Shale Oil and Gas Forum - Blank Rome · 2012. 10. 10. · Ohio and Pennsylvania: A Strong Oil and...

4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries

© Blank Rome LLP 2012. All Rights Reserved1

PRESENTED BY

Shale Oil and Gas Forum

Margaret A. Hill, Blank Rome LLPScott Coburn, Pennsylvania State Association of

Township Supervisors

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Township SupervisorsCraig A. Kasper, PE, Hull & Associates, Inc.Peter Terranova, UGI Energy Services, Inc.

Northeast PA Production and Major Pipe Activity

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• Opposition to Marcellus Shale development focusing on bottlenecking supply by opposing pipelinesPipelines extend beyond the Marcellus producing

Evolving Opposition Strategy

• Pipelines extend beyond the Marcellus producing areas where residents have a financial stake in development; sympathetic audience for opposition groups

• Well organized and well funded opposition• Adept at organizing local opposition to pressure local

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p g g pp pofficials—NIMBY on steroids

• Delay and increase to cost of pipelines and compressor stations

• “Clean Air Council has provided education, outreach

Some Examples

and training to residents of Luzerne County, who then… organized and turned out to multiple meetings, strategy sessions and public hearings to… pressure the local Zoning Hearing Board to deny a…permit required to build [a] compressor station”

“E thj ti fi ht MARC I i li i l di l

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• “Earthjustice fights MARC I pipeline including appeal of FERC approval”



• Multiple permits: DEP construction permits; air permits for compressors; local land use permits; FERC fili A C f E i PUC(?)

Why Attack Pipes and Compressors?

FERC filing; Army Corp of Engineers; PUC(?)

• Multiple public forums and places to influence outcomes

• The more local the decision point (the more remote from production) the greater the affect of negative

d bli it ff t th t

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press and publicity affects the outcome

• Courts are last resort but this slows development and increases cost

• Midstream development becoming a critical path item; will be magnified if gas prices rise

Outlook

• Costs to build pipelines are increasing significantly; Williams Pipeline report that regulatory delays add significant cost to Springville line in Northeast PA-total cost over $4 million/mile

• The challenges will increase as opponents i d l i d ddi t t

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experience success delaying and adding cost to projects



• Follow the lead of the Marcellus Shale Coalition and increase outreach and education efforts

What do we do?

• Work with State regulators (DEP) to streamline approval process if conditions are met such as local energy corridors developed by industry, producers, local planning officials. State regulators

• Other thoughts?

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BLANK ROME’S 4TH ANNUALSIGNFICANT LEGAL DEVELOPMENTS AFFECTING THE

CHEMICAL, OIL AND GAS INDUSTRIESPHILADELPHIA PAPHILADELPHIA, PA

OCTOBER 10, 2012HULL & ASSOCIATES, INC.| CRAIG KAPSER, CEO

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What is the Utica?

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Ohio and Pennsylvania: A Strong Oil and Gas History and a Strong FutureOHIO• 1860 – Washington Co.

> 270 000 wells in 76/88

PENNSYLVANIA• 1859 – Drake Well

> 350 000 wells in 33/67• > 270,000 wells in 76/88 counties

• ~ 65,000 in production• Unconventional - Utica

– ~ 382permits issued– ~ 144 wells drilled

• > 350,000 wells in 33/67 counties

• ~ 70,000 in production• Unconventional

– ~11,000 permits issued– ~5,000 wells drilled

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The “Supply Chain”

PRODUCEPRODUCE USEUSEUSEUSEUSEUSE

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PROCESSPROCESSPROCESSPROCESSPROCESSPROCESS

Agencies That Regulate in Ohio• Ohio Department of Natural

Resources (ODNR)

• Ohio Environmental Protection• Ohio Environmental Protection Agency (Ohio EPA)

• Department of Commerce

• Public Utilities Commission of Ohio (PUCO)

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History of Ohio Requirements and Rulemaking• HB 165 effective June 30, 2010

– Didn’t focus on horizontal wells and midstream infrastructuremidstream infrastructure

• SB 315 effective September 10, 2012– Rules and Best Management Practices

– Governor’s Executive Order 2012-09K

• Emergency rule regulating underground injection wells

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and brine transportation

• Effective July 11, 2012

• Horizontal well - a well that is drilled for the production of oil or gas in which the wellbore reaches a horizontal or near horizontal

New Definitions

position in the Point Pleasant, Utica, or Marcellus formation and the well is stimulated

• Well pad - means the area that is cleared or prepared for the drilling of one or more horizontal wells.

• Condensate – adds liquid hydrocarbons separated at or near well head or along

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gathering system prior to gas processing. Former definition included liquid hydrocarbons originally in the gaseous phase.

• Several new definitions for midstream components



• Order to issue, deny or modify a permit to drill a horizontal well is not subject to Ohio’s Administrative Act

• Removes public comment and timeframes associated with

Nonapplicability of Administrative Procedures Act

• Removes public comment and timeframes associated with the Act

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• Copy of an executed Road Use Management Agreement (RUMA)

• Identification all sources of

Application Requirements for Drilling Permits

Identification all sources of groundwater and surface water and volume of recycled water

• Site site-specific terms for wells located in the 100-year floodplain or within the 5-year time of travel from a public drinking supply wellC i d ti d t il

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• Casing and cementing details• All other information as required before

September 10, 2012 (effective date of SB 315)



• Pre-drill sampling– Results have to be posted “prior to” drilling but do not have

t b i l d d th i iti l li ti

Pre-Drill and Notification Requirements

to be included on the initial applications

– 300 feet radius in urban areas, 1,500 feet radius in non-urban areas

– Sampling in accordance with the current “Best Management Practices for Pre-drilling Water Sampling” including “trained samplers”

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• Notifications and well site review– Prior to issuing a permit

– Prior to well pad construction

Disclosure and Trade Secrets

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• Submitted within 60 days after well is completed• Drilling fluids

Through the surface

Well Completion Record and Disclosure

– Through the surface casing

– Doesn’t include cementand additives

• Simulation• Provide CAS and MSDS• Applies to refracturing

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• Applies to refracturingor restimulatoin

• FracFocus or ODNR• Keep records for 2 years

• Trade secrets– An Owner may designate materials as a trade secret and prohibits

ODNR from disclosing the information

Well Completion Record

ODNR from disclosing the information

– Requires the Owner to disclose information regarding the trade secret to a medical professional for the purposes of diagnosing or treating an individual who was affected by an incident associated with the production operations of the well

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– May also be disclosed under a civil suit



“Importer” of Brine

• Ohio has been an injection state for over 50 years -required by law

• Approximately 180 i j ti ll ith

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injection wells with many more to come

• Executive Order 2012-09K subjects disposal wells and haulers to comply with additional regulations

• ODNR has sole authority over oil and gas in Ohio• Authorizes ODNR to enter in to cooperative agreements

with other state agencies for advice and consultation

Cooperative Agreements

with other state agencies for advice and consultation.– For example, the State Fire Marshall will inspect fire suppression

systems and report back to ODNR

• ODNR maintains authorization to regulate Oil and Gas industry.

• Requires Ohio EPA, ODNR and other agencies to evaluate emerging wastewater treatment/recycling

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evaluate emerging wastewater treatment/recycling technologies that can be used in lieu of injection.

• Requires ODNR and ODOT to issue a report in 18 months evaluating the effectiveness of the RUMA on maintenance and safety issues.



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MIDSTREAMMIDSTREAM

Definitions Under The PUCO & OPSBTerm Definition

Gas Gathering Pipeline

A gathering line not regulated by the Natural Gas Pipeline Safety Act and resultant federal rules and specifies it includes a pipeline used to collect and transport raw natural gas or transmission quality gas transport raw natural gas or transmission quality gas to the inlet of a gas processing plant, the inlet of a distribution system, or to a transmission line .

Processing Gas Plant Stub Line

A gas pipeline that transports transmission quality gas from the tailgate of a gas processing plant to the inlet of an interstate or intrastate transmission line and that is considered an extension of the gas processing plant and is not for public use.

Operator

For purposes of the gas gathering pipeline and processing plant gas stub pipeline safety standards,

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Operatoras any person that owns, operates, manages, controls, or leases either type of pipeline.

GasNatural gas, flammable gas, or gas that is toxic or corrosive.

Natural Gas Liquids Finished Product Pipeline

A pipeline that carries finished product natural gas liquids to the inlet of an interstate or intrastate finished product natural gas liquid transmission pipeline, rail loading facility, or other petrochemical or refinery facility.



Term Definition

Natural Gas Liquids Fractionation PlantA facility that takes a feed of raw natural gas liquids and produces finished product natural gas liquids.

Hydrocarbons that are produced in a gaseous state from gas wells and that generally include methane ethane propane

Definitions Under The PUCO & OPSB

Raw Natural Gaswells and that generally include methane, ethane, propane, butanes, pentanes, hexanes, heptanes, octanes, nonanes, and decanes, plus other naturally occurring impurities like water, carbon dioxide, hydrogen sulfide, nitrogen, oxygen, and helium.

Raw Natural Gas Liquids

Naturally occurring hydrocarbons contained in raw natural gas that are extracted in a gas processing plant and liquefied and generally include mixtures of ethane, propane, butanes, and natural gasoline.

Finished Product Natural Gas Liquids

An individual finished product produced by a natural gas liquids fractionation plant as a liquid that meets the specifications for commercial products as defined by the Gas Processors A i i Th d i l d h i b

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Association. Those products include ethane, propane, iso-butane, normal butane, and natural gasoline.

Gas Processing Plant

A plant that processes raw natural gas into merchantable products, including transmission quality gas or natural gas liquids and also may include a plant that treats raw natural gas to remove impurities such as carbon dioxide, helium, nitrogen, or water.

Transmission Quality Gas

Gas consisting predominantly of methane that meets all downstream specifications for transportation in an intrastate or interstate transmission pipeline and that is suitable for use by public consumers.

• Excludes from PSB certification requirements gathering lines, gas gathering pipelines, and processing plant gas stub pipelines and associated f

Ohio Power Board Certification Authority

facilities; any gas processing plant; natural gas liquids finished product pipelines; pipelines from gas processing plants to an interstate or intrastate gas pipeline or to a natural gas liquids fractionation plant; any natural gas liquids fractionation plant; an oil, gas, or other production operation regulated by the state including pipelines upstream of any gathering lines; and certain compressor stations

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gathering lines; and certain compressor stations.



• Exempts from regulation as a public utilityan entity engaged in the business of the transport associated with gathering lines, raw natural gas liquids or finished product natural

PUCO Authority

natural gas liquids, or finished product natural gas liquids.

• Exempts from regulation as a public utility certain natural gas gatherers and producers engaged in the business of supplying natural gas for lighting, power, or heating purposes to Ohio consumers, and that deliver or sell Ohio-produced raw natural gas liquids.Exempts from Ohio's pipeline safety law

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• Exempts from Ohio's pipeline safety law (specifically requirements on "operators") an entity engaged in the business of the transport associated with gathering lines, raw natural gas liquids, or finished product natural gas liquids.

• GAS GATHERING LINES & PROCESSING PLANT GAS STUB PIPELINES– Requires compliance with the applicable

pipe design requirements under the

Pipeline Safety Standards

pipe design requirements under the minimum federal safety standards (CFR Part 192, Subpart C).

– Requires operators to engage in various other activities

• Designing, constructing, inspecting, and testing

• Controlling corrosion• Carrying out a damage prevention and

bli d ti

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public education program• Establishing the maximum allowable

operating pressure• Installing and maintaining pipeline markers• Performing and maintaining records of leakage

surveys.• Pre and post construction submittals



• Water withdrawal, HB Bill 473 and the Great Lakes Compact

Other Ohio Conserations

• Ohio EPA 401 water quality certification and isolated wetlands

• Beneficial reuse initiatives

• AIR

• Unitization and Pooling

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g

• Preemption

• Severance Tax

What's On The Horizon – Severance Tax?Product Current Law Proposed Law

Horizontal WellsDry Gas $.03/mcf 1% of market value

Natural Gas Liquids $.03/mcf4% of market value with 1.5% i iti ll f th fi t 2

q $initially for the first 2 years

Oil and condensates $.20/barrel4% of market value with 1.5% initially for the first 2 years

Other Wells

Gas $.03/mcf

Lesser of $.03 per mcf or 1% of market value with exemption for wells producing less than 10 mcf/day

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mcf/dayOil $.20/barrel $.20/barrel

Notes

Current Law taxes include severance taxes plus cost recovery assessments

Dry gas is defined in the proposed law a s "pipeline quality gas"MCS if 1,000 cubic feet of natural gas

"Analysis of Ohio Severance Tax Provisions of H.B. 487 by Ernst & Young May 15, 2012



How Good Can It Get?

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• Ohio Shale Coalition Study– $18B and 65K jobs

What’s The Investment –Depends on Who You Ask

– Only considers upstream and midstream

• Ohio Oil & Gas Energy Education Association– $34B and 200K jobs

M k t i till t i d

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• Market is still maturing and developing cautiously



SO WHAT’S TO WORRY ABOUT?

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Just a Few Considerations?• It’s a safe industry – need strong

public outreach to understand the issuesissues

• Job training and a sufficient qualified work force

• Natural resource sustainability and management

• Supply and demand – good old f hi d i

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fashioned economics

• Need to wait and see how good it can get!



Definitely a Game Changer!

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Craig [email protected]

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PRESENTED BY

Act 13 Update

Scott Coburn, Pennsylvania State Association of Township Supervisors

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• Impact Fees– Over $200 million in 2012

Act 13 Overview

– Split 60/40 between counties/municipalities and state

• Environmental Restrictions– Updates Oil and Gas Act

• Zoning Preemption

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• Seven municipalities, environmental group and doctor challenged constitutionality of Act 13

Constitutional Challenge

• Numerous claims– Violation of due process

– Special law

– Non-delegation doctrine

– Separation of powers

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– Others

• Commonwealth’s arguments– Municipalities are creatures of state; state can take power

Constitutional Challenge (cont’d)

away

– Law is rationally related to exercise of police power (development of oil and gas resources)

– Political question doctrine

– Standing

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• July 26 – en banc court rules Section 3304 unconstitutional:

Commonwealth Court Ruling

– Violates substantive due process

• Balance landowners’ rights vs. public interest

– Requires incompatible uses in certain zoning districts

• “Pig in the parlor instead of the barnyard”

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• Section 3215 unconstitutional– Insufficient guidance to DEP on when to grant waivers from

di t tb k

Commonwealth Court Ruling (cont’d)

distance setbacks

• No standing for environmental group/doctor

• Dissent:– This “pig” only operates where “slop can be found”

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– Incorrect application of substantive due process



• Supreme Court– Oral argument – October 17 in Pittsburgh

Act 13 – What’s Next?

– Impact of Justice Melvin’s absence?

• Public Utility Commission– Parties can challenge local ordinances before PUC

– If successful, municipalities lose share of impact fees

– So far: at least 4-5 formal challenges

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• Pipelines– Governor’s Energy Executive to issue report by Feb. 2013

Act 13 – What’s Next?

– Report to address placement of gathering lines

• Balancing of getting gas to market vs. future development plans

• Colocation?

• Gas in other areasS th N k B i

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– South Newark Basin

– Gettysburg Basin



Questions?

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Shale Oil and Gas Forum - Blank Rome · 2012. 10. 10. · Ohio and Pennsylvania: A Strong Oil and...

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