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.

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.
 

 

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.

Join Us for Reed Smith's Environmental and Energy Law Resource Teleseminar on October 5

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.

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.

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.

The proposed minor modifications to the General Plan Approval and/or General Operating Permit for Natural Gas, Coal Bed Methane, or Gob Gas Production or Recovery Facilities (BAQ-GPA/GP-5) have not been re-opened for public comment. This is likely due both to the fact that the administration is in transition and because, in general, the proposed revisions to GP-5 will offer greater flexibility to the regulated community. Among other things, the proposed modifications include modifying GP-5 Condition No. 2 to limit a source’s potential emissions and modifying Condition No. 4 to require compliance with the specifications in the Application for Authorization to Use GP-5. The Department is in the process of finalizing the GP-5 proposed changes. Look for a future blog post on this matter once the changes are published in a Pennsylvania Bulletin notice.

The rescission and re-opening of public comment follows closely on the heels of another rescission of a Rendell-era oil and gas drilling policy. As we discussed last week, DEP is rescinding the policy issued by Governor Rendell just days before the November election to require further evaluation of the impacts of oil and gas permit applications on state parks and state forest land. In its notice, DEP stated that the policy was being rescinded because it was not subject to any public review prior to being issued and that the agency already implements sufficient controls under Section 205(c) of the Oil and Gas Act in permit reviews.

These actions taken together may well telegraph the new Corbett administration’s pro-business attitude toward Marcellus Shale development.

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.

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.

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?

Wyoming Passes Landmark Mandatory Disclosure Rules for Fracking Chemicals

This post was written by Ariel Nieland.

The Wyoming Oil and Gas Conservation Commission voted unanimously yesterday to pass two new regulations that require energy companies to disclose all chemicals used in the fracking process as well as to identify all groundwater sources and state-licensed wells in proximity to well heads. One of the major industry concerns over such disclosure requirements is the protection of trade secrets, i.e. what chemicals comprise each company's frac fluid and in what proportion. To address this concern, the regulations impose confidentiality requirements on state regulators in possession of proprietary information. The disclosure requirement is the first of its kind in the nation; however, other states, including Pennsylvania have proposed similar regulations.

 

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 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.

It's a Gas, Gas, Gas. . . USEPA's Proposes GHG Reporting from Oil and Gas Facilities

This post was written by Jennifer Smokelin.

The U.S. Environmental Protection Agency (USEPA) is proposing to include additional emissions sources in its first-ever national mandatory greenhouse gas (GHG) reporting system. On March 22, 2010, USEPA signed a proposed rule for the mandatory reporting of vented and fugitive methane (CH4) and carbon dioxide (CO2) emissions from petroleum and natural gas industry facilities emitting 25,000 metric tons or more of carbon dioxide equivalent per year. USEPA estimates the total cost of reporting to the private sector would be about $60 million for the first year and $25 million in subsequent years. This translates to an estimated average cost of $18,000 per facility for the first year and $8,000 in subsequent years.

Last year, USEPA finalized the first-ever GHG mandatory reporting requirement (MRR) in October of 2009. That rule required 31 industry sectors, covering 85 percent of total U.S. GHG emissions, to track and report their emissions.

In addition to those 31 industries, USEPA is now proposing to collect emissions data from the oil and natural gas sector, industries that emit fluorinated gases, and from facilities that inject and store CO2 underground for the purposes of geologic sequestration or enhanced oil and gas recovery. In a move broader than expected, covered facilities include onshore petroleum and natural gas producers, offshore petroleum and natural gas producers, onshore natural gas processing, natural gas transmission, underground natural storage, liquefied natural gas (LNG) storage, LNG import and export facilities, and natural gas distribution facilities. Methane is the primary GHG emitted from oil and natural gas systems and is more than 20 times as potent as CO2 at warming the atmosphere. USEPA’s proposed rule sets the reporting threshold for methane at 1250 tons per year.

USEPA expects to publish the final rule later in 2010 so that data collection for this source category can begin on January 1, 2011 with the first annual reports submitted to EPA on March 31, 2012. USEPA estimates that the proposal would cover 85 percent of the total GHG emissions from the U.S. petroleum and natural gas industry with approximately 3,000 facilities reporting. Due to the unique characteristics of these industry segments, the proposed definition of “facility” for onshore and offshore petroleum and natural gas production, and natural gas distribution differ from the definition of facility applied in the remainder of the MRR.

The proposals will be open for public comment for 60 days after publication in the Federal Register. The agency will also hold public hearings on these proposals on April 19, 2010 in Arlington, Va. and April 20, 2010 in Washington, D.C.
 

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.

The Cabot spills consisted of 8,000 gallons of frac fluid, some of which was believed to have been leaked into an area wetland and Stevens Creek.

Following the DEP's review and approval of Cabot's updated "preparedness, prevention and contingency plan and an engineering study," Cabot was permitted to resume its hydraulic fracturing.

For more information visit: http://www.ahs2.dep.state.pa.us/newsreleases/default.asp?ID=5705&varQueryType=Detail; http://www.ahs2.dep.state.pa.us/newsreleases/default.asp?ID=5699&varQueryType=Detail

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.

Pennsylvania oil and gas industry associations believe that such a tax could harm the state's industry, affecting both existing producers and out-of-state producers who may be encouraged to explore another domestic shale play instead. Because Pennsylvania's conventional wells are considered to be low-yielding, these associations believe that conventional wells can be profitable only with low operating expense. According to Lou D'Amico, executive director of the Independent Oil and Gas Association of Pennsylvania, "[t]he average gas well in Pennsylvania yields a profit averaging 15% of investment, which is net of operating expense and royalties" so "[a] 5% severance tax on gross production would amount to a full one-third income tax of each well's average cash flow, and is in addition to other taxes already imposed on the industry." Despite perceived potential, because the precise economics of a Marcellus well are yet undetermined, some believe that it is unwise to levy a tax against Marcellus production until certain variables are more clearly developed.

There is also a view from local governments that any tax revenue should be brought back to the host municipality, instead of going to a general statewide fund.

Still, Mike Wood, a research director at the Pennsylvania Budget and Policy Center, has explained that a severance tax would bring Pennsylvania in line with other states that already levy such a tax. According to Wood, 27 states have a severance tax on natural gas production.

On April 3, 2009, the House Appropriations Subcommittee on Fiscal Policy heard testimony on the tax. A vote has not yet been scheduled.

Increased Drilling Fees for Pennsylvania's Marcellus Shale

This post was written by Nicolle Snyder Bagnell.

Pennsylvania's Environmental Quality Board, a 20 member board which includes representatives from 11 state agencies, 5 members from the Citizens Advisory Council, and 4 members from the Pennsylvania Senate and House and is chaired by the Secretary of the Department of Environmental Protection (DEP), voted last month to increase permit fees for oil and gas wells. The new fees increase the base cost for a Marcellus Shale drilling permit from $100 to $900 for wells up to 1,500 feet deep plus a fee of $100 for every additional 500 feet beyond the initial 1500 feet, resulting in potential permit fees of thousands of dollars per well. The fee increases must still be approved by the Independent Regulatory Review Commission and the State Attorney General. If approved, the new permit fees will likely be applied beginning in March or April of 2009 and would be the first increase in oil and gas well permit fees in Pennsylvania in 25 years.
 

As discussed in the DEP's fact sheet, the Marcellus Shale is a rock formation in Pennsylvania and parts of New York and West Virginia that may hold trillions of cubic feet of natural gas. Recent advances in drilling technology and rising natural gas prices have led to new interest in this previously untapped formation.