Nieland.

According to an article in the Pittsburgh Post-Gazette, the regional offices of the Pennsylvania Department of Environmental Protection ("DEP") have been told that they must seek pre-approval from Harrisburg before taking ANY action regarding Marcellus development, including permitting and enforcement. Recently-appointed Secretary of DEP Michael Krancer must now approve all final actions. The DEP indicated that this policy was put into effect to ensure that Marcellus development was being handled consistently throughout the state; regardless, this is a very unusual step for the DEP to take.

Another Severance Tax Bill Related to Marcellus Shale is Proposed in Pennsylvania

This post was written by Nicolle Bagnell and Ariel Nieland.

The Marcellus Shale legislative season remains in full bloom as another severance tax bill was introduced in the Pennsylvania General Assembly this week. Senate Bill 905 proposes a 2% tax on the gross value of natural gas at the wellhead where the amount produced is between 60,000 to 150,000 cubic feet/day (cf/d). For wells that have been in production longer than three years, the tax rate would increase to 5%. As with House Bill 833, SB 905 provides for "stripper wells" (those wells producing less than 60,000 cf/d) to be exempted from the tax unless certain exceptions apply. SB 905 also provides for the establishment of a Natural Gas Severance Tax Fund, which would be distributed at the county and municipality level to preserve and improve local water supplies, maintain and improve wastewater systems, and for other purposes related to "the health, welfare and safety consequences of severing natural gas in municipalities within the county."

Your Invitation to an April 12 Teleseminar on Marcellus Shale and Greenhouse Gas Reporting

This post was written by David Wagner.

Please join us for the second of three teleseminars on air quality issues affecting oil and gas development in Marcellus Shale On Tuesday, April 12, 2011 from 12 p.m. - 1 p.m., Reed Smith and AECOM will discuss the Pennsylvania Department of Environmental Protection’s issues related to greenhouse gases in the Marcellus Shale. In particular, we will cover (1) sources of greenhouse gases, (2) reporting, and (3) Title V implications. This event will feature Jennifer Smokelin and David Wagner of Reed Smith and Tom Bianca of AECOM. To participate, please contact Sandy Petrakis by April 11.

Proposed Federal Legislation Targets Air Emissions from Hydraulic Fracturing

This post was written by Jennifer Smokelin.

Dubbed a sister bill to the “FRAC Act” (which targets water emissions from hydraulic fracturing), last week Reps. Jared Polis (D-CO), Maurice Hinchey (D-NY) and Rush Holt (D-NJ) introduced the “BREATHE Act,” for “Bringing Reductions to Energy’s Airborne Toxic Health Effects.” According to a release from Rep. Polis, the bill specifically:

  • Closes the NESHAP exemption. While some emissions requirements exist for individual wells, oil and gas drilling is exempted from aggregated “major source” requirements under the National Emission Standards for Hazardous Air Pollutants (NESHAP).
  • In practical terms, would prompt the industry to follow NESHAP’s required use of best available and currently used emissions control technology.
  • Closes the hydrogen sulfide (H2S) exemption. Hydrogen sulfide, which emitted from oil and gas operations, is currently exempt from regulation as a hazardous air pollutant under the Clean Air Act.

Notes from the USEPA's Science Advisory Board Panel for the Review of Hydraulic Fracturing Study Plan

This post was written by Nicolle Bagnell and Ariel Nieland.

Reed Smith, represented by Nicolle Bagnell, attended the Science Advisory Board Panel's public meeting on March 7, 2011 in Washington D.C. The purpose of the panel, comprised of a distinguished group of 22 professors and practitioners ranging in expertise from public health, hydrogeology, water quality engineering and environmental justice, is to provide an independent review of the U.S. Environmental Protection Agency's (USEPA's) proposed Hydraulic Fracturing Study Plan for scientific soundness of the draft plan. The panel was selected from nominations made in response to a request in the Federal Register last July. In addition to the Panel's review, USEPA received over 300 sets of public comments on the draft plan. There were also twelve speakers who provided 5-minute commentaries either in person or by phone and roughly 50 members of the public who attended the meetings.

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Testing for Radioactivity of Pennsylvania River Water Downstream of Marcellus Water Treatment Plants Shows Water Is Safe

This post was written by Jennifer Smokelin.

The Pennsylvania Department of Environmental Protection (DEP) yesterday announced results of in-stream water quality monitoring for radioactive material in seven of the Commonwealth’s rivers. Seven river testing stations – which monitor “raw water” in the river before it enters public water suppliers’ intakes where the water receives further treatment – that were evaluated are Monongahela at Charleroi in Washington County, South Fork Ten Mile Creek in Greene County, Conemaugh in Indiana County, Allegheny at Kennerdell in Venango County, Beaver in Beaver County, Tioga in Tioga County, and the West Branch of the Susquehanna in Lycoming County. All seven samples showed levels at or below the normal naturally occurring background levels of radioactivity.

According to the Associated Press, a review of state records shows most of the gas-drilling wastewater that was treated and discharged by sewage plants in the second half of 2010 found its way into eight (8) waterways, seven of which were tested (above) by DEP. The eighth waterway, Blacklick Creek in southwestern Pennsylvania - is a tributary of the Conemaugh, one of the 7 tested locations. The tests were conducted in November and December of 2010 at stations downstream of wastewater treatment plants that accept flowback and production water from Marcellus Shale drilling. DEP said that these sampling stations were installed last fall specifically to monitor stream quality for potential impacts of Marcellus development.

Proposed Pennsylvania Bill Would Result in Lease Expiration as to Land Not Being Used for Oil or Gas Production

This post was written by Nicolle Bagnell and Ariel Nieland.

In addition to a number of other Marcellus Shale-related bills introduced in the Pennsylvania House and Senate over the past few months, Senate Bill 722 was also laid on the table last week. The bill proposes to amend the Oil and Gas Act in order to spell out exactly what would happen to leased land that neither contains a well nor is included in a production unit. The bill is, in effect, a statutory version of a Pugh Clause commonly found in oil and gas leases. According to the language of the bill, any land covered by a lease, but not included in the unit, would be released.

Marcellus Shale-related Bills Introduced in Pennsylvania in 2011

This post was written by Nicolle Bagnell and Ariel Nieland.

Several new Marcellus Shale-related bills have been introduced in the Pennsylvania Senate and House of Representatives since the start of 2011. House Bill 833, first introduced on March 1, 2011 and known as the Natural Gas Severance Tax Act, proposes to impose a tax on natural gas extraction of 30 cents per 1,000 cubic feet. The bill also provides an exemption for wells with low production rates (less than 60,000 cubic feet/day) known as "stripper wells" to incentivize operators' continued use of those wells in lieu of drilling new wells. House Bill 33, which was introduced on February 9, 2011 and shares many of the same legislative sponsors as H.B. 833, proposes a tax of 5% on all gas extracted plus an additional 4.6 cents per 1,000 cubic feet. This tax rate is the same as that proposed under Senate Bill 352, which was introduced on February 1, 2011. House Bill 234, introduced on January 26, 2011, would provide for further reporting requirements for operators producing gas from "unconventional shale formations" (including the Marcellus, Burket, Utica, Mandata, and Rhinestreet Shale formations, etc.). House Bill 232, also introduced on January 26, 2011, provides for additional restrictions on well locations and permits, as well as wastewater disposal requirements and a cumulative impacts study.

In addition to the introduction of new bills, several new regulations addressing well casing requirements, which the Pennsylvania General Assembly approved in the fall of 2010, went into effect in early February upon publication in the Pennsylvania Bulletin. We previewed these requirements in November 2010.

In Pennsylvania, the Corbett Administration Rescinds Another Marcellus-Related Policy and Takes Unusual Action to Re-Open Public Comment

This post was written by Jennifer Smokelin.

Here’s another change in environmental policy related to Marcellus Shale by the new Pennsylvania Governor. On February 26, 2011, the Pennsylvania Department of Environmental Protection (DEP) published a notice rescinding the Interim Guidance for Performing Single Stationary Source Determinations for the Oil and Gas Industries (initially published in December 2010). They also announced the intent to re-open the public comment period on the proposed Air Quality Permit Exemptions Policy and Proposed Revisions to the General Plan Approval and/or General Operating Permit for Nonroad Engines (found here).

In its notice, DEP indicated that it is appropriate to seek a comprehensive public comment period on all three of these topics together to guide the Department on what, if any, guidance or action might be taken on any one or more of them. Further, DEP acknowledged outright that there are a number of potentially interrelated air quality topics regarding gas exploration and extraction activities within the Marcellus Shale which should be considered together, that is: (1) performing single stationary source determinations; (2) General Plan Approval and/or General Operating Permit BAQ-GPA/GP-11; and (3) the list of air quality plan approval and operating permit exemptions which were topics covered in the actions noted previously. With regard to the exemption list, DEP is particularly interested in comments related to Exemption B.38 on oil and gas exploration and production facilities and operations. Public comments will be accepted until May 26, 2011.

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Reed Smith's (Free) Quarterly Climate Change Teleseminar is March 16

This post was written by David Wagner.

We’re celebrating one year’s worth of climate change teleseminars with, you guessed it, another climate change teleseminar. Please join us on Wednesday, March 16 from Noon to 1 p.m. (EDT) for the First Quarterly Report on Climate Change in 2011. In this one-hour teleseminar, Larry Demase, Jennifer Smokelin, Todd Maiden and Dave Wagner will provide a regulatory update on significant international, national and state issues concerning climate change and the future of GHG regulation. In particular, the topics are:

  • A delay in the implementation of the Tailoring Rule? An exemption for GHG permit applications in process prior to January 2, 2011?
  • GHG permitting and biomass: EPA's permitting deferral and its affect on industries that use biomass.
  • Congressional efforts to develop a Clean Energy Standard that would require electric utilities to generate electricity from "clean" energy sources, including nuclear, coal with carbon capture and storage, and natural gas.
  • Developments in a recent California court decision addressing what additional work the California Air Resources Board must perform prior to implementing AB32.

If you would like to attend, please email Sandy Petrakis.

The Environmental Law Resource Nominated for LexisNexis Top 50 Environmental Law Blogs

This post was written by David Wagner.

It's really nice to be recognized. In fact, we're thrilled that LexisNexis has nominated Reed Smith's Environmental Law Resource as one of the Top 50 Environmental Law & Climate Change Blogs for 2011. Even better, they grouped the 50 nominees into 11 categories and our blog was one of just 7 blogs nominated under the "Litigation" category. LexisNexis selected the nominees based on "timely topics, quality writing, frequent posts and that certain something 'extra' that keeps a web audience coming back for more."

We certainly appreciate your interest in our blog and, if you want to support our nomination, LexisNexis is inviting comments.

 

Pennsylvania Rescinds EIS Policy for Well Operators Seeking to Drill on State Land

This post was written by Nicolle Bagnell and Ariel Nieland.

Last week, Pennsylvania Governor Tom Corbett rescinded a policy that required well operators who wanted to drill for natural gas in state park and forest land to obtain an environmental impact assessment statement from the Pennsylvania Department of Conservation and Natural Resources (DCNR) before applying for a drilling permit. The 4-month old policy, which former Governor Rendell imposed in October 2010, provided for increased cooperation among the Department of Environmental Protection (DEP), the DCNR, and well operators in addressing drilling permit applications. The policy was applicable in situations where the state owned the surface rights to the land, but the subsurface mineral rights were privately held. According to former DCNR Secretary, John Quigley, the policy was a "common-sense approach to mitigating or avoiding any environmental, recreational and aesthetic impacts from the well drilling." The Corbett administration, however, has described the newly-rescinded policy as "unnecessary and redundant" as operators are already required to mitigate environmental damage and are held to responsible drilling practices by the DCNR and DEP.

Some commentators have viewed the rescission as Governor Corbett's first step towards fulfilling his promise to lift Pennsylvania's current moratorium, also imposed by Rendell in October, on new leasing of state forest lands for natural gas drilling where the state does own the mineral rights.

 

The First of Three Teleseminars on Air Quality Issues Affecting Oil & Gas Development in Marcellus Shale

This post was written by David Wagner.

Reed Smith has teamed up with AECOM to present three teleseminars on air quality issues affecting oil and gas development in the Marcellus Shale. At the first teleseminar on February 11, 2011, we discussed the Pennsylvania Department of Environmental Protection’s (DEP) air permitting process, focusing on the general permits applicable to oil and gas activities (GP-5, GP-9, GP-11), requests for determinations (RFDs) and the permit exemption list, as well as DEP’s proposals to narrow the oil and gas permit exemption list and modify GP-5. Click here for the teleseminar’s audio recording and here for the handout. The event featured Larry Demase and Jennifer Smokelin of Reed Smith and Tom Bianca of AECOM.

Check back for details on the remaining two teleseminars that will address greenhouse gases and aggregation.

Pennsylvania DEP Study Finds No Negative Impacts to Air Quality Related to Marcellus Shale Operations

This post was written by Nicolle Bagnell and Ariel Nieland.

Yesterday the Pennsylvania Department of Environmental Protection (DEP) released the results of its short-term study of potential negative impacts to air quality resulting from Marcellus Shale natural gas operations in Northeastern Pennsylvania. According to the DEP, the results from the study indicated no emissions levels of any compounds that would trigger cause for concern over air-related health issues associated with drilling activities in the region. To collect samples for the study, the DEP conducted air monitoring surveys over a period of four weeks at various drilling sites in Susquehanna County, including an operating gas well, compressor stations, and a well site currently being fracked, as well as in Loyalsock State Forest in Sullivan County. The survey was aimed at monitoring for volatile organic compounds generally associated with petroleum products, such as benzene and xylene, along with other pollutants. Although the sampling did detect emissions of various natural gas constituents and related compounds (ethane, methane, carbon monoxide, etc.), none of the emissions were at concentrations that would rise to the level of constituting a health concern.

Settlement between Pennsylvania and Cabot to Resolve Drinking Water Problems Linked to Gas Migration

This post was written by Nicolle Bagnell and Ariel Nieland.

After announcing in October that Cabot Oil & Gas Corporation would be held responsible for the cost of a 5.5-mile, $11.8 million water line construction project to provide residents of Dimock with quality drinking water, the Pennsylvania Department of Environmental Protection (DEP) has now reached a $4.1 million settlement with Cabot.  According to DEP, Cabot's natural gas drilling activities in Susquehannah County are believed to be the source of gas migration and water contamination problems affecting Dimock residents' water wells, which the DEP began investigating in January 2009. The terms of the settlement agreement will require Cabot to reimburse DEP with $500,000 for the cost of investigating the gas migration, as well as to enable all 19 of the affected families to resolve their water-related issues based on their particular circumstances (with a minimum payment of $50,000), including offering, installing, and paying for whole-house gas mitigation water treatment systems.
 

 

Stronger Gas Well Construction Standards are One Step Closer in Pennsylvania

This post was written by Nicolle Bagnell and Ariel Nieland.

On November 18, 2010, the Pennsylvania Independent Regulatory Review Commission (IRRC) voted unanimously in favor of imposing more stringent standards on construction of natural gas wells. Some of the key features of the proposed regulations include a provision requiring operators to implement a pressure barrier plan to minimize well control events, a provision requiring operators to condition the wellbore to ensure an adequate bond between the cement, casing and the formation, a requirement for the use of centralizers to ensure casings are properly positioned in the wellbore, and a provision improving the quality of the cement placed in the casing to protect fresh groundwater. In drafting the regulations, the Pennsylvania Department of Environmental Protection relied on input and comments from the public solicited as part of a series of public meetings held by the Environmental Quality Board this summer. The new gas well regulations have already been approved by the House and Senate Environmental Resources and Energy committees, and must now go before the Office of the Attorney General for final review and approval.

Proposed Bill Would Provide Tax Credit for Creating a Marcellus Shale Job in Pennsylvania

This post was written by Dan Dixon.

In an effort to maximize local economic growth related to Marcellus Shale, last week 18 senators from the Pennsylvania State Senate introduced a new bill titled the "Marcellus Shale Job Creation Tax Credit" that, if enacted, would provide a "tax credit" of $2,500 per new job created for a Pennsylvania resident. As introduced, the bill requires that the jobs created must pay 350% of the Federal Minimum wage, include benefits, and be "family sustaining." A company taking the credit must express intent to maintain operations in Pennsylvania for a period of five years (after its certified to receive the credits). Preference will be given to companies employing residents who meet certain classifications (terminated due to plant closure, geographically difficult to employ, etc.).

Under the current version of the proposed legislation, the Department of Revenue would be permitted to award over $24M in total tax credits per year. These credits could be applied to a company's Pennsylvania income or franchise tax (up to 100% of the liability). Importantly, the credits could be transferred to an affiliated entity and applied to the affiliates Pennsylvania income or franchise tax liability. We will provide additional posts as this legislation progresses through the Senate and House.

To Address Drinking Water Problems Caused by Gas Migration, Pennsylvania Decides to Act Now and Recover Costs Later

This post was written by Nicolle Bagnell and Ariel Nieland.

On October 19, 2010, the Pennsylvania Department of Environmental Protection (DEP) issued an open letter to all Susquehanna County citizens who have been affected by issues related to the apparent migration of natural gas from neighboring Marcellus Shale well sites into water supplies. In the letter, Secretary John Hanger states that the DEP has determined, based on "overwhelming evidence," that Cabot Oil & Gas Corporation is responsible for various instances of drinking water contamination in Dimock, PA. He also states that because Cabot has denied responsibility for the contamination and refused to "fix the problem," an agency called PENNVEST will provide the estimated $11.8 million in funds necessary to construct a water line from the Pennsylvania American Water Company treatment plant in Lake Montrose to Dimock residents so that they will have adequate water service in the interim. The state will then pursue recovery of the cost of the project directly from Cabot. Hanger notes that all residents along Route 29 will have the option to connect to the water line and that the construction project will not result in an increase in local taxes.

One Step Closer to a Marcellus Shale Gas Severance Tax in Pennsylvania

This post was written by Nicolle Bagnell and Ariel Nieland.

Last night, the Pennsylvania House of Representatives voted 104-94 in favor of passing Senate Bill 1155, the state's first natural gas severance tax. Currently, Pennsylvania is the only Marcellus Shale state that does not impose a tax on natural gas production. The proposed tax, which is likely to be scaled back once it goes before the Senate for a vote, would also be one of the highest of its kind in the nation, at 39 cents per 1,000 cubic feet (Mcf) of natural gas. A similar severance tax currently in place in West Virginia, 5% of the value of the gas plus 4.7 cents per Mcf, is more akin to the rate favored by Pennsylvania Governor Ed Rendell. Although many opponents are concerned that the tax would kill job growth and stifle what has been seen as "one of the few bright spots in Pennsylvania's economy," supporters of the tax contend that it would enable the state to put environmental safeguards in place, while compensating Pennsylvania citizens for the use of their state's natural resources.
 

New Analysis of Potential Jobs and State Revenue Following a Pennsylvania Severance Tax on Natural Gas Extraction

This post was written by Nicolle Bagnell and Ariel Nieland.

A recent report from researchers at the Pennsylvania State University indicates that, athough a state severance tax on natural gas extraction would have negative economic consequences on gas production companies, the overall benefit of state and local spending of revenue from the tax could increase population in the state by 1,300 people, add 1,400 new workers, and boost business sales by $80 million as well as personal income by $20 million. Pennsylvania state lawmakers are currently considering approval of a severance tax provision in time for the October 1, 2010 deadline mandated as part of the Pennsylvania General Assembly's passage of the state budget earlier this summer. Pennsylvania remains the only major natural gas-producing state without a severance tax. Governor Rendell and supporters of the tax hope that revenue generated from the tax can be used to help fund local government and environmental initiatives.

New Marcellus Shale Laws in Pennsylvania Would Impact Subsurface Property Rights and Pooling

This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

Two new Marcellus Shale laws are currently in the works in Pennsylvania. The first, known as the Mineral Rights Act (House Bill No. 1436), which passed "first consideration" muster in the Pennsylvania House of Representatives earlier this summer, provides for the reassignment of abandoned mineral rights on privately owned lands. According to State Representative Jesse White (D-46), one of the bill's proponents, the law would promote Marcellus Shale activity in the state by providing procedural guidelines for resolving legal disputes over title to subsurface property.  Any mineral interests that have not been utilized, transferred, sold, leased or mortgaged for a period of ten years would be subject to a claim by the surface owner to have the property declared abandoned. The rightful owners of any mineral interest deemed abandoned would then have three years to file a claim of interest to preserve their rights for an additional ten years, after which time the mineral rights would be declared abandoned if left unused.  The goal of the proposed bill is to fill in gaps in ownership of subsurface mineral rights while ensuring that the rights of current mineral owners are protected.

The second Marcellus Shale-related law, for which House Representatives Gergely (D-35) and Everett (R-84) are currently seeking co-sponsorship, is entitled the "Conservation Pooling Act." This legislation seeks to enhance conservation efforts while simultaneously protecting landowners impacted by natural gas drilling. Some of the most important features of the law include limiting the number of well pads allowed to be constructed on drilling units, enhancing royalty owners' ability to maximize the economic benefit of their Marcellus Shale leases, and providing for no surface trespass rules and fair compensation for non-mineral interest owners who are pooled into a unit.
 

Stakeholders Speak Out to USEPA on Hydraulic Fracturing

This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

Reed Smith joined an audience of 1,200 attendees at last night's "Opportunity for Stakeholder Input on Criteria for Selecting Case Studies for Consideration in USEPA's Hydraulic Fracturing Research Study" meeting in Southpointe, PA, just outside of Pittsburgh. The standing-room only event marked the largest turnout yet in this series of public hearings sponsored by the U.S. Environmental Protection Agency (USEPA). Approximately 600 people attended the first hearing in Fort Worth, Texas on July 8, while nearly 350 attended in Denver, CO on July 13. The last hearing in the series of four will take place in Binghamton, NY on August 12.

USEPA has explained that the purpose of the hearings is to solicit input from community and industry stakeholders on the design of USEPA's upcoming study of the potential impact of hydraulic fracturing ("hydro-fracking")­—which involves pumping large volumes of water mixed with frac fluid and sand into geologic formations to extract natural gas—on groundwater and drinking water. To facilitate this goal, USEPA welcomed members of the community to register for two-minute slots of speaking time during which they could address their thoughts on the scope and design of the study, as well as on the potential costs and benefits posed by Marcellus Shale natural gas production in Pennsylvania.

It became clear from the comments of the 130 or so speakers that public concern over the potential adverse environmental and health impacts of hydro-fracking has reached fever pitch. Some concerned community members advocated for a moratorium to be placed on all Pennsylvania natural gas drilling, similar to the one currently in effect in New York state, until USEPA completes its hydro-fracking study (expected sometime in late 2012). Industry supporters expressed fears that over-regulation could chill the significant increases in job opportunities and government revenue expected in Pennsylvania as a result of Marcellus Shale natural gas development and production.

According to USEPA, the study is scheduled to begin in early 2011, with preliminary study results expected in 2012. In addition to conducting the series of four public hearings, USEPA is also soliciting comments from the public via email at hydraulic.fracturing@epa.gov on the following inquiries: (1) where should USEPA prioritize its efforts?; (2) where are gaps in current knowledge?; (3) is there data and information already in existence that USEPA should be aware of?; and (4) are there potential candidate sites or case studies that would be useful for the study?

Pennsylvania Regulators Amend Public Meeting Schedule for Proposed Regulations for Casing and Cementing Wells

This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

On July 21, 2010, Pennsylvania's Environmental Quality Board (EQB) amended the public meeting schedule for proposed regulations that aim to improve the safety of state oil and gas wells and protect the state’s water resources from contamination. According to the EQB's press release, the public meeting schedule is as follows:

  • July 21, 2010 - 7:00 p.m. - Lycoming College, Helm Science Center Bldg., Rm G-11, 700 College Place, Williamsport
  • July 22, 2010 - 7:00 p.m. - DEP Northwest Regional Office, 1st Floor Conference Rm, 230 Chestnut Street, Meadville
  • July 22, 2010 - 7:00 p.m. - DEP Southwest Regional Office, Waterfront Conf. Rm A & B, 400 Waterfront Dr., Pittsburgh
  • July 26, 2010 - 7:00 p.m. - DEP Southwest Regional Office, Waterfront Conf. Rm A & B, 400 Waterfront Dr., Pittsburgh

Pennsylvania Proposes Oil & Gas Well Casing and Cementing Rules

This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

On July 10, 2010, the Pennsylvania Environmental Quality Board (EQB) published its proposed rulemaking measures to update existing state requirements for drilling, casing, cementing, testing, monitoring and plugging of oil and gas wells. The proposed rulemaking, originally adopted by the EQB in May, is now open for public comment until August 9, 2010. Once the period for public comment is over, the proposal will go before the Pennsylvania Independent Regulatory Review Commission for review and final publication.

According to the EQB, a large portion of the updates contained in the proposal are already employed as part of best management practices among operators. However, the new regulations are said to further decrease any risk of gas migration from well sites to neighboring water supplies. The proposed rulemaking was prompted, in part, by public concern over the potential impact that the increasing number of Marcellus Shale wells could have on groundwater and drinking water supplies. Although the Pennsylvania Department of Environmental Protection's review of current well site construction and operation practices revealed that "many, if not all, Marcellus well operators met or exceeded the current well casing and cementing regulations[,] . . . the current regulations were not specific enough" in detailing guidelines for proper well construction or requirements for operators to respond to complaints over gas migration. The current updates would provide for more specificity in these areas, as well as establish a requirement that well operators conduct quarterly inspections of the structural integrity of all wells in operation. 

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Pennsylvania Gets Tough on Trucks Hauling Waste Water from Drilling Operations

This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

According to a press release this week by the Pennsylvania Department of Environmental Protection, the "Pennsylvania State Police placed 250 commercial vehicles out of service" earlier this month as part of an effort to enforce various environmental and traffic safety laws in areas that have seen an increase in heavy truck traffic as a result of Marcellus Shale drilling operations. Of the 1,137 trucks inspected, waste water trucks received the highest proportion of citations and written warnings. Commissioner Frank E. Pawlowski explained in a June 23 announcement that because hydro-fracking requires substantial volumes of water to be delivered to and from well sites, the number of waste water trucks, in particular, on Pennsylvania roads has increased significantly.

 

Stricter Wastewater Regulations Advance in Pennsylvania

This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

The Pennsylvania Environmental Quality Board approved two regulations this week to address concerns over the potential for Marcellus Shale fracking operations to lead to groundwater and drinking water contamination. The first measure aims to limit the amount of "total dissolved solid," a measure of combined chemical substances dissolved in water, allowed to reenter streams and other bodies of water by requiring operators to treat all "frac water" containing over a certain amount of the pollutant before releasing it. The second measure would impose a requirement on all new Marcellus Shale developments to have 150-foot "buffer zones" separating them from high-quality streams. These new measures are now en route to the environmental committees of the Pennsylvania House and Senate for further review. The Independent Regulatory Review Commission, along with environmental and gas industry officials will also have an opportunity to provide comments.

Pennsylvania Department of Environmental Protection to Meet with Drilling Companies to Discuss Gas Migration from Wells

This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

According to an announcement this week by John Hanger, Secretary of the Pennsylvania Department of Environmental Protection (DEP), the DEP plans to hold a meeting on May 13, 2010 with oil and gas companies who have drilling permits in the Marcellus Shale to discuss preventive measures for protecting against gas migration from wells. The DEP is concerned that gas migration from wells can lead to groundwater and drinking water contamination. In addition to facilitating discussion about the issue among the various stakeholders, Mr. Hanger stated that the DEP is also proposing an increase in oversight, as well as "tougher regulations to meet the growing demand and new drilling technologies including improving well construction standards to protect from gas migration.”

 

Pennsylvania Department of Environmental Protection Warns of Water Pollution Threat from Dissolved Chemicals

This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

In a statement released yesterday, John Hanger, Secretary of the Pennsylvania Department of Environmental Protection, championed the proposal of new rules aimed at keeping Pennsylvania streams, drinking water, and rivers free from a pollutant known as "total dissolved solid" (TDS), which is a measure of chemical substances dissolved in water. In addition to natural gas drilling, sources of TDS include abandoned mine drainage, agricultural runoff, and discharges from industrial or sewage treatment plants. Mr. Hanger's hope is to establish the necessary regulations now that will prevent TDS from becoming a source of contamination later. In the press release, Mr. Hanger focused on the high TDS concentrations related to natural gas drilling, stating that “Marcellus drilling is growing rapidly and our rules must be strengthened now to prevent our waterways from being seriously harmed in the future.”

In Pennsylvania, Proposed Regulation to Require Public Disclosure of Chemicals Used in Hydraulic Fracturing

This post was written by Nicolle Snyder Bagnell and Ariel Nieland.

During a Marcellus Shale public forum meeting held last week near Scranton, Pennsylvania, the Pennsylvania Department of Environmental Protection (DEP) proposed a new regulation to be added to the most recent draft of proposed legislation regulating well construction. Under the proposed regulation, gas drilling companies would have to provide information about chemical usage on a well-by-well basis. This new proposal would require each company, upon completion of well construction, to disclose in a report a list containing all the names and total volume of chemicals used in the hydraulic fracturing process. The new proposal will be presented at a Pennsylvania Environmental Quality Board meeting for discussion on May 19, 2010. Scott Perry, director of DEP's Bureau of Oil and Gas Management, explained that this proposed regulation was drafted in response to a growing desire by the public for increased transparency with respect to well site development.

Pennsylvania DEP Provides Some Details on Marcellus Shale Regulatory Requirements

This post was written by Ariel Nieland.

On March 31, 2010, the Pennsylvania Department of Environmental Protection (DEP) held a Marcellus Shale regulatory requirements training seminar in Harrisburg, PA, and Reed Smith was there. The general message of the DEP seemed to be that conscientious well site planning and operation at the outset on the part of operators will be met with a willingness on the part of regulatory authorities to promote development and production of the resource.

The seminar covered a range of environmental topics associated with Marcellus Shale development. The segment on protecting streams and wetlands addressed the general permitting requirements for well sites located within 100 feet of streams, springs, or other bodies of water. The next segment, covering spill reporting requirements, underscored the importance of establishing a "Preparedness, Prevention and Contingency" plan, a requirement for well operators under the Clean Streams Law, that sets forth guidelines for waste disposal and emergency response measures. The session on water management plans provided an overview of the requirements for identifying water sources -- including public water supplies, surface or groundwater, wastewater, and frac flowback -- to be used in Marcellus Shale development as well as best management practices for water use. The seminar next focused on dam safety permit requirements for centralized impoundment areas in Marcellus Shale gas well sites, including the best management practices for the construction of impoundment areas, use of synthetic liners, and impoundment site management. The segment on chemical analysis of residual waste addressed submission requirements for identifying specific chemicals contained in well site waste (including flowback water, brines, muds, and cuttings), the reporting, monitoring, and recordkeeping requirements for that residual waste, and waste transportation guidelines. Finally, the session on erosion and sediment control provided an overview of best management practices for constructing site access roadways, waterbars, sediment barriers and channels, and culverts in order to meet the DEP's general permitting requirements.

The program was an abridged version of a two-day comprehensive training program on Marcellus Shale regulatory requirements offered at Pennsylania State University in January 2010.

Pennsylvania Marcellus Shale Update: New Recordkeeping and Reporting Requirements

This post was written by Ariel Nieland.

On March 22, 2010, Governor Rendell signed Senate Bill 297 into law in the Commonwealth of Pennsylvania. This bill, originally proposed by Senator Yaw in February of 2009, provides for increased record-keeping and reporting requirements including requiring Marcellus Shale well operators to submit annual and semi-annual reports specifying, among other things, "the amount of production on the most well-specific basis available" and the status of each well. The bill also requires the DEP to post Marcellus Shale well data online. This new requirement will significantly impact the availability of natural gas producers' production information, which was previously kept confidential for five years.
 

Pennsylvania Supreme Court Holds In Favor of Gas Industry in Minimum Royalty Act Litigation

This post was written by Kevin Abbott and Nicolle Snyder Bagnell.

The Pennsylvania Supreme Court issued a much-anticipated opinion interpreting Pennsylvania's Minimum Royalty Act, 58 P.S. 33, today, holding that royalties should be calculated "at the wellhead, as provided by the net-back method in the Lease…" The case, as well as 70 others filed in Pennsylvania, were brought by lessors unhappy with their leases because the recent interest in natural gas in the Marcellus Shale resulted in some of their neighbors getting better lease terms. The Plaintiffs argued that the Act requires a guaranteed minimum royalty on the gross proceeds of the sale of the natural gas and, as a result, any contractual agreement to share in post-production costs necessarily reduces the royalty that the lessor receives. They sought an interpretation of the Act which would result in the invalidation of tens of thousands of leases entered into since 1979. Such a result would have crippled the revival of the natural gas exploration industry in the Commonwealth. The defendants and the industry argued that the plain language of the Act does not prohibit lessors and lessees from agreeing to share in post-production costs. The sole purpose of the Act, as evidenced by its companion provision in 58 P.S. § 34, was to prohibit lessees from paying a flat rate for production -- a common practice prior to the Act’s passage in 1979 -- and to instead require a minimum royalty of one-eighth of the gas produced. The Court's opinion today resolves that issue squarely in favor of the oil and gas industry. Not only did the Court decline to invalidate the leases at issue, but also determined that post production expenses could be permissibly deducted under the Act.

Kevin Abbott and Nicolle Bagnell of Reed Smith represented the Industry Amicus, the Pennsylvania Oil and Gas Association, the Independent Oil and Gas Association and Chesapeake Appalachia LLC.

USEPA to Focus on Impacts from Hydraulic Fracturing in Marcellus and other Shales

This post was written by Nicolle Snyder Bagnell.

The U.S. Environmental Protection Agency (USEPA) officially announced its plans today to initiate a study of hydraulic fracturing and its potential impact on water quality and public health. USEPA is re-allocating $1.9 million for this comprehensive study in 2010 and seeks additional funding for 2011. Hydraulic fracturing has gained the attention of Congress this year in large part due to the increased scrutiny of its use in the development of the Marcellus Shale in Pennsylvania, New York, West Virginia and other Appalachian states. USEPA is still in the early stages of designing the study and is seeking input from its Science Advisory Board. Click here for more information.

Triggered by Marcellus Shale Demand, Pennsylvania Plans to Open a New Oil and Gas Management Office

This post was written by Nicolle Snyder Bagnell.

Pennsylvania Department of Environmental Protection's Secretary John Hanger announced today that the Department plans to open a new office of its Oil and Gas Management division in Scranton, Lackawanna County, Pennsylvania. Although the exact location has not yet been decided, the purpose of the office will be to decrease travel time and locate regulators closer to the oil and gas wells they regulate, particularly the new Marcellus Shale wells planned in that part of the state. You can find the Department's press release here.

More from the Marcellus Shale: West Virginia's Department of Environmental Protection Finalizes Guidelines for Fracking

This post was written by Nicolle Snyder Bagnell.

On January 8, 2010, West Virginia's Department of Environmental Protection (WVDEP) finalized its industry guidance for oil and gas drilling in the Marcellus Shale. The guidance focuses on large water volume fracture treatments and addresses the use and disposal of frac fluids. As discussed in the guidance, horizontal drilling, coupled with large volume hydraulic fracture treatments, is becoming a common exploration technique. Large amounts of water mixed with sand and other additives are pumped into the shale formation under high pressure to fracture the rock around the well to create a permeability conduit to the well bore. Water used in the hydraulic fracturing process, often referred to as “frac fluid,” must be processed in one of three ways. It can be injected in permitted disposal wells, treated to remove generated pollutants then disposed of properly, or reused.


The WVDEP also added a "Well Work Permit Application Addendum" as part of its natural gas drilling permit application requirements.

USEPA Establishes an "Eyes on Drilling" Tipline

This post was written by Nicolle Snyder Bagnell.

Last week the U.S. Environmental Protection Agency (USEPA) launched its new "Eyes on Drilling" tipline. The toll free number and email address were created by USEPA to help address growing public concern about oil and natural gas drilling in the Marcellus Shale. In particular, they are asking citizens to report illegal disposal of wastes or other suspicious activity related to oil and gas drilling. Information about the tipline, as well as what the agency is asking citizens to include in their report, can be found here.

Pennsylvania's Proposed Drilling Regulations for Oil and Gas Wells Now Available for Public Comment

This post was written by Nicolle Snyder Bagnell.

Pennsylvania's Department of Environmental Protection (DEP) has just made available its proposed draft regulations for public comment. Comments must be received by the DEP by March 2, 2010. A copy of the regulations can be found here.

Pennsylvania Department of Environmental Protection to Hire 68 New Oil and Gas Regulators

This post was written by Nicolle Snyder Bagnell.

In a move described as an "Aggressive Action to Protect Public, Environment as Marcellus Drilling Operations Expands," Pennsylvania's Governor Ed Rendell directed the Pennsylvania Department of Environmental Protection ("DEP") to hire 68 new staff members today to work on natural gas well inspections and related oil and gas regulation. The additions will be made despite a moratorium on hiring at the DEP and will be funded entirely from the higher permit fees instituted last year for oil and gas drilling permits. In addition, Rendell commented on the DEP's proposed amendments to the current oil and gas regulations, which will be available for public comment beginning tomorrow, January 29, 2010, saying that the new regulations will:

  • Require the casings of Marcellus Shale and other high-pressure wells to be tested and constructed with specific, oilfield-grade cement;
  • Clarify the drilling industry’s responsibility to restore or replace water supplies affected by drilling;
  • Establish procedures for operators to identify and correct gas migration problems without waiting for direction from DEP;
  • Require drilling operators to notify DEP and local emergency responders immediately of gas migration problems;
  • Require well operators to inspect every existing well quarterly to ensure each well is structurally sound, and report the results of those inspections to DEP annually; and
  • Require well operators to notify DEP immediately if problems such as over-pressurized wells and defective casings are found during inspections.

 

Pennsylvania DEP Fines Company for September Spills at Marcellus Drill Site

This post was written by Nicolle Bagnell and Stephanie Hadgkiss.

The Pennsylvania Department of Environmental Protection has fined Cabot Oil and Gas Corporation $56,650 following three spills which occurred over the course of one week at Cabot's Marcellus Shale natural gas drilling sites in Susquehanna County, Pennsylvania. The fine was assessed as for violations of the Clean Streams law, Solid Waste Management Act and the Oil and Gas Act.

In addition to the fine, from September 24 to October 16, the DEP imposed a three-week halt of hydraulic fracturing performed by Cabot in Susquehanna County. Hydraulic fracturing is a drilling technique being used to maximize natural gas extraction from the Marcellus Shale. A mixture of water, sand and other substances (sometimes referred to as "frac fluid") is forced into tiny fractures in underground shale rock layers at high pressure in order to release trapped natural gas.

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Marcellus Shale: Severance Tax Update in Pennsylvania

This post was written by Nicolle Snyder Bagnell and Stephanie Hadgkiss.

Facing a projected budget deficit of $2.3 billion, Pennsylvania Governor Ed Rendell has proposed a "severance" tax on gas extracted from the Marcellus shale formation, the proceeds of which would go to the General Fund in order to offset revenue shortfalls in the state's budget. This proposal was reported in the Feb. 20, 2009 edition of the Oil and Gas Journal.

According to the article, Governor Rendell proposes to tax producers in the state 5% at the wellhead, plus 4.7 cents per thousand cubic feet of production --an approach identical to that of West Virginia. The tax would be paid monthly to the Pennsylvania Department of Revenue beginning Oct. 1, 2009 and has been projected to raise an estimated $1.82 billion over five years.

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