The proposed terms, together with the draft policy document, are subject to a 60-day public comment period, which will expire on March 20, 2012. The proposed terms, which may be amended based on public comments submitted to the Department, will ultimately result in the issuance of a new general permit under which oil and gas exploration and production companies, along with pipeline companies, can conduct earth disturbance activities.

The proposed general permit includes a major re-write of the currently existing general permit. Among other things, the proposed general permit:

• Provides for an optional expedited 14-day permit review process for projects, except those located in special protection watersheds.

• Offers an optional phased permit process for operators seeking to conduct earth disturbance activities in phases.

• Provides a process for permittees to make minor modifications to approved plans in the field based on real world conditions.

• Requires a permit application to be submitted by a licensed professional “who has attended up-to-date training provided by the Department’s Office of Oil and Gas Management” on erosion and sediment control and post construction stormwater management for oil and gas activities.

In sum, the proposed revisions would add ten pages to the currently existing general permit.

The proposed general permit, together with the proposed policy document, is available here.

The bill as passed by the Senate grants the Pennsylvania Public Utility Commission the power to register, assess and inspect natural gas and hazardous liquids pipelines and facilities, but not those that are under the exclusive jurisdiction of the Federal Energy Regulatory Commission. The Commission may enact regulations, but those regulations “shall not be inconsistent with or greater or more stringent than the minimum standards and regulations adopted under the Federal Pipeline Safety Law.”

The bill does not address the siting of pipelines or pipeline facilities and specifically states that “[n]othing in this Act grants the Commission additional authority to determine or regulate a pipeline operator as a public utility as defined in 66 Pa.C.S. §102 (relating to definitions) or as a natural gas supplier or natural gas supply services as defined in 66 Pa. C.S. §2202 (relating to definitions).” The Commission has decided in at least one case that a midstream natural gas operator who provides services only to natural gas producers is a “public utility.” Although that application was eventually withdrawn by the operator, the Commission refused to rescind its order containing that decision. That question is on appeal to the Pennsylvania Commonwealth Court and is at issue in at least two other cases currently pending before the Commission.

For further information about the regulation of natural gas and hazardous liquids pipelines in Pennsylvania, whether regulated by the Federal Energy Regulatory Commission or the Pennsylvania Public Utility Commission, please contact Elizabeth Witmer.

The purpose of the new policy is to assist the Department’s permitting staff in implementing the new TDS effluent standard for discharges of treated natural gas wastewater. The Department’s TDS regulations were recently amended to require new or expanded sources of natural gas wastewater to treat the wastewater to less than 500 milligrams per liter of total dissolved solids, which is the federal drinking water standard, prior to discharge. A plain-language summary of the regulatory revisions is available here.

The new policy also highlights existing legal obligations, such as the requirement for certain wastewater treatment plants to develop and implement a Radiation Protection Action Plan to monitor for any radiation associated with wastewater from natural gas operations. The Department addresses the details of this and other aspects of the new policy in its Comment-and-Response Document, available here.

Although the new policy does not have the force of law, it establishes the framework that the Department will likely exercise its administrative discretion moving forward. That said, the new guidance will increase the costs of monitoring and recordkeeping for wastewater treatment plants that do not currently have a Radiation Protection Action plan, radiation monitoring equipment, or properly trained and qualified radiological personnel. For some plants, the cost to implement could be over $100,000 in the first year, along with additional annual operation costs of over $20,000.

The Department’s November 3, 2011 press release announcing the forthcoming guidance is available here.

The Pennsylvania PUC today issued an Order in response to two motions for reconsideration and one for clarification of its June 2011 order in Laser Northeast Gathering Company, LLC, Docket No. A-2010-2153371, which found that Laser, as a natural gas gathering/midstream pipeline, is a public utility, but remanded for further proceedings to determine whether a Certificate of public convenience and necessity should be issued. The PUC denied the reconsideration motions, but granted clarification. The clarification appears to be the articulation of a 4 part test used to determine Laser’s public utility status:
1. That Laser is a pipeline.
2. That Laser says it “will serve any and all potential customers needing to move gas through the pipeline system”
3. That Laser intends to use negotiated contracts with customers but that those contracts “are not meant to be exclusionary.”
4. That Laser “made a commitment to expand its capacity, as needed, to meet increased customer demand.”
The test is extremely broad, and appears to rely entirely on the stated intent of the applicant. The PUC noted, in a footnote, that “we wish to clarify that it is not the intent of the Commission to seek to exert jurisdiction over entities that provide services similar to Laser but do not fall under the definition of public utility service, which definition includes holding oneself out as being willing to serve the public” Nonetheless, the four factors identified by the PUC as being the test applied to Laser are so broad that they appear to include any pipeline which declares that it will serve any customers which will enter into a contract, so long as the pipeline indicates it is willing to expand the pipeline capacity to meet the customer’s demand. There was a strong dissent to the clarification Order by Commissioner James Cawley, who has published directed questions that he would like answered during the proceeding on remand on the question of whether Laser is entitled to a Certificate. There are now two other gathering/midstream pipeline cases currently before the PUC, and it appears that hearings will move forward in both.

By Andrew T. Bockis, Saul Ewing, LLP

On August 6, 2011, the Pennsylvania Department of Environmental Protection published notice of a proposed General Permit that authorizes the processing and transfer of oil and gas wastewater from wells producing gas from unconventional formations such as the Marcellus Shale. The proposed General Permit would also authorize the storage of processed oil and gas wastewater in an impoundment prior to reuse for further hydraulic fracturing. In short, oil and gas wastewater that is processed under the proposed General Permit would not be considered a waste once the terms and conditions of the General Permit are satisfied.

The proposed General Permit would consolidate and replace three currently existing General Permits into a new General Permit. Many of the conditions in the proposed General Permit are borrowed from the three currently existing General Permits. However, the proposal includes a few important additions. Specifically, the proposed General Permit:

• Adds a definition for “oil and gas wastewater” (meaning tophole water, spent drilling fluids, flowback and produced water generated during the development and operation of oil and gas wells);

• Adds a definition for “dewaste” (meaning a determination made by the Department of Environmental Protection that a material is no longer a waste);

• Establishes minimum sampling and treatment concentrations for the storage of oil and gas wastewater in tanks and open impoundments prior to reuse in fracturing;

• Establishes the method to demonstrate compliance under the General Permit in order to store processed oil and gas wastewater in an impoundment prior to reuse in fracturing.

The proposed General Permit is subject to a 30-day public comment period, which runs through September 6, 2011. Instructions for submitting comments are included in the Department’s August 6, 2011 Pennsylvania Bulletin notice.

Given the extent that oil and gas production companies are recycling flowback and produced water from wells in the Marcellus Shale region, the proposed General Permit will likely be widely used. That said, oil and gas production companies would be wise to review the proposed terms of the General Permit, and submit comments or suggested revisions by September 6, 2011.

The definition of “active coal mine” is expanded by deleting current text covering projected and permitted mines plus 1000 feet beyond those boundaries and focusing instead on the workable coal seam shown on the five-year timing map submitted to DEP in connection with new, amended or renewed permits and which is contiguous to the permit area of an operating coal mine. The five year timing map is to include the area of a workable coal seam which may reasonably be expected to be mined during the five year period beyond the projected completion of mining in the currently permitted area.

Timing maps are to be considered confidential except that DEP is required to provide a copy upon request of any person who already operates one or more oil or gas wells or holds a valid permit to drill an oil or gas well and can document a valid existing right to develop the oil or gas under any portion of the timing map.

At currently permitted mines, the mine operator is to provide the current five-year timing map to the department within thirty days after the effective date of enactment. Since the act is effective immediately, the deadline is June 12.

“Operating coal mine” is redefined as that portion of a workable coal seam which is covered by an underground mining permit. The prior definition included expansive text that included coal mines to be established or reestablished as operating coal mines within one year.

“Workable coal seam is redefined as a coal seam in fact being mined or a coal seam which, in the judgment of DEP, can reasonably be expected to be mined by underground methods. The prior definition focused exclusively on coal seams identified by DEP’s Topographical and Geological Survey..

Section 6 has been expanded to address well completion in addition to permit applications and now requires gas well operators, within 60 days of completion of drilling operations, to supply to the coal owner a copy of the portion of any well bore deviation survey between the surface and a point below the deepest known coal seam encountered during drilling. In addition, permit applications under the Oil and Gas Act for gas wells that will penetrate an operating coal mine must include the written consent of the coal mine operator to the proposed well location. If coal rights have been severed from the surface where the well is to be drilled, the applicant must forward a copy of the plat to the coal owner via certified mail regardless of whether the seam is workable.

Section 7 revises the 900 foot minimum distance between a gas well and a workable coal seam to allow the coal operator to consent in writing to a lesser distance. Also, a 2,000 foot minimum distance between well clusters is established. That too can be reduced by written agreement. Wells within the same cluster are not subject to the minimum distance.

“Well cluster” is defined as an area within a well pad intended to host multiple horizontal wells and which comprises an area no greater than 5,000 square feet. The Environmental Quality Board is authorized to promulgate regulations modifying the maximum area of a well cluster based on the Pillar Study update noted below. If the permit applicant and the owner of a workable coal seam can not agree on the spacing of well clusters, either may invoke dispute resolution. If a well cluster will penetrate a workable coal seam that is not part of an active coal mine, the gas well applicant must provide the coal owner with a copy of the plat, and the owner of the coal seam has 15 days to provide recommendations on the location of the new cluster.

The law calls for two studies. The first is a comprehensive evaluation and update of the Joint Coal and Gas Committee Gas Well Pillar Study commissioned in 1956. The second is an independent study to be commissioned by DEP within 60 days of the effective date (approximately July 12) to assess the appropriate pillar size around an active well, an inactive well, a well-cluster, an inactive well-cluster, a plugged well cluster or a plugged well necessary to ensure the integrity of the well, to furnish adequate protection to the workable coal seam and to ensure the safety and protection of coal miners. The study is also to address additional criteria or standards that should be considered by DEP when considering approval of pillars around an oil or gas well which penetrates a workable coal seam. The independent study is to be submitted to DEP within 240 days of May 13 and published in the Pennsylvania Bulletin.

The DRBC is composed of the governors of New York, New Jersey, Pennsylvania and Delaware plus one presidential appointment.  Decisions are based on majority rule.  A threshold question raised by the possible lawsuit is whether actions by the DRBC are “federal” and thus subject to NEPA.  Thirty years ago, in Delaware Water Emergency Group v. Hansler, Judge van Artsdalen questioned whether the DRBC is a federal agency for NEPA purposes.  Noting the co-equal status of Commission members, he wrote, “That DRBC is a federal agency for purposes of NEPA is very doubtful.” 

Historically the DRBC appears to have taken the position that NEPA applies to its actions.  For that reason, it is possible that neither the DRBC nor New York will raise that issue.  Somebody should.  If the litigants are free to agree on NEPA applicability, Marcellus Shale development in the northeast portion of the formation that lies withing the DRBC’s jurisdiction could be on hold for years.  The review process is comprehensive, and one can expect a challenge to the ultimate product of that review and likely further delays. 

The threatened lawsuit even has potential ramifications for drilling activities in the area subject to the Susquehanna River Basin Commission.  SRBC voting power is like that of DRBC with one federal representative and majority rules.  Currently the SRBC seems preoccupied with Chesapeake Bay issues.  However, drilling opponents might try to argue that SRBC’s failure to regulate is itself a federal action significantly affecting the environment.  One question such a lawsuit would present is whether inaction can be considered action.  If drilling opponents in the SRBC area can establish NEPA applicability, they might halt development in north central PA dead in its tracks.

            Each lease had a primary term of five years and, if the lessees were producing oil or gas in paying quantities at the end of the five year term, the leases would automatically extend for as long as production continued.  After the Plaintiffs filed the actions to seek a determination of whether the leases were valid under the GMRA, the Defendants voluntarily ceased development and drilling on the Plaintiffs’ properties.  The Defendants argued that the declaratory judgment actions initiated by the Plaintiffs created such uncertainty about the validity of the leases that the Defendants were forced to forego operations on the Plaintiffs’ properties and were thereby deprived of the benefits of the leases’ full terms.  Plaintiffs argument was two fold: (i) the declaratory judgment actions did not prevent the Defendants from conducting drilling operations on the Plaintiffs’ properties during the pendency of those actions; and (ii) it was inequitable to require Plaintiffs to extend the leases merely because the Defendants decided to voluntarily forego operations in the face of litigation over leases that the Defendants themselves had drafted.

            The District Court, relying on the Pennsylvania Superior Court decision in Derrickheim Company v. Brown, 305 Pa. Super. 173 (Pa. Super. 1982), found that the Plaintiffs did not repudiate their leases by filing the declaratory judgment action.  The District Court further found that “oil companies … wield significant, if not exclusive, power in the drafting of oil and gas leases” and “a determination that Plaintiffs had repudiated their leases via the filing of [the declaratory judgment actions] further tips the balance of power in favor of the oil companies” and that such would “likely dissuade lessors from bringing potentially meritorious actions.”  Lauchle at *4.  The District Court further went on to say “deeming these leases to have been repudiated under the circumstances of this case is both bad law and even worse public policy, and we decline to accept [Defendants’] invitation to so penalize Plaintiffs.”  Id at *4.