Marcellus Shale Report Released by Pennsylvania

This post was written by Nicolle Bagnell.

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

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

This post was written by Dan Dixon.

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

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

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

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

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

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

Pennsylvania Marcellus Shale Update: New Recordkeeping and Reporting Requirements

This post was written by Ariel Nieland.

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

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

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

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

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

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

This post was written by Nicolle Snyder Bagnell.

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

Pennsylvania's New Right to Know Law

This post was written by Jayme Butcher.

Substantive revisions to Pennsylvania’s Right to Know Law took effect on Jan. 1, 2009. The thoroughly revised law establishes for the first time an Office of Open Records with the Department of Community and Economic Development to administer the new law and fundamentally changes how citizens access public records. Key changes are discussed below and include:

  • The request and appeals process has been substantially streamlined to enable requesters to reach judicial review, in most cases, within a roughly two-month period.
  • All records are presumed “public.”
  • Agencies bear the burden of proving the applicability of one of 30 new statutory exemptions to the requested information.
  • The new law removes substantial ambiguity as to the specific records exempt from disclosure, which should expedite the request and appeals process.
  • Appeals procedures are, in part, determined by the type of agency from which records are sought.

The new Right to Know Law presumes government records are public documents that should be available upon request, unless they fall into one of 30 new statutory exemptions. Under the new law, the agency bears the burden of establishing the application of an exemption. However, the new law does not change the requester’s burden of proving that the requested documents were generated by an agency subject to the law.

Initial Request
Under the new Right to Know Law, requests may be written or spoken. However, if the requester wants to take advantage of the procedural protections of the new law, the request must be in writing. Like the current version of the law, the new law permits the written request to be made in person, by facsimile, by mail, or by electronic means, if permitted by the agency. The request also must identify the records sought with sufficient specificity so that the agency can determine which records are being requested. As is true under the old Right to Know Law, the requester need not explain the reason the records are being requested. The new law, however, requires the agency to appoint an open-records officer who will receive requests and who must be identified on the agency’s website. Agency employees receiving requests must forward them to the open-records officer.

Agency’s Required Response to a Request
The new law requires the agency to make a good faith effort to determine if the requested document is a public record. Unlike the old Right to Know Law, an agency must respond to a written request for records within five business days, regardless of whether it is a non-commonwealth or commonwealth agency. If the agency fails to respond within five business days, the request is deemed denied. However, the response period may be extended to 30 days in certain circumstances, provided the agency supplies the requester of written notice of the extension within five business days. The factors considered in determining whether to permit an extension are:

  • The request requires redaction
  • The request requires retrieval of a record stored in a remote place
  • Timely response to the request cannot be made because of staffing limitations
  • Legal review is necessary to determine whether the record is subject to access under the new law
  • The requester has not complied with the agency’s policies regarding access to records
  • The requester refuses to pay any applicable fees authorized by the new law

If the agency wishes to use the 30-day extension, it must grant or deny the request within that period. Failure to respond is deemed a denial. Alternatively, the agency and requester may agree to a response period greater than 30 days, though failure by the agency to respond within that period is also deemed a denial.

Appeals Process
When an agency denies access to records, it must issue a written denial. Like the old law, a written denial under the new law must include certain provisions. Under the new law, these provisions are: (1) a description of the record requested; (2) specific reasons for denial, including citation to legal authority; (3) the typed or printed name, title, business address, and business telephone number of the open-records officer under whose authority the request is denied; (4) the date of the response; and (5) the procedure for appealing the denial.


 The requester may begin the appeals process within 15 days of the mailing date of the written denial or the date the request is deemed denied. Appeals must state the grounds upon which the requester asserts the record is public, and address the grounds stated by the agency in denying or delaying the request. Unlike previous versions of the law, the appeals process will differ depending on the agency from which the requester has attempted to access documents. Where an appeal may be filed also depends on the type of agency from which the requester is appealing:

Rulings must be made within 30 days from the date the appeal is received. Also, the appeals officer must set a schedule for receiving documents supporting the positions of the requester and the agency’s open-records officer. An appeal not decided within 30 days is deemed denied.
The requester may appeal for judicial review from the appeals officer’s decision. The specific court where judicial review may be sought again depends on the type of agency. First, decisions by Commonwealth Agencies, Legislative Agencies or Judicial Agencies must be made to the Commonwealth Court within 30 days of either (1) the mailing date of the final decision, or (2) the date the appeal is deemed denied. Second, decisions by Local Agencies are appealed to the Court of Common pleas for the county where the local agency is located. The record before the court in either case consists of the request, the agency’s response, the appeal, the hearing transcript (if one exists), and the final written decision of the appeals officer.

Statutory Exemptions To Disclosure
Unlike previous versions, the new law contains 30 specific exemptions permitting the agency to deny access to requested documents. In many instances, the exemptions track the case law established under previous versions of the Right to Know Law. However, some of the exemptions depart from the traditional categories of documents exempt from disclosure under previous versions of the law.

Changed & New:
The new law specifically exempts records regarding negotiations or strategy involving labor relations or collective bargaining and arbitration proceedings. The old law and related case law did not specifically address collective bargaining or labor negotiations.

The new law likely expands the types of personal information covered by the old law’s exemptions. For example, DNA and RNA records are specifically exempt from the new law’s disclosure obligations. The new law also includes specific exemptions covering a range of documents that may have fit under the old law’s exemption for documents that would prejudice or impair a person’s reputation or personal security. For example, letters of reference, performance ratings and reviews, civil service test results, academic transcripts, unpublished manuscripts, and library records are all exempted from the disclosure obligations of the new law.

Autopsy reports are exempt from disclosure under the new law. Case law arising under the old law permitted disclosure of autopsy reports.

Archived library and museum materials, valuable rare book collections, and documents contributed by gift, grant, bequest or devise, to the extent of any limitations imposed by the donor as a condition of the contribution, are exempt from disclosure.

Records identifying the location of archeological sites and endangered or threatened plants or animals are exempt from disclosure, unless already public.

Under the old law, it was unclear whether 911 recordings were exempt from disclosure. The new law, however, exempts 911 recordings and transcripts from disclosure, unless a court or agency determines public interest outweighs nondisclosure.

The new law specifically allows agencies to deny requests that might compromise public safety. The exemptions extend to physical infrastructure and computer hardware and infrastructure.

Draft bills, resolutions, regulations, statements of policy, and management directives prepared by or for an agency are exempt from disclosure.

The new law allows a court to award attorney’s fees in the same manner as the old law. A court may award attorney’s fees when it either reverses an appeals officer’s final determination or grants access where access was denied. Additionally, the court must find that:

The agency willfully or with wanton disregard deprived requesters of access to a public record, or otherwise acted in bad faith

The exemptions, exclusions or defenses relied on by the agency were not based on a reasonable interpretation of law

The new law also allows the court to impose a $1,500 civil penalty if the agency denies a record in bad faith. Additionally, the new law raises the daily civil penalty for failing to obey a court’s disclosure order to $500. The penalty accrues until the agency provides the requested public records.

The new Right to Know Law encompasses both substantial and procedural departures from previous versions. Substantively, the new law establishes much clearer boundaries between what is presumed to be public and what Pennsylvania agencies are permitted to withhold. Procedurally, the new law represents an even more radical departure from its predecessors by streamlining the process to permit requesters to more rapidly appeal agency decisions and seek judicial review.