Environmental Law ReSource : Environmental Lawyer & Attorney : Reed Smith Law Firm : Climate Change, Sustainability

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.

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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.

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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.

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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.

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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.

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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….

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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)

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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.
 

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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.

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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.

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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.

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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.

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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.
   

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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.

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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.

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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.
 

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This post was written by David Wagner.

We expanded the scope of our quarterly teleseminar to include hot topics in environmental and energy law and invite you to join us. It’s on Wednesday, October 5, 2011 from 12 to 1 pm ET. There’s no cost but we do ask you to R.S.V.P. At the teleseminar, we’ll provide a regulatory update on five major legal developments in the environmental and energy law world:

• Legislation/Rules — The hottest issue in new rules is the New Source Performance Standards for the oil and gas industry as well as for utilities and refineries. Our team will review the high points and effective dates, what industry should look out for, and likely challenges.
• Litigation — A current issue in litigation, especially in the oil and gas industry, is aggregation of air emissions from diverse sources. We will discuss recent challenges to air permits involving this issue. Also, our team is challenging a CERCLA 107/113 appeal for cert to the United States Supreme Court – tune in to hear the latest in that area.
• Policy and Technology — The policy framework behind fracking is in its infancy and studies to determine or influence policy framework abound. Our team will discuss recent DOE and USGS papers, as well as industry studies, concerning emissions. In addition, we will touch on the significance of the U.S. Supreme Court in Sackett v. EPA. We will also tackle the policy implications of interplay between the U.S. Environmental Protection Agency and Federal Energy Regulatory Commission.
• International Issues — In the international arena, all eyes are on the upcoming COP in South Africa and the fate of the Kyoto Protocol. Our team will discuss these issues, as well as their implications for EU business and EU greenhouse gas regulations.
• State Issues — We will focus on California with a summary of recent developments regarding the implementation of the California Global Warming Solutions Act (aka AB32) and California's “Green Chemistry” Initiative.

To sign up, please email Sandy Petrakis.

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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.

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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.

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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.

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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

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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
   

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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.

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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.

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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."

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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.”  

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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.

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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.

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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.

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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.

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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.

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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.

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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."

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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.

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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.

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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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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.

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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.

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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.

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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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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.

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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.

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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.

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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.

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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.

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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.
 

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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.

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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.

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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.

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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.
 

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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.

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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.
 

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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?

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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

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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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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.

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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.

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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.”

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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.”

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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.

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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.

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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.
 

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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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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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