In this month's Pennsylvania Law Weekly / Legal Intelligencer column, I discuss Pennsylvania Senate Bill 1100 and Pennsylvania House Bill 1950. The bills, which implement many of the recommendations made by Pennsylvania Governor Tom Corbett's Marcellus Shale Advisory Commision, propose significant amendments to Pennsylvania's Oil and Gas Act intended to address Marcellus Shale gas development.
To read the column, click here.
From Adam Silverman of GT Philadelphia:
This week, the Delaware River Basin Commission (“DRBC”) released its final draft natural gas development regulations in anticipation of a final vote on whether the DRBC will adopt the regulations. The vote is scheduled for November 21, 2001. There is some reason to believe that the Commission vote may not be unanimous, which would be a rare occurrence. If adopted, the regulations will end a moratorium imposed on drilling for natural gas within the Delaware River watershed, which supplies water to Philadelphia and New York City. Since first introducing draft regulations in 2010, the DRBC received nearly 70,000 comments from the public, some of which were reportedly incorporated into subsequent drafts of the regulations.
The final draft regulations would permit the drilling of 300 wells within the watershed, provide setback requirements, and increase financial assurance requirements to, in certain cases, $5MM per well up to $25MM for multiple-well sites. State regulations will determine the construction and operation of individual wells and pads but water sources for well pads require approval by the DRBC. The regulations also limit the discharge and storage of wastewater and fracking fluid within the watershed. The DRBC plans to reassess the regulations after 18 months.
Several lawsuits have already been filed in connection with the DRBC’s attempt to regulate natural gas drilling, including a lawsuit filed by New York’s Attorney General and a lawsuit filed by the several environmental conservation organizations.
Among other things, the lawsuits seek compliance with federal environmental laws. If adopted, it is expected that the regulations themselves would be challenged.
The DRBC, which is comprised of one representative Commissioner from the federal government, Delaware, New Jersey, New York and Pennsylvania, is the agency responsible for protecting the waters of the Delaware River watershed under the Delaware River Basin Compact.
Pennsylvania Governor Tom Corbett announced that he will present a plan to the General Assembly that will implement numerous recommendations proposed by the Marcellus Shale Advisory Commission (Commission), including an impact fee on wells and more rigorous standards on hydraulic fracturing. The impact fee would subject each well to a fee of up to $40,000 in the first year, $30,000 in the second, $20,000 in the third, and $10,000 in the fourth through tenth year, adding up to a potential $160,000 per well. Seventy-five percent of the revenues collected from these fees would be distributed to the counties and municipalities in which drilling is taking place, with the vast majority of the remainder going to the Pennsylvania Department of Transportation for infrastructure and maintenance of roads in those same counties.
The proposed standards would increase well setback distances from wells and waterbodies, increase penalties and bond requirements, and expand gas operators' "presumed liability" for impairing water quality from 1,000 to 2,500.
Governor Corbett created the Commission by Executive Order in March in order to create a plan for developing the Marcellus Shale responsibly, and on July 22 the Commission issued its final report, which included 96 policy recommendations.
In July, the New York State Department of Environmental Conservation ("NYSDEC") released its draft Supplemental Generic Environmental Impact Statement ("SGEIS") on horizontal drilling. As we explained in more detail earlier, the draft SGEIS included draft regulations, which would impose "rigorous and effective controls" on hydraulic fracturing. In September, NYSDEC supplemented its SGEIS, adding mitigation measures addressing socioeconomic, community character, visual, noise and transportation impacts.
NYSDEC has now issued its draft regulations, which are the same as those released in July, for public comment. The public comment period will conclude December 12, and four public hearings are being held in November in Dansville, Binghamton, Sheldrake and New York City.
From K.B. Battaglini of GT Houston:
Just weeks after EPA proposed new regulations to cut greenhouse gas emissions produced by natural gas drilling, a leading energy group issued a report claiming that EPA overestimated the amount of methane thought to be flared or vented from gas drilling operations. According to the report from IHS Cambridge Energy Research Associates (IHS CERA), EPA used out-of-context data sets and poor assumptions, and erroneously doubled its greenhouse gas estimates in 2010. Written by IHS CERA directors Mary Lashley Barcella, Samantha Gross and Surya Rajan, the report argues that upstream greenhouse gas emissions that appear to make the production of natural gas seem bad for the environment are based on a fundamentally flawed EPA formula. IHS CERA argues that EPA overstated both the problem and the effect of new regulations.
From K.B. Battaglini of GT Houston:
The Marcellus Shale contains about 84 trillion cubic feet of recoverable natural gas, and 3.4 billion barrels of recoverable natural gas liquids, according to a just-released assessment by USGS of geological and engineering data. These estimates are significantly more than the last USGS assessment in 2002, which estimated 2 trillion cubic feet of natural gas and .01 billion barrels of natural gas liquids.
The new volumetric assessment must be tempered by legal and technical accessibility issues. In other words, it is not likely that all of the recoverable gas will be recovered.
In reporting on this development, the New York Times slanted the results by proclaiming in a headline that "Geologists Sharply Cut Estimate of Shale Gas." But the USGS did not cut its 2002 estimate, but rather increased it. Instead, the Times compared the USGS's volumetric assessment with a prior estimate made by the Energy Information Administration of 410 trillion cubic feet of natural gas. Upon learning of the just-released assessment by USGS, the EIA downgraded its prior estimate, saying "we consider the USGS to be the experts in this matter" and "they're geologists and we're not." So, rather than proclaiming that "Geologists" had cut their estimate, the Times headline should have stated that the "EIA downgraded its estimate based upon a geological assessment."
From K.B. Battaglini of GT Houston:
From K.B. Battaglini of GT Houston:
The Natural Gas Subcommittee of the Secretary of Energy Advisory Board issued its Ninety-Day Report today, stating that hydraulic fracturing can continue safely as long as companies disclose more about their practices and monitor their environmental impact. The report constitutes a qualified endorsement of shale gas exploration. Members of the Subcommittee include MIT professor John Deutch, Environmental Defense Fund president Fred Krupp, and Kathleen McGinty, former Secretary of the Pennsylvania Department of Environmental Protection who also served as Chair of the White House Council on Environmental Quality during the Clinton Administration. The Advisory Board was established at the request of President Obama, as part of his "Blueprint for a Secure Energy Future." The Environmental Protection Agency, which regulates air and water quality, is conducting its own study of the effects of hydraulic fracturing. EPA intends to release a report of its findings in 2012.
From K.B. Battaglini of GT Houston:
In what appears to be a reaction to recent New York Times articles asserting that some Marcellus Shale gas companies were overbooking their natural gas reserves, the Securities and Exchange Commission is issuing subpoenas to investigate the accuracy of financial statements. New York Congressman Maurice Hinchey asked the SEC to investigate the issue following publication of the assertions in the New York Times, which questioned how gas companies calculate and publicly disclose performance of shale gas wells. Hinchey wants the SEC to consider updating its oil and gas reserve reporting requirements to provide greater disclosure to investors and the public, and proposed that financial statements be subjected to third-party audits. However, financial statements are now widely subjected to independent audits, and Arthur Brisbane, public editor of the New York Times, has cast considerable doubt on the source material for the articles, describing them as having "serious shortcomings." The conclusions reached in the article have also been challenged by a number of sources, including a M.I.T. Study Group and a UBS Investment Analyst. The SEC has not announced whether it will continue issuing subpoenas.
As we mentioned earlier, Governor Cuomo requested that the New York State Department of Environmental Conservation's ("NYSDEC") Supplemental Generic Environmental Impact Statement ("SGEIS") on horizontal drilling be completed for issuance by July 1, 2011. On June 30, NYSDEC announced its recommendations from its report, set to be released today. NYSDEC recommends that the moratorium on fracking be lifted, but that fracking be prohibited in the New York City and Syracuse watersheds, within 500 feet of primary aquifers, and on state-owned land. Fracking would be allowed on privately held land, subject to "rigorous and effective controls."
These controls would (1) prohibit permits from being issued within 500 feet of a private water well or within 2,000 feet of a public drinking water supply well or reservoir, (2) require a third well casing around each well, (3) require additional spill control for flowback water and a DEC-approved plan for disposing of flowback water and production brine, and (4) require well applicants to disclose all fracking chemicals and consider chemicals that potentially pose less risk.
Pursuant to the recently passed Water Withdrawal Reporting law, drillers also must obtain a special permit to withdraw large volumes of water. This permit will impose conditions on water quantity, and require annual reporting on the amount of water being withdrawn or purchased.
UPDATE 1: Although the full SGEIS will not be made available until July 8, NYSDEC has released the Executive Summary, a SGEIS timeline, a document explaining what it learned from Pennsylvania, and a press release detailing who NYSDEC was appointing to its Hydraulic Fracturing Advisory Panel.
UPDATE 2: The full SGEIS can be found here.
From David G. Mandelbaum of GT Philadelphia:
As discussed previously, the Delaware River Basin Commission (DRBC) proposed regulations that would govern natural gas drilling in the Delaware River Basin. New York Attorney General Eric T. Schneiderman announced yesterday that New York plans to sue the federal government if it does not conduct an environmental review prior to approving any regulations that would allow natural gas drilling in the Basin. Schneiderman contends that a National Environmental Policy Act (NEPA) review of the environmental impacts of drilling must be conducted before any regulations are finalized.
In May 2009 and June 2010, DRBC Executive Director Carol R. Collier subjected production wells and then exploratory wells to preconstruction review by the Commission. In May 2010, the Commission announced a moratorium on granting approvals for those wells until adoption of regulations. If the regulations are delayed, development of natural gas resources would be frozen until regulations are adopted.
In this month's column in The Legal Intelligencer/Pennsylvania Law Weekly, I discuss Pennsylvania's State Water Plan, which was recently amended to designate "critical water planning areas." Passed in 2002, the Water Resourcees Planning Act (Act 220) called for six regional committees and one statewide committee to develop the Plan and then to designate these "critical water planning areas." The State Water Plan attempts to avoid potential water resource conflicts created by residential land use, agriculture, and -- the most water-intensive activity -- thermo-electric power plants. While it receives a great deal of press currently, water used to support development of Marcellus Shale natural gas wells receives only cursory treatment in the current Plan because of the age of the available data. Click here to view the full article.
with Mark Glaser, GT Albany
Last week was an active week for those following regulation of Marcellus Shale natural gas development.
On December 11, New York Governor David Paterson vetoed AB 1143 / SB 8129, that would have banned all new permits for natural gas wells to be stimulated by hydraulic fracturing until May. Instead, he issued an Executive Order establishing a moratorium on new horizontal, high-volume, hydraulic fracturing until July 1, 2011. His counsel's statement is here.
Update: The Governor's veto message was released on December 14.
On December 9, the Delaware River Basin Commission published its long-awaited draft natural gas well pad regulations. It did so against the advice of New Jersey DEP Commissioner Bob Martin stated in a letter of December 7 and over the objection of New York Governor Paterson stated in a letter of December 6. New York voted against release of the draft regulations at the Commission meeting of December 8. Comments on the draft are due by March 16, 2011, and the Commission plans three public hearings in February.
On December 8, the Delaware River Basin Commission also adopted a resolution drastically curtailing, and possibly terminating, planned January hearings on natural gas exploratory wells -- that is wells intended for investigation and not production. Most of the issues to have been addressed in that hearing are now to be considered in the pending rulemaking. This resolution also avoided having the hearing address the adequacy of Pennsylvania state regulatory program, an issue that opponents of natural gas development had advanced in expert reports filed in the proceeding. The Commission Chair's instructions to the hearing officer of December 3 reflect the difficulty of that issue.
The DRBC draft regulations would govern a number of issues, such as bonding and setbacks, also regulated by Pennsylvania and New York. If adopted, they would impose different rules for identical natural gas development in different watersheds, including different watersheds within the same state. The December 10 Philadelphia Inquirer quoted Commission Executive Director Carol Collier as analogizing this distinction to the regulations administered in the New Jersey Pinelands by the Pinelands Commission. Those are quite explicitly land use regulation. Whether the Interstate Compact Commissions intend to regulate each wave of land development, or just to focus on the current natural gas "boom," remains to be seen.
Documents:
Statement of Peter Kiernan, Counsel to the Governor of New York (Dec. 11, 2010)
Veto Message No. 6837 (released Dec. 14, 2010)
New York Executive Order No. 41 (Dec. 13, 2010)
Delaware River Basin Commission Draft Regulations on Natural Gas Development (Dec. 9, 2010)
Letter from New York Gov. David Paterson to DRBC Executive Director Carol Collier (Dec. 6, 2010)
Delaware River Basin Commission Resolution and Order for the Minutes (Dec. 8, 2010)
Letter from DRBC Chair Katherine Bunting-Howarth to Hon. Edward Cahn (Dec. 3, 2010)
Rules Set Out For Gas Drilling, Philadelphia Inquirer, Dec. 10, 2010, at A.1
Contributed by Marvin A. Kirsner
GT Tax Practice, Boca Raton
The Pennsylvania Department of Revenue has ruled that equipment purchased by a company that provides fracturing and acidizing services in connection with natural gas wells is exempt from the Commonwealth's sales and use tax under the mining exemption. The ruling also concludes that materials used in fracturing services (such as gases, sand, and cement) are also exempt from sales and use tax under the mining exemption. For the full text of SUT-10-003 click here.
The New York Times recently covered the ongoing dispute over drilling for natural gas in the Delaware River Basin, an area not only subject to the jurisdiction of state environmental agencies but also an interstate compact agency known as the Delaware River Basin Commission. At the Commission's regular September 15 meeting, the DRBC Executive Director announced that draft regulations for natural gas wells expected by "end of Summer" would be delayed until "mid-October." The Commission will not consider new production wells for approval until those regulations are adopted after a public review process.
However, at the same meeting, the Commission considered a request by opponents of natural gas development to stop construction of exploratory or "science" wells currently under way. The Executive Director's determination subjecting exploratory wells other than certain grandfathered wells to DRBC approval is the subject of a contested hearing, but that hearing may not take place until after the grandfathered wells, or several of them, are complete. On September 15, the Commission voted not to stop construction of the grandfathered wells. Until those wells are completed and analyzed, the gas production companies cannot decide whether to proceed with production wells in the area, and so if they are permitted, natural gas development can remain on track despite the "moratorium" currently in place until the Commission adopts regulations.
The request for a "supersedeas" filed by the opponents, Damascus Citizens for Sustainability, the Delaware Riverkeeper, and the Delaware Riverkeeper Network may be found here. The responses of the drilling proponents, Northern Wayne Property Owners' Alliance and Newfield Appalachia PA, LLC, may be found here and here.
From Heather Behnke, GT Albany
New York Department of Environmental Conservation Commissioner, Alexander "Pete" Grannis, told a conference in Albany on April 15 that DEC would take until late summer or early fall to complete its review of nearly 14,000 comments on the Marcellus Shale study DEC has determined to conduct before lifting a drilling moratorium. According to a DEC staffer who also spoke at the conference, no action will be taken on the 58 pending permit applications or any new permit applications until the DEC completes its review and issues a Final Supplemental Generic Environmental Impact Study. Then, those permit applications would have to be amended to meet the requirements of the SGEIS. Meanwhile, drilling and investment are going forward in Pennsylvania, so the money is all going there--instead of New York.
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