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PIOGA press

January 2014 • Issue 45

The monthly newsletter of the Pennsylvania Independent Oil & Gas Association

Key provisions of Act 13 invalidated by Pennsylvania Supreme Court

I

n a far-reaching decision that may reverberate far beyond the oil and gas industry, the Pennsylvania Supreme Court has ruled that several critical provisions of Act 13, the General Assembly’s 2012 comprehensive update to the former Oil and Gas Act, are unconstitutional. In addition to invalidating a key section of Act 13 placing limits on the regulatory authority of local governments, the court’s ruling also struck down a number of the legislation’s well location restrictions administered by the Department of Environmental Protection. The collective opinions of the court consisted of a 162-page opinion authored by Chief Justice Castille, in which Justices Todd and McCaffrey joined in full and Justice Baer joined in part, a concurring opinion authored by Justice Baer, and separate dissenting opinions from Justices Saylor and Eakin. The full texts of these opinions can be found at www.pacourts.us/assets/ opinions/Supreme/out/J-127A-D-2012oajc.pdf?cb=1. The decision of the Supreme Court in Robinson Township v. Commonwealth, No. 63 MAP 2012, 2013 Pa. LEXIS 3068, is the culmination of litigation filed in early 2012 by seven municipalities, along with two local elected officials, the Delaware Riverkeeper Network and a physician challenging the legality of Act 13, primarily contending that the legislation unconstitutionally limited the authority of local governments to regulate the oil

Authors:

Blaine A. Lucas, Esq

Krista M. Staley, Esq.

Lawrence H. Baumiller, Esq

and gas industry. The challenge also asserted that a section of Act 13 that authorized DEP to grant waivers from certain well location restrictions was unconstitutional because it did not set forth any standards to be considered in addressing such requests. Limits on local regulation By far the most contentious issue in the litigation was the petitioners’ claim that Section 3304 of Act 13, which placed lim(Continues on page 4)

Public comment period opens for Chapter 78 regulations

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he Pennsylvania Department of Environmental Protection’s controversial proposed amendments to the environmental protection standards in 25 Pa. Code Chapter 78, Subchapter C of the oil and gas regulations were published in the Pennsylvania Bulletin on December 14 for a 60-day public comment period. The proposed regulations amend existing requirements governing surface activities associated with oil and gas

PIOGA reaction to Supreme Court ruling . . . . 4 Governor asks operators to follow setbacks . . 9 Environmentalists’ ANF appeal denied . . . . . 17 Another severance tax proposal . . . . . . . . . . 18 A look at LNG exporting . . . . . . . . . . . . . . . . 20 DOE export approval guidelines . . . . . . . . . . 21 December Spud Report . . . . . . . . . . . . . . . . 24 OSHA enforcement in 2014 . . . . . . . . . . . . . 29 PIOGA committee schedule changed. . . . . . 33 Join us at the outdoors show . . . . . . . . . . . . 33 EID: Drilling story underscores safety. . . . . . 34 DEP launches well-mapping tool . . . . . . . . . 38

PIOGA member alert: Your involvement is essential. See page 13.

well development and establish several new requirements for permitting, wastewater processing and storage, and well site containment, among others. The comment period ends February 12. As background, the Chapter 78 regulations have been under development since early 2012. Some of these Call for Shale Gas Innovation entries . . . . . . 39 Mechanical Integrity Assessment FAQs . . . . 39 changes are required by Act 13, the new Submit a newsletter article . . . . . . . . . . . . . . 40 (February 2012) Oil and Gas Act, but PIOGA’s new weekly e-newsletter . . . . . . . . 40 many are not. DEP initially developed a Governors tout state regulatory efforts . . . . . 41 “concept paper” in the winter of 2012 Share your success story . . . . . . . . . . . . . . . 41 and then prepared working drafts of the PIOGA Member News . . . . . . . . . . . . . . . . . 42 Chapter 78 regulations in the fall of Oil & Gas Stats . . . . . . . . . . . . . . . . . . . . . . . 44 2012 and again in February and April of Calendar of Events . . . . . . . . . . . . . . . . . . . . 46 2013. These earlier drafts were never New PIOGA members . . . . . . . . . . . . . . . . . 47 published formally for public comment, Contact us. . . . . . . . . . . . . . . . . . . . . . . . . . . 47 (Continues on page 11)


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Supreme Court decision: Continued from page 1 its on the powers of local governments, was invalid. Section 3304 requires that all local ordinances provide for the “reasonable development of oil and gas resources,” specifically that they: (1) authorize most oil and gas operations as permitted uses in all zoning districts, with the exception that wells located in residential districts may be prohibited or required to go through the conditional use process if the well bore is located within 500 feet of an existing building; (2) authorize compressor stations as permitted uses in agricultural districts and industrial districts, and as conditional uses in all other zoning districts, subject to certain distance and noise limitations; (3) authorize processing plants as permitted uses in industrial districts, and as conditional uses in agricultural districts, subject to certain distance and noise limitations; (4) allow impoundments as permitted uses in all zoning districts subject to a distance requirement; (5) allow pipeline/well assessment and subterranean operations throughout the municipality; (6) place maximum time limits on zoning decisions; (7) prohibit certain restrictions on hours of operation; and (8) in numerous other respects, treat industry construction activities and permanent facilities in a manner consistent with industrial uses. The Commonwealth Court, in a 4-3 decision, had declared Section 3304 unconstitutional on the grounds that it violated substantive due process, the court ruling that it allowed incompatible uses in zoning districts, was inconsistent with municipal comprehensive plans, did not protect the interests of neighboring property owners, altered the character of the neighborhood and made irrational classifications. Robinson Twp. v. Commonwealth, 52 A.3d 463 (Pa. Commw. Ct. 2012). The Supreme Court, in a 4-2 decision, affirmed the Commonwealth Court. Although Justice Baer based his decision invaliding Section 3304 on substantive due process grounds, the three other justices in the majority, in an opinion authored by Chief Justice Castille, ruled that the section violated Article 1, Section 27 of the Pennsylvania Constitution, commonly known as the “Environmental Rights Amendment.” In addition, these four justices proceeded to invalidate Section 3303, which the Commonwealth Court had found to be valid. Section 3303 provided that “environmental acts” are of statewide concern and preempt local regulation of oil and gas operations regulated by these acts. The Environmental Rights Amendment, added to the Pennsylvania Constitution in 1971, provides that: The people have the right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment.

The PIOGA Press

PIOGA reaction to Supreme Court ruling

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IOGA President and Executive Director Lou D’Amico issued this statement following the ruling of the Pennsylvania Supreme Court on Act 13: “The Pennsylvania Independent Oil & Gas Association disagrees with the decision by the state Supreme Court regarding the constitutionality of provisions of Act 13. We are encouraged, however, by the strong working relationships established between our industry and the overwhelming majority of local and county governments that host our members’ drilling and midstream operations, both historically and with the recent growth of unconventional natural gas development. We expect those partnerships will continue, regardless of this decision, and will continue to work in a productive and open manner with those governments and their constituents to safely develop our energy resources and support the Commonwealth’s economy. “We are concerned, however, with those municipalities which have been unwilling to develop relationships with the industry, and the future damage that will be done to the rights and property of the industry, as well as the rights those property owners within those municipalities wishing to benefit from the development of natural gas on their land. “We also have serious concerns about the uncertainty that will be created by this court ruling on investment in natural gas development in Pennsylvania. There is little doubt that significant capital investment will leave Pennsylvania for states with greater clarity in their political and regulatory policies. Such a loss of investment will seriously impact the positive impacts that natural gas development has brought to Pennsylvania, including the loss of manufacturers considering a move to Pennsylvania to take advantage of the cheap and abundant energy this industry is supplying.”

Pennsylvania’s public natural resources are the common property of all the people, including generations yet to come. As trustee of these resources, the Commonwealth shall conserve and maintain them for the benefit of the people. Pa. Const. art I, § 27. The petitioners contended that the challenged sections of Act 13 violated this constitutional provision because they took away the ability of municipalities to “strike a balance” between oil and gas development and “the preservation of natural, scenic, historic and esthetic values of the environment by requiring a municipality to allow industrial uses in non-industrial areas with little ability to protect surrounding resources and community.” 52 A.3d at 488. Although finding Section 3304 invalid on other grounds, the Commonwealth Court dismissed petitioners’ Environmental Rights Amendment claim, finding that under Act 13 and the Pennsylvania Municipalities Planning Code (MPC)—the state statute governing zoning and land use in the Commonwealth— municipalities “were relieved of their responsibilities to strike a balance between oil and gas development and environmental concerns.” Id. at 489. In sharp contrast to the Commonwealth Court’s ruling, the Environmental Rights Amendment was the lynchpin of Chief Justice Castille’s opinion, as he devoted almost 100 pages to a


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lengthy recitation of the parties’ positions, the alleged “inevitable” environmental harms caused by oil and gas development, the harms caused over the past century by coal extraction and industrial activity in the Commonwealth, and distinguishing a number of prior Supreme Court and Commonwealth Court decisions which generally had rejected claims based on the Environmental Rights Amendment. Justice Castille concluded that the challenged provisions of Act 13 “are incompatible with the Commonwealth’s duty as trustee of Pennsylvania’s public natural resources.” Robinson, 2013 Pa. LEXIS 3068, at *227. In addition to invalidating Sections 3303 and 3304, the Supreme Court majority also enjoined Sections 3305 through 3309 “to the extent that these provisions implement or enforce those Sections of Act 13 which we have found invalid.” Robinson, 2013 Pa. LEXIS 3068, at *274. Section 3305(a) authorizes municipalities to seek advisory opinions from the Pennsylvania Public Utility Commission (PUC) on whether proposed ordinances violate the MPC, Chapter 33 (Act 13’s limits on municipal regulation), or Chapter 32 (Act 13’s statewide environmental regulations). Section 3305(b) authorizes owners and operators of oil or gas operations and municipal residents aggrieved by local ordinances to challenge adopted municipal ordinances with the PUC. Section 3306 authorizes direct ordinance challenges to Commonwealth Court. Section 3307 provides for the assessment of attorney fees and costs against a local government that has enacted or enforced a local ordinance with willful or reckless disregard of the MPC, Chapter 33 or Chapter 32. Section 3308 penalizes municipalities violating these provisions with the loss of natural gas impact fees. Section 3309 sets forth deadlines (now long-expired) for municipalities to bring

The PIOGA Press

their ordinances into compliance with Act 13. Justices Saylor and Eakin issued separate dissenting opinions, largely agreeing in their analyses of the majority’s decision. Both justices argue that the majority opinion exceeded the role of the judiciary and infringed upon the legislature’s authority to establish Commonwealth-wide economic, environmental and social policies. The majority did so, according to the dissenting justices, without any evidentiary support for the conclusion that Act 13 violates the Environmental Rights Amendment or acknowledgement of the act’s extensive environmental protections. The dissenting opinions also raised concerns about the majority’s determination that the party municipalities had standing to pursue the constitutional rights of individuals, i.e. those rights guaranteed by the Environmental Rights Amendment, against the Commonwealth. The petitioners also brought a broader challenge to not only Section 3304, but also to the municipal “enforcement” provisions of Act 13 noted above, claiming that they are unconstitutional “special laws” which single out the oil and gas industry for disparate treatment. The Commonwealth Court had dismissed this claim. The Supreme Court majority vacated this ruling and remanded the issue to the Commonwealth Court for an “appropriate merits disposition in accordance” with its opinion. Robinson, 2013 Pa. LEXIS 3068, at *227. Statewide well location restrictions The Supreme Court majority also struck down several provisions of Section 3215. This section, like Section 205 of the 1984 Oil and Gas Act that it replaced, imposes restrictions and considerations for the location of well bores and well sites with respect

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to buildings, water wells, surface waters, wetlands, and listed public resources such as parks, forests and national natural landmarks. Section 3215(a) applies to buildings and water wells, while Section 3215(b) applies to surface waters and wetlands. Variances under Section 3215(a) may be obtained by receiving consent from landowners, while waivers under Section 3215(b) may be obtained from the DEP upon submission of a plan with additional measures to protect waters of the Commonwealth. Under Act 13, Section 3215(b)(4) waivers must include terms and conditions that the DEP determines to be “necessary.” The Commonwealth Court held Section 3215(b)(4) to be null and void because it gave the DEP insufficient guidance to waive setback requirements and allowed the DEP to make legislative policy judgments. Upon review, the Supreme Court majority agreed that Act 13 failed to provide adequate standards for such waivers and concluded that “Act 13 has failed to properly discharge the Commonwealth’s duties as trustee of the public natural resources.” Robinson, 2013 Pa. LEXIS 3068, at *226. In its order, however, the Supreme Court held that all of Section 3215(b), including the setbacks from waters of the Commonwealth, is invalid because the waiver provision is not severable from the remainder of that section. The implications of this holding are unclear, as the DEP and well permit applicants now have no defined setbacks from surface waters or wetlands under Act 13 or any other statute. The Supreme Court also held that Section 3215(d), allowing the DEP to consider comments from municipalities in its permit decision making process, is unconstitutional and that Sections 3215(c), listing public resources to be considered, and 3215(e), requiring the Environmental Quality Board to develop criteria for the DEP to utilize for conditioning well permits based on impacts to public resources, are enjoined from enforcement to the extent that they enforce Sections 3215(b) or (d). It remains to be seen how this decision will impact the well permit application and review process, which relies upon established forms, procedures and timeframes that are required under both Act 13 and Pennsylvania’s Clean Streams Law. Physician’s claims Among the petitioners was a physician who treats patients in an area where drilling operations occur. He claimed that Sections 3222.1(b)(10)-(11) improperly prevent physicians from sharing the specific identity and amount of chemicals used in drilling operations, which petitioners alleged could potentially preclude the effective treatment of patients. The Commonwealth Court held that the physician would not have standing until he actually requested confidential information regarding chemicals used in drilling operations under Section 3222.1(b). However, the Supreme Court reversed, finding that his claims were not remote or speculative because he could be placed in the position of choosing to violate a confidentiality agreement or treating a patient to acceptable standards. As a result, the Supreme Court remanded his claims to the Commonwealth Court for a decision on the merits. Severability Finally, in addition to remanding the special legislation and physician’s claims back to Commonwealth Court, the Supreme Court also directed the Commonwealth Court on remand to address whether any of the remaining provisions of Act 13, to

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the extent they are valid, can be “severed”. If the court finds that these otherwise valid sections are so essentially and inseparably connected with, and so dependent upon, the void provisions, they too will be enjoined from enforcement, as were Sections 3215(b), (c) and (e). What’s next? Despite having been fought out for well over a year and a half now, the litigation is not over yet. As noted above, the Supreme Court remanded the case to the Commonwealth Court to address the petitioners’ claim that Act 13 in invalid special legislation, to determine whether additional sections of Act 13 must be invalidated because they are not severable from Sections 3215(b)(4), 3303 and 3304, and to address the physician’s claim. Of particular significance is the remand on the special legislation issue, as in that count the petitioners appear to be seeking a declaration that all of Act 13 is invalid. In addition, on January 2, 2014, the Commonwealth parties filed an application for reconsideration with the Supreme Court, asking that the core Environmental Rights Amendment issue be remanded to the Commonwealth Court for further factual development in order to properly apply what they characterize as the court’s “newly mandated balancing test under Section 27.” The Commonwealth parties also requested that the issue of the severability of Subsections 3215(c) and (e) be remanded. As of the writing of this article, the Supreme Court has not acted on the application for reconsideration. Implications for the oil and gas industry By invalidating Sections 3303 and 3304 of Act 13, the

The PIOGA Press

Pennsylvania Supreme Court has judicially reversed the regulatory uniformity of the oil and gas industry sought by the General Assembly. Although the repercussions of the court’s ruling will only come into focus over time, it is clear that the immediate impact will be to increase exponentially regulatory impediments and disputes at the local level. While some communities may choose to maintain the status quo (for better or worse), others may view the Supreme Court’s ruling as an opening to impose additional restrictions on the industry. At the very minimum, operators now will have to devote more resources to monitoring municipal ordinance activity. In the worst case scenario, a municipality’s restrictions may become so severe and unreasonable that they thwart development altogether. In this instance, an operator will be left with the choice of either foregoing development of its oil and gas assets, or challenging the offending ordinance under pre-Act 13 standards. In this regard, the Supreme Court’s ruling did not invalidate Section 3302 of Act 13, which is an updated version of the Section 602 preemption provision of the former Oil and Gas Act. It also appears, at least at present, that the enforcement mechanisms in Section 3305 through 3309 of Act 13 remain in place with respect to a Section 3302 challenge. Likewise, the Supreme Court’s holding with respect to setbacks and the consideration of impacts on public resources has created uncertainty about DEP’s well permit process, as well as the status of its proposed revisions to 25 Pa. Code Chapter 78, which would create new obligations pursuant to the invalidated sections of the Act. The Chapter 78 proposed rulemaking is discussed in greater detail in another article in this edition of The PIOGA Press. ■


January 2014

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Governor calls on operators to continue to adhere to critical environmental standards

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overnor Tom Corbett has called upon Pennsylvania’s oil and gas operators to help protect the Commonwealth’s rivers, streams and wetlands from impacts during oil and gas development by adhering to critical environmental standards recently struck down by the Pennsylvania Supreme Court. “The Supreme Court’s recent ruling on Act 13 of 2012 set aside important buffer restrictions between drilling activity and our waterways and wetlands,” Corbett said. “In doing so, the court overturned protections which I signed into law and which received strong, bipartisan support in the General Assembly. This action, which could imperil our water quality, is simply unacceptable.” The setback provisions struck down by the court had required a minimum of 300 feet between an unconventional oil or gas well bore and a stream, spring, body of water or wetland. The minimum distance for conventional oil and gas wells between a well bore and a stream, spring, body of water or wetland was established at 100 feet. Distance provisions could be waived by the state Department of Environmental Protection upon satisfactory demonstration of additional protective measures taken by an operator to ensure that water quality was fully protected. “I am calling upon Pennsylvania’s oil and gas operators to honor both the spirit and intent of these setback provisions to continue helping us protect Pennsylvania’s water and natural resources,” Corbett said. “Many of the enhanced environmental standards contained in Act 13—including the setback distances—were put forth by oil and gas operators, environmental advocacy organizations, local government associations and others who served on my Marcellus Shale Advisory Commission, and in close consultation with the General Assembly. This collaborative effort has helped Pennsylvania expand its world-class energy industry in a safe and responsible way.”

As part of his call to action, Corbett reached out directly to the leadership of Pennsylvania’s key oil and natural gas trade associations, including PIOGA, the Marcellus Shale Coalition and the Associated Petroleum Industries of Pennsylvania. Each of the organizations indicated to the governor their intent to comply with the governor’s request. “The governor’s request is reasonable,” commented Lou D’Amico, PIOGA president and executive director. “The industry supported and agreed to the setbacks for unconventional wells. In spite of the misguided actions of the Supreme Court, the industry will comply with Governor Corbett’s request.” Corbett also reiterated that the Pennsylvania Department of Environmental Protection will continue its aggressive implementation of the Oil and Gas Act and other environmental statutes which protect the Commonwealth’s environment. ■

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Chapter 78 rulemaking: Continued from page 1 but numerous stakeholders from industry as well as environmental organizations reviewed and commented on them and met with DEP frequently throughout 2012 and 2013. DEP’s Oil and Gas Technical Advisory Board (TAB) held two-day workgroup meetings in July and August of 2013 in which PIOGA and other stakeholders participated to analyze four major subjects: water supply restoration standards, public resource protection, waste management at well sites and pre-hydraulic fracturing assessment, which requires the identification of abandoned or orphaned wells near proposed locations for new wells. Despite these meetings and workgroups, several significant issues of concern to both conventional and unconventional operators, and TAB itself, have not been resolved. In fact, TAB recommended to the Environmental Quality Board (EQB) on July 18, 2013, that it should not publish the Chapter 78 regulations as proposed rules because several key issues were not fully addressed. In a September 18, 2013, letter to TAB, PIOGA stressed that the Chapter 78 rulemaking is overly broad, reaches beyond regulations that are required by either Act 13 or the actual environmental impacts of the development of oil and gas resources in Pennsylvania, and imposes excessive costs relative to any environmental benefit. Some of these issues are discussed below. Nevertheless, the EQB approved the Chapter 78 package at its August 27, 2013, meeting as a proposed rule (August PIOGA Press, page 1), and published it on December 14 for a 60-day public comment period that expires on February 12.1 The proposed regulatory language, together with the executive summary, the preamble, and DEP’s Regulatory Analysis Form, all of which are critical to understanding the amendments, comprise several hundred pages and can be found at www.portal.state.pa.us/portal/server.pt/community/public_resour ces/20303/surface_regulations/1587188. A few of the most troubling provisions are summarized below. Permit applications and public resources Section 3215(c) of Act 13 authorizes DEP to impose permit conditions to mitigate any “probable adverse impacts” of an oil and gas well on six categories of public resources when it reviews a well permit application.2 Under Act 13, DEP must ensure optimal development of oil and gas and respect the oil and gas owners’ property rights during its review and ultimate permit decision. With respect to one of the listed public resources, the statute limits the department’s authority to consider impacts to “habitats of rare and endangered flora and fauna and other critical communities.” DEP proposes to expressly

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equate “other critical communities” with Authors: “special concern species.” Proposed Section 78.15(f)(1)(iv) states that “[f]or purposes of this section, other critical communities means special concern species” (emphasis added). As a result, well permits could be delayed or conditioned to protect special concern species. The vast majority of “special concern species” in the Pennsylvania Natural Kevin J. Garber, Diversity Inventory (PNDI) database are Esq. species, plant communities, or geologic features that have never been designated or listed as threatened or endangered, or have never gone through a rulemaking process by any federal or state agency. Hundreds of these “species” have been added to the database recently, which then appear as “hits” on PNDI receipts during project review, without any regulatory process or public Jean M. accountability. The expansion of species Mosites, Esq. protection is much more extensive than federal law. Operators frequently find that notifying and consulting with resource agencies on special concern species is very time consuming and costly. For example, one operator estimates that it incurred approximately $400,000 over three years to mitigate impacts to threatened, endangered and special concern species in the course of permitting about 100 wells. Extrapolating to the approximately 9,000 unconventional wells that were permitted between 2010 and 2012 imposes costs of more than $36 million just on unconventional operators. There are two other equally troubling aspects of Section 78.15. First, it does not contain any criteria to ensure optimal development of oil and gas resources or to respect the property rights of oil and gas owners. Second, it does not establish a standard by which DEP must prove that any conditions in well permits are necessary to protect against a “probable harmful impact” to public resources. Section 3215(e) of Act 13 expressly directs EQB to develop these criteria but they have been ignored in this rulemaking. Water supply replacement Section 78.51(d)(2) would be amended to require the quality of a restored water supply to meet Safe Drinking Water Act (SDWA) standards or be comparable to the pre-existing quality if


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that water supply exceeded SDWA standards. Act 13 (Section 3218(a)) uses the term “exceeded” in a manner that creates some ambiguity as to its implementation. The department is interpreting Act 13 to require oil and gas operators to replace a water supply with water that meets SDWA standards at a minimum, regardless of whether the water supply met those standards beforehand. This is a reversal from current law and contradicts legal requirements applicable to all other industries. Mine operators, for example, are only required to replace an affected water supply with water of an equivalent pre-mining quality. Pre-hydraulic fracturing survey Even though most of the thousands of abandoned and orphaned oil and gas wells in Pennsylvania do not pose an immediate threat to public health and safety from methane or other constituent migration, DEP is proposing a new Section 78.52a that would require operators of gas wells or horizontal oil wells to identify any orphaned or abandoned wells within 1,000 feet of the vertical and horizontal well bores before hydraulically fracturing the well. Identification must be done by reviewing DEP’s orphaned and abandoned well database, reviewing farm line maps, and questioning landowners within the target zone. Under new Sections 78.73(c) and (d), operators must visually monitor the identified orphaned or abandoned wells that are likely to have penetrated the formation intended to be stimulated during hydraulic fracturing and must plug them if their fracturing process alters the abandoned well. These provisions are not required by Act 13. The regulations do not define what it means to “alter” an orphaned or abandoned well, which raises questions about what triggers the obligation to plug it. Operators identified several concerns with these proposed new

The PIOGA Press

sections in the months preceding EQB’s adoption of the Chapter 78 rulemaking proposal last August. These concerns include (i) redefining the target area of orphaned and abandoned well identification based on the predicted distance and direction of fracture propagation rather than simply 1,000 feet of well bores; (ii) working with DEP to improve its database of wells, especially since perhaps only 25 percent of shallow wells are included in DEP’s records; (iii) limiting an operator’s obligation to a good faith effort to identify inactive wells because accurate maps are missing for many old wells; (iv) describing more realistic means of assessing and mitigating the potential for communication between a proposed well and an orphaned or abandoned well; and (v) redefining the relevant information to be submitted to DEP on a well plat. Release reporting Section 78.66 would require small spills of less than 42 gallons of brine to be cleaned up and documented through the Land Recycling and Environmental Remediation Standards Act (Act 2) procedure. This proposal substantially increases the time and cost for addressing such small spills and imposes costs that outweigh any benefit to be gained in most circumstances. Also, there are no Act 2 soil statewide health standards for constituents commonly found in produced water such as chlorides. Section 78.66 and DEP’s spill policy forces operators to develop a potentially costly Act 2 site specific cleanup standard if they cannot meet background conditions. Waste management Act 13 specifies that Chapter 78, rather than the Pennsylvania Solid Waste Management Act regulations, governs the manage-

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January 2014

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DEP Chapter 78 Rulemaking Alert PIOGA Members: NOW IS THE TIME to provide input on the rules that affect all oil and gas operations in Pennsylvania. The Department of Environmental Protection’s proposed revisions to Chapter 78 Subchapter C were published in the Pennsylvania Bulletin on December 14, triggering a 60-day public comment period that ends on February 12. We cannot emphasize strongly enough the impact these regulations will have on our industry, and it is essential that all of us take advantage of the opportunity to shape the outcome of the rulemaking. The draft rule and supporting documents can be found on DEP’s website at www.portal.state.pa.us/portal/ server.pt/community/public_resources/20303/surface_regulations/1587188, or via the Members Only section of PIOGA’s website. There are several ways to be involved in this public-comment period. Please consider any and all of the following: 1. Provide testimony at one of the public hearings across the state in January. Organizations such as PIOGA are permitted to designate only one witness to provide testimony at each hearing, so it is important that all interested parties—members, affiliated businesses, employees, family and friends—provide individual testimony at the hearings. Persons wishing to present testimony must reserve time one week in advance of the hearings and testimony is limited to five minutes per person. Dates, locations and other details can be found on the DEP webpage above or on PIOGA’s website. 2. We also encourage every member to attend the public meetings, take notes and report back to PIOGA any helpful information. 3. Submit comments to the Environmental Quality Board by February 12. Comments can be submitted online, by email or U.S. mail. PIOGA has developed template letters and materials to facilitate this effort. In addition to companies submitting testimony, we also encourage employees, royalty owners and other industry supporters to deliver the message that the rules as proposed are overly burdensome. The links to the letter templates are below. In addition, be sure to send a copy of your comments to info@pioga.org. • Comment letter for PIOGA member companies (www.pioga.org/publication_files/chapter-78-rulemaking---pioga-member-comment-letter.docx) • Comment letter for employees, families, royalty owners and other industry supporters (www.pioga.org/publication_files/chapter-78-rulemaking---friends-and-family-comment-lett.docx) • Sample cover letter asking employees, friends, etc., to comment (www.pioga.org/publication_files/chapter-78---industry-stakeholder-cover-letter.docx) PIOGA’s official comments PIOGA’s Environmental Committee has been working over the past two years to engage the DEP in discussions and provide the agency with constructive comments regarding the proposed Chapter 78 revisions. The Environmental Committee has numerous members who took part in the initial phases of comments to PA DEP. To gain more feedback in developing PIOGA’s official comments on the Chapter 78 rulemaking, we reached out to the full membership in December to solicit participation in a comment drafting subcommittee and to ask members to tell the group how specific sections of the proposed regulations would affect their operations. Members were asked to send their comments to the subcommittee by January 13 so that we can compile PIOGA’s official comments in time to meet the February 12 deadline. Our goal is to help guide the Department of Environmental Protection in developing a set of rules that protect human health and the environment but at the same time do not exceed the agency’s statutory authority or impose unreasonable burdens on our industry. We would like thank all PIOGA members for your past and present support regarding these very important issues. Thank you, Paul Hart and Ken Fleeman Co-Chairmen PIOGA Environmental Committee


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ment of residual waste generated at a well site. This regulatory treatment carryover from the 1984 Oil and Gas Act is critical because it simplifies compliance and avoids conflicting management standards between DEP’s oil and gas program and its solid waste program. Proposed Sections 78.58 and 78.59a through 78.59c are either excessive or not fully developed on several of these issues. For example, the proposed design criteria for freshwater and flowback impoundments are much more stringent than required of residual and hazardous waste impoundments under the Solid Waste Management Act. The broad requirement to characterize, in a manner set forth by the residual waste regulations, residue after on-site processing or handling of drilling fluids is potentially unnecessary and expensive. DEP is also proposing additional requirements for liners of pits and impoundments. Secondary containment must be used at all unconventional well sites and must be inspected at least weekly to ensure integrity. Site restoration Section 3216(e) of Act 13 requires sites to be restored in accordance with the Clean Streams Law. One of its applicable regulations, 25 Pa. Code Section 102.8(n), exempts oil and gas activities from extensive post-construction stormwater design criteria that apply to other earth disturbance activities such as commercial construction projects. Chapter 102 recognizes that the post-construction footprint of a producing oil or gas well is substantially different from a stormwater management perspective. However, newly proposed Section 78.65(d) ignores this exemption and would subject oil and gas site restoration to much more extensive Chapter 102 criteria. It will impose significant costs on the industry and burden landowners with more extensive stormwater control features (e.g., oversized sedimentation ponds) on their property than currently are necessary. One welcome revision in Act 13 (Section 3216(g)) allows operators to seek extensions of well site restoration deadlines when an extension would result in less earth disturbance, increased water reuse or more efficient development of the resource. This option recognizes the reality of multi-well pads where there may be long breaks between drilling multiple wells that make it costly and impractical to restore and rebuild well sites repeatedly. In the proposed revisions to Section 78.65, however, DEP appears to be imposing requirements for interim restoration, such as reducing the footprint of the well pad, which necessarily requires duplicative costs and efforts to rebuild well pads for future drilling operations, Cost implications The Pennsylvania Regulatory Review Act, 71 P.S. § 745.5(a), requires regulatory agencies to provide a cost/benefit analysis of a proposed rule to the Independent Regulatory Review Commission and the relevant standing committees of the state Senate and House of Representatives. This is to ensure that agencies fully consider the costs and benefits of rulemakings, especially as they affect small businesses. There is little indication in the Regulatory Analysis Form (RAF) for Chapter 78 that DEP fully considered all of the Regulatory Review Act criteria. For example: • The RAF does not provide an economic impact statement concerning the adverse impacts on small businesses, which comprise a significant number of Pennsylvania oil and gas operators.

The PIOGA Press

• The preamble to the proposed rule states that total compliance costs to unconventional operators are estimated at $96 million annually with an estimated cost savings of $21 million per year. However, DEP derived the cost “savings” from well site restoration extensions, by multiplying an assumed restoration cost of $50,000 by 434 well sites per year to arrive at $21 million. Postponing site restoration does not save any money; it simply defers the expenditure. • DEP assumed zero compliance costs to mitigate impacts to public resources or to identify orphaned and abandoned wells. Those costs may be very significant, as indicated above. There remains significant concern that the department has not fully appreciated the economic impact of the Chapter 78 regulations or the costs imposed, which prevents any realistic analysis of whether the benefits outweigh the costs. Conclusion The proposed comprehensive revisions to Chapter 78 would substantially alter current oil and gas practices and generally would increase operational costs because of new performance standards, reporting and recordkeeping obligations, increased liabilities for nearby orphaned or abandoned wells, and expanded mitigation of potential impacts to public resources. There are a few positive developments such as regulatory flexibility to encourage the reuse of fluids and drill cuttings. But, the cumulative economic impact of the rules is of particular concern to small businesses including the hundreds of conventional well owners and operators. PIOGA’s website provides details on how to participate in the Chapter 78 rulemaking process. In summary, written comments must be mailed or submitted electronically to EQB by February 12. DEP is holding seven public hearings throughout the state between January 7 and January 23. Anyone wishing to present testimony at a hearing must reserve time in advance and testimony is limited to five minutes per person. DEP has not set a deadline to finalize the regulations but has indicated that they are unlikely to be finalized in 2014. ■ 1 DEP’s deputy secretary for oil and gas management advised the EQB by email

on December 23, 2013, that the Pennsylvania Supreme Court’s December 19, 2013, decision in the Robinson Township v. Commonwealth of Pennsylvania, which invalidated the zoning uniformity provision and other components of Act 13 and which is discussed in another article in this edition of The PIOGA Press, is unlikely to significantly affect the Chapter 78 regulations, other than DEP’s authority to issue waivers for drilling near surface waters. This is because much of Chapter 78 is being promulgated under statutes other than Act 13. However, the Robinson Township decision also invalidated Sections 3215(c) and (e) of Act 13, which is DEP’s authority for proposed Section 78.15 of the Chapter 78 regulations pertaining to public resources. The department will have to address this issue during the rulemaking process. 2 These resources are publicly owned parks, forests, and game lands; national or state scenic rivers; national natural landmarks; habitats of rare and endangered flora and fauna and other critical communities; and historical and archaeological sites. These five resources were in the 1984 Oil and Gas Act. Act 13 added a sixth category of public drinking water sources.

Correction: The correct publication date for the Independent Regulatory Review Commission permit-fee comments discussed on page 7 of the December issue was November 30. The link to the Pennsylvania Bulletin notice is www.pabulletin.com/secure/data/vol43/43-48/2234.html.


January 2014

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The PIOGA Press

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January 2014

Court denies environmentalists’ Allegheny National Forest rehearing request

I

n a one-sentence order, the U.S. Court of Appeals for the Third Circuit on December 27 denied a request by environmental organizations to rehear the court’s decision upholding the right of oil and gas operators to access their private subsurface holdings in the Allegheny National Forest (ANF). The Allegheny Defense Project and Sierra Club had asked that the full court rehear the decision in Minard Run Oil Co. and PIOGA v. U.S. Forest Service, et al. In that September 2013 ruling, a three-judge panel of the Third Circuit turned down an appeal of a November 2012 order by the U.S. District Court for the Western District of Pennsylvania which permanently vacated a settlement between the Forest Service and environmental groups (October 2013 PIOGA Press, page 1). Under the April 2009 settlement, the Forest Service would have required operators to prepare an environmental assessment prior to starting any oil and gas operations, and the agency imposed what would have been a multi-year a moratorium on any new drilling while conducting a forest-wide assessment of the impact of oil and gas activity. A series of decisions by the District Court—upheld by the Third Circuit—strongly supported the right of operators to develop their privately held oil and gas rights within the half-millionacre ANF and admonished the Forest Service for attempting to assert power the agency does not have. PIOGA, several member companies and local officials successfully convinced the court that the moratorium was creating real harm to the industry and communities within the ANF region. In the December 27 order, the court flatly denied the environ-

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mental groups’ request for an en banc rehearing of the case by the full Third Circuit. PIOGA plans to file for reimbursement of the substantial legal costs in fighting this precedent-setting case. ■

A shallow oil well in Pennsylvania’s Allegheny National Forest.


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The PIOGA Press

A ‘bipartisan’ severance tax proposal

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illing themselves as a “bipartisan team,” four state lawmakers from urban areas are proposing elimination of the Act 13 natural gas impact fee and replacing it with a 4.9 percent tax on Marcellus Shale production. Representatives Gene DiGirolamo (R-Bucks), Tom Murt (RMontgomery/Philadelphia), Harry Readshaw (D-Allegheny) and Pam DeLissio (D-Philadelphia/Montgomery) announced their proposal during a December 17 news conference in Harrisburg. Under the proposal, 40 percent of the tax revenues would be provided to local governments to address impacts of drilling such as repairing roads, bridges, water and sewer systems, and other infrastructure projects. The remaining 60 percent would be used to support public education, human services programs, environmental programs, and invest in state lands and state parks. In pitching their tax proposal, the legislators objected to the fact that the impact fee declines over the life of a well. “For years, we have been hearing about the large natural gas deposits throughout much of the Commonwealth, and how Pennsylvania’s natural assets have the potential to help fund some of the most critical needs for our residents,” DiGirolamo said in a statement. “Although an impact fee was adopted a couple of years ago to help communities impacted by the development caused by drilling, there is still so much more potential.” “Had Act 13 been waged fairly with bipartisan input, Pennsylvanians would have received more than $400 million in additional revenue since its enactment,” DeLissio said. “It’s time we bring forth a new plan that benefits all Pennsylvanians. I believe this is that plan.” It’s unlikely that either Governor Corbett or the General Assembly’s Republican leadership would allow a severance tax to become law. ■

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January 2014

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The PIOGA Press

Everything is bigger in Texas, including LNG projects By Joyce Turkaly PIOGA Director of Natural Gas Market Development

U.S. Natural gas imports and exports, 2000-2040 (Tcf)

I

n December, I attended the North American LNG Export Conference in Houston to learn more about liquefied natural gas projects and how the approval process works. Development costs and timelines for these projects vary widely. Given the demand for LNG in other countries, coupled with the price divergence between North America and Asia, developers and investors are eager to bring their LNG export projects to fruition. Free Trade Agreement (FTA) application approval for Lower 48 U.S. export licenses already reach 260 million metric tons (tonnes) of new annual LNG export capacity, three times greater than any country has exported thus far (equivalent is roughly 34-35 Bcf/d). For all onshore terminals, the Federal Energy Regulatory Commission (FERC) and the Department of Transportation (DOE) have U.S. jurisdiction over the approval process. Along with the U.S. projects, another 90 million tonnes is proposed from projects in Canada, most along the West Coast, and Mexico. Mexico currently has three underutilized terminals: Altamira, Manzanillo and Energia Costa Azul. Energy reforms there coupled with new pipelines will likely make them available to export developers. Many of the U.S. and Canadian projects, however, are dependent on government and environmental regu-

U.S. Energy Information Administration, Annual Energy Outlook 2014 Early Release Overview

lations and pressures that have the potential to slow or stall advancement. Rich Foley of FERC’s Office of Energy Projects, Division of Pipeline Certificates, reported the commission is most concerned with safety. Overall, FERC is not concerned with how LNG exports affect production or prices when authorizing projects; it is responsible for authorizing the siting and construction of onshore and near-shore import or export facilities, issuing certificates of public convenience and necessity for related interstate pipelines, and preparing environmental assessments or impact statements. FERC also does not consider the profitability or economic viability of projects. Michael Smith, chairman, CEO and founder of Freeport LNG Development, LP, commented on the irony that DOE is basing its non-Free-Trade-Agreement on FERC applications. “There’s nothing in the regulations that allows DOE to tie (authorizations) to FERC.” David Wochner, partner at K&L Gates, reported there is a fundamental dichotomy between FERC and DOE: FERC is an independent, pro-infrastructure agency, while DOE is inherently political, with the secretary being appointed by the president. Defining how DOE determines which projects are in the “public interest” was discussed at length as well as trying to pin down how the DOE will establish approval queues for non-FTA applications. He elaborated: That is, there is a presumption that exports to non-FTA countries are in the public interest unless shown otherwise. If the United States has an FTA in effect with the nation to which the LNG would be exported, that application will be automatically deemed consistent with the public interest. LNG exports to non-FTA countries may also be authorized but require the Office of Fossil Energy to publish a notice of the application in the Federal Register and seek public comments, protests, and notices of intervention as part of their public interest determination. DOE also can limit the amount of cumulative LNG exports, so each successive project


January 2014

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Department of Energy export approval guidelines DOE Office of Fossil Energy’s (FE) review of export applications has continued to focus on: (i) the domestic need for the natural gas proposed to be exported, (ii) whether the proposed exports pose a threat to the security of domestic natural gas supplies, (iii) whether the arrangement is consistent with DOE/FE’s policy of promoting market competition and (iv) any other factors bearing on the public interest While section 3(a) establishes a broad public interest standard and a presumption favoring export authorizations, the statute does not define “public interest” or identify criteria that must be considered. In prior decisions, however, DOE/FE has identified a range of factors that it evaluates when reviewing an application for export authorization. These factors include economic impacts, international impacts, security of natural gas supply and environmental impacts, among others. To conduct this review, DOE/FE looks to record evidence developed in the application proceeding. DOE/FE’s prior decisions have also looked to certain principles established in its 1984 Policy Guidelines. The goals of the Policy Guidelines are to minimize federal control and involvement in energy markets and to promote a balanced and mixed energy resource system. The Guidelines provide that: The market, not government, should determine the price and other contract terms of imported [or exported] natural gas.... The federal government’s primary responsibility in authorizing imports [or exports] will be to evaluate the need for the gas and whether the import [or export] arrangement will provide the gas on a competitively priced basis for the duration of the contract while minimizing regulatory impediments to a freely operating market.

may be contingent upon the volumes of previously approved projects. The DOE order of priority for non-FTA approval is as follows: 1. All pending DOE applications where the applicant has received approval (either on or before December 5, 2012) from FERC to use the FERC pre-filing process, in the order the DOE application was received. 2. Pending DOE applications in which the applicant did not receive approval (either on or before December 5, 2012) from FERC to use the FERC pre-filing process, in the order the DOE application was received. 3. Future DOE applications, in the order the DOE applications are received.

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There was consensus among economic experts on hand that the scrutiny of the marketplace will determine better than any regulator which LNG projects should move forward. Regarding those opposed to exporting LNG, analysts project that markets are the most logical check on export capacity. Terminals will be built only if long-term (20 years typically) offtake contracts are in place. Deloitte estimates that 6 Bcf/d of U.S. LNG exports should lead only to a 2 percent rise in prices, not harming U.S. business or consumer competitiveness. LNG exports will not hurt U.S. manufacturing. LNG projects have a long lead time and are highly publicized, providing the market with ample lead time for supplies to anticipate demand. Opposing this view is a lobbying group called America’s Energy Advantage, led by petrochemical producer Dow Chemical and steelmaker Nucor. Their fear is that too much LNG will be permitted for use abroad with the potential to harm their market share in way that would create volatility in pricing. As part of a broader effort to further inform decisions related to LNG exports, the DOE commissioned two studies: The Energy Information Administration was commissioned to determine price impact, and NERA Economic Consulting was to conduct a third-party study to gain better understanding of how U.S. LNG exports could affect the public interest, with emphasis on energy and manufacturing sectors. Robert Baron, a consultant with NERA, had the following to say: Natural gas price changes attributable to LNG exports remain in a relatively narrow range across the entire range of scenarios. Natural gas price increases at the time LNG exports could begin range from zero to $0.33 (2010$/Mcf). The largest price increases that would be observed after 5 more years of potentially growing exports could range from $0.22 to $1.11 (2010$/Mcf). The higher end of the range is reached only under conditions of ample U.S. supplies and low domestic natural gas prices, with smaller price increases when U.S. supplies are more costly and domestic prices higher. In addition, U.S. natural gas prices will not rise to levels seen in the Asian markets, or even to the net-back price based on current Asian market prices. Our analyses show that there will always be a difference of $6 to $8 between the Asian prices and the U.S. prices, since that represents the cost of inland transportation, liquefying, shipping, and regasifying natural gas to get it from the U.S. to Japan or Korea. Even with no binding export limits, the U.S. natural gas price will still be below the import price in the Asian markets since Asian buyers have no incentive to buy natural gas in the U.S. if it is

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Page 22

not cheaper than their prevailing domestic price by that amount. The U.S. has free trade agreements with 20 countries. Given the outlook for both supply and demand, terminal developers are also seeking export approval to non-FTA countries. To date, 28 applications have been submitted to DOE to export LNG to nonFTA countries. Combined, these projects propose to export up to 39.7 Bcf/d (286 million tonnes annually), about 60 percent of current U.S. production. DOE has authorized four applications thus far, proposing to export a combined 7.4 Bcf/d (53 million annual tonnes). DOE must determine whether applications to export domestically produced LNG to non-FTA countries are consistent with the public interest. In DOE’s approval of Cheniere Energy’s non-FTA permit, DOE listed other criteria it used to make that determination: domestic need, adequacy of supply, the environment, geopolitical and energy security. DOE has also provided insights into the “public interest” evaluation in a set of policy guidelines issued in 1984, Order No. 1471 and Delegation Order No. 0204-111 (see related article). These were mostly to assess imports, but DOE has held that they also apply to exports. Specific projects Sabine Pass is a lake that leads to the Gulf of Mexico and hosts two of the world’s largest LNG import terminals—Sabine Pass LNG and Golden Pass LNG. Liquefaction trains and export facilities are under construction at the Sabine terminal. Golden Pass has filed applications with DOE to obtain authorizations to export as well. I came to discover that Sabine Pass LNG is currently the

The PIOGA Press

largest industrial project in Louisiana (and possibly in the U.S.), estimated at $18 billion. Sabine will be the first bidirectional facility, capable of both import and export. Plans are to build a total of six liquefaction trains (trains five and six are currently proposed to FERC). The first four trains are estimated at a cost of $12 billion. The trains are the natural gas is liquefied using Conoco Phillips’ cascade process. Pipeline natural gas at a temperature of 60-70 degrees Fahrenheit is first treated to remove contaminants such as CO2, H2S and water before being delivered to the liquefaction section of the plant. Next, the treated gas is chilled, cooled and condensed to -260 degrees Fahrenheit in successively colder heat exchangers using propane, ethylene and methane as refrigerants. The LNG product is then pumped into storage tanks, where it remains until shipped. Boil-off does occur, but it is recaptured and returned to the process. Cheniere has marketed all four trains for the next 20 years to BG, Gas Natural Fenosa, KoGas, Centrica, Total and Gail. All four trains will have LNG permitted capacity of 2.5 Bcf/day or the equivalent of 18 million tonnes annually. Staying on schedule during construction is important. Predicted completion of train one is the fourth quarter of 2015; each subsequent train will come into service in six-nine months thereafter. During peak construction, this project will employ about 4,500 workers, 2,000 workers off-peak, with 250 direct employees and 150 permanent contractors to support the facility post-construction. A second Cheniere project a bit farther south is the Corpus Christi Liquefaction Project. It is being designed in much the same way as the larger Sabine Pass project (bi-directional, Conoco Phillips cascade technology, ambient air vaporizers). When permitted, it will construct three trains, with aggregate design production capacity of 2.1 Bcf/d or 13.5 metric tons per year of LNG. As part of the infrastructure, Cheniere’s Corpus Christi Pipeline is in the planning stage. The project involves construction of a 24-mile-long 48-inch-diameter natural gas pipeline to be located in San Patrico County, Texas. Two northeast transmission lines (TN and Transco) can feed this delivery point in South Texas that will ultimately become part of the Corpus Christi LNG Terminal. Corpus Christi LNG is being proposed to FERC for 2.1 Bcf/d. ■


January 2014

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The PIOGA Press

available at www.portal.state.pa.us/portal/server.pt/community/ oil_and_gas_reports/20297. The table is sorted by operator and lists the total wells reported as drilled last month. Spud is the date drilling began at a well site. The API number is the drilling permit number issued to the well operator. An asterisk (*) after the API number indicates an unconventional well.

Spud Report: December The data show below comes from the Department of Environmental Protection. A variety of interactive reports are OPERATOR

WELLS SPUD

A&S Prod Inc ARG Resources Inc Cabot Oil & Gas Corp

Carrizo (Marcellus) LLC Catalyst Energy Inc

Chautauqua Energy Inc Chesapeake Appalachia LLC

Chevron Appalachia LLC

1 12/6/13 2 12/5/13 12/16/13 9 12/19/13 12/19/13 12/8/13 12/29/13 12/19/13 12/19/13 12/19/13 12/19/13 12/19/13 1 12/16/13 12 12/10/13 12/12/13 12/17/13 12/20/13 12/27/13 12/4/13 12/19/13 12/23/13 12/9/13 12/10/13 12/13/13 12/4/13 1 12/17/13 3 12/10/13 12/11/13 12/11/13 10 12/14/13 12/15/13 12/4/13 12/6/13

API #

COUNTY

MUNICIPALITY

053-30466 047-24749 047-24752 115-21483* 115-21484* 115-21468* 115-21470* 115-21616* 115-21617* 115-21618* 115-21619* 115-21620* 115-21488* 083-56303 083-56301 083-56302 083-56294 083-56291 083-56200 121-45410 121-45409 121-45081 121-45080 121-45079 123-47341 123-47471 007-20415* 015-22771* 015-22772* 005-31098* 005-31179* 051-24537* 051-24538*

Forest Elk Elk Susquehanna Susquehanna Susquehanna Susquehanna Susquehanna Susquehanna Susquehanna Susquehanna Susquehanna Susquehanna McKean McKean McKean McKean McKean McKean Venango Venango Venango Venango Venango Warren Warren Beaver Bradford Bradford Armstrong Armstrong Fayette Fayette

Kingsley Twp Highland Twp Highland Twp Bridgewater Twp Bridgewater Twp Jessup Twp Jessup Twp Springville Twp Springville Twp Springville Twp Springville Twp Springville Twp Jessup Twp Lafayette Twp Lafayette Twp Lafayette Twp Lafayette Twp Lafayette Twp Wetmore Twp Cranberry Twp Cranberry Twp Rockland Twp Rockland Twp Rockland Twp Brokenstraw Twp Brokenstraw Twp Chippewa Twp Terry Twp Terry Twp South Bend Twp South Bend Twp Springhill Twp Springhill Twp

Insurance Brokers & Consultants

OPERATOR

WELLS SPUD

Chief Oil & Gas LLC

2

Willard M Cline CNX Gas Co LLC

1 3

Cougar Energy Inc

5

D&S Energy Corp

3

Devonian Resources Inc

2

EQT Production Co

19

12/8/13 12/10/13 12/12/13 12/14/13 12/16/13 12/1/13 12/27/13 12/29/13 12/30/13 12/20/13 12/20/13 12/23/13 12/3/13 12/6/13 12/11/13 12/16/13 12/19/13 12/17/13 12/23/13 12/26/13 12/6/13 12/24/13 12/12/13 12/12/13 12/12/13 12/12/13 12/18/13 12/18/13 12/18/13 12/18/13 12/18/13 12/26/13 12/26/13

API #

COUNTY

MUNICIPALITY

051-24539* 051-24540* 051-24541* 051-24542* 051-24543* 059-26295* 015-22775* 015-22776* 083-56346 125-27255* 125-27256* 125-27257* 053-30549 053-30552 053-30406 053-30404 053-30401 083-56243 083-56242 083-56240 053-30562 053-30560 023-20157* 023-20154* 023-20139* 023-20140* 059-26363* 059-26364* 059-26365* 059-26366* 059-26367* 059-26358* 059-26359*

Fayette Fayette Fayette Fayette Fayette Greene Bradford Bradford McKean Washington Washington Washington Forest Forest Forest Forest Forest McKean McKean McKean Forest Forest Cameron Cameron Cameron Cameron Greene Greene Greene Greene Greene Greene Greene

Springhill Twp Springhill Twp Springhill Twp Springhill Twp Springhill Twp Dunkard Twp Monroe Twp Monroe Twp Lafayette Twp East Finley Twp East Finley Twp East Finley Twp Harmony Twp Harmony Twp Harmony Twp Harmony Twp Harmony Twp Hamilton Twp Hamilton Twp Hamilton Twp Harmony Twp Harmony Twp Shippen Twp Shippen Twp Shippen Twp Shippen Twp Washington Twp Washington Twp Washington Twp Washington Twp Washington Twp Washington Twp Washington Twp

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Digging Out Potential Savings Adrianne Vigueras Vice President Energy Division avigueras@ecbm.com

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January 2014

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The PIOGA Press


January 2014 OPERATOR

Page 27 WELLS SPUD

Hilcorp Energy Co

7

Howard Drilling Inc

3

Inflection Energy LLC

4

Interstate Gas Mkt Inc Kastle Resources Enterprises MDS Energy Dev LLC Northwestern Well Svc Inc Old Glory Energy LLC Otter Exploration Inc

1 1 1 1 1 4

Range Resources Appalachia 10

12/26/13 12/6/13 12/6/13 12/6/13 12/6/13 12/5/13 12/5/13 12/5/13 12/5/13 12/14/13 12/14/13 12/14/13 12/15/13 12/16/13 12/16/13 12/17/13 12/6/13 12/16/13 12/23/13 12/18/13 12/4/13 12/5/13 12/6/13 12/4/13 12/4/13 12/4/13 12/20/13 12/26/13 12/3/13 12/5/13 12/11/13 12/27/13 12/27/13 12/27/13 12/11/13 12/12/13 12/14/13 12/15/13 12/16/13 12/17/13 12/18/13

API #

COUNTY

MUNICIPALITY

OPERATOR

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January 2014

OSHA enforcement in 2014 By Adele L. Abrams, Esq., CMSP Law Office of Adele L. Abrams, PC

T

he vigorous enforcement by the Occupational Safety and Health Administration (OSHA) experienced in the first part of the Obama administration can be expected to continue in the coming year, with new regulations and continuing emphasis programs and initiatives impacting the hydraulic fracturing industry. There are a few central themes that will guide enforcement activities, including thorough vetting of employee hazard complaints during on-site inspections (and aggressive prosecution of whistleblower claims of retaliation); “public shaming” campaigns that range from press releases about inspection results and promotion of companies that have been placed in the “Severe Violators Enforcement Program” to a proposed rule requiring employers to publicly post their accident data; a focus on occupational health (silica and other chemicals); and, a robust regulatory agenda that—for a change—is actually moving new standards toward completion. During a speech in mid-2013, OSHA chief David Michaels was asked about his biggest achievement after one term at the helm of the agency, and he replied that it was the heightened enforcement of whistleblower protections under Section 11(c) of the Occupational Safety and Health Act. This provision protects employees who report safety or health hazards internally to man-

Page 29

Safety Committee Corner agement, externally to OSHA, or who speak privately to OSHA inspectors or testify against the employer in OSHA cases, from retaliation based on this protected activity. Adverse actions include not only termination, but demotion, reduction in hours or pay, or even reassignment to less-desirable tasks or equipment. Historically, OSHA prosecuted very few of these cases but that has changed dramatically. Moreover, pending legislation (the Protecting America’s Workers Act) would extend the statute of limitations six-fold and give workers a private right of action to go to federal court if they did not get relief through OSHA. OSHA also enforces the whistleblower provisions of over a dozen environmental laws, plus the laws protecting commercial drivers. As a result, complaints brought under those statutes can also bring OSHA investigators to your jobsite (and any safety problems observed or reported by workers can be cited). The agency has added a workers’ rights page to its website (including links for Hispanic workers) at www.osha.gov/workers.html and is worth reviewing to ensure that disciplinary actions do not result in violations of the law. Discipline and incentive programs also came under fire in recent months, and OSHA will continue to explore its perceived relationship between programs that reward workers for going periods of time without any lost-time injuries, and discipline programs that target workers in a disparate manner for violating a safety rule and getting injured as a result, as violations of Section


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The PIOGA Press

11(c). The inspectors will question workers about injuries in the workplace, and if unreported injuries are discovered (where employee say the incentive or disciplinary programs deterred reporting), the employer can also be cited for violations of OSHA’s recordkeeping rules (29 CFR Part 1904). Having such programs is now also a disqualifying factor if an employer wishes to seek recognition under the OSHA Voluntary Protection Program (VPP—in which qualifying employers become exempt from regular programmed OSHA inspections). Hydraulic fracturing companies will continue to be targeted under a few ongoing National Emphasis Programs (NEPs) during 2014. After employee complaints (which account for about 30 percent of all OSHA inspections), the NEP visits are the basis for most programmed inspections. While these are intended to focus on specific issues, anything in plain view is fair game for citations and civil penalties. The main NEPs affecting this industry are those addressing crystalline silica, lockout/tagout during maintenance and repair activities, and amputation prevention. Some PIOGA members could also be covered under the ongoing PSM-Covered Chemical Facilities National Emphasis Program. Another rule likely to get attention is Hazard Communication; as of December 1, 2013, all employees had to be retrained under HazCom on the new “Global Harmonization Standard” provisions that were added in 2012—recognition of the 12 new pictograms to designate chemical hazards, new signal words and warning statements, and revised formats for safety data sheets. Remember to document all training, in case the worker feigns ignorance when questioned by the inspector! HazCom in its old version was the second most-cited OSHA standard in 2013, and it could hit #1 this year! Crystalline silica is both the subject of an OSHA NEP and also a regulatory proposal, and the agency’s proposed rule is now open for comment, with public hearing set to start on March 18. The proposal calls for reduction in the exposure limit from 100 ug/m3 to 50 ug/m3, and sets an action level of 25 ug/m3, which triggers many obligations, such as exposure monitoring, worker removal, medical surveillance, and engineering and administrative controls. The proposal specifically blocks use of job rotation to reduce worker exposures. For those members involved in pro-

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ducing frac sand, be aware that MSHA also has crystalline silica on its regulatory agenda and plans to follow OSHA’s lead on the subject. In OSHA’s view, use of hazardous chemicals should be a last resort and it is currently pushing chemical substitution, where feasible. It has a new webpage on “safer chemicals” (www.osha.gov/dsg/safer_chemicals). This could impact some chemicals used in the fracking process. OSHA also recently published on its website a long list of occupational exposure limits for myriad chemicals, adopted by states and other countries, which are more protective than the permissible exposure limits now enforceable by OSHA. While it is advisory, particularly for those substances already regulated, it also includes many chemicals for which OSHA has no “PEL” and there is growing concern that the agency could use the “General Duty Clause”—Section 5(a)(1) of the OSH Act—to enforce these. That section requires employers to provide a workplace free from serious, recognized hazards and the publication of this information constitutes “employer knowledge” by appearing on OSHA’s website. See www.osha.gov/dsg/ annotated-pels. OSHA’s regulatory agenda, released in November 2013 and supplemented in January 2014, places priority on its crystalline silica standard and its “I2P2” rule, slated for proposal this September, which covers all industries and would mandate written safety and health management programs that adequately address all hazards and involve employees in its implementation. OSHA has also proposed a requirement that would mandate electronic reporting of injuries and illnesses by employers: all employers with 251 workers or more would have to file reports quarterly, while those in “high hazard” industries (yes, the fracking sector) who have 20-250 employees would file annual reports. All data would be publicly available on the agency website. The comment deadline has been extended to March 8. OSHA penalties have not changed, but the discretion given to area managers to reduce penalties in settlement has become limited, so more cases can be expected to proceed to the next phase of litigation this year. Moreover, the 21 states that run their own OSHA programs are under scrutiny and their “success” is being benchmarked by how their average rate of citations per inspection and the average penalties imposed measure up against federal OSHA. So you can expect a harsher experience in these states going forward as states become more aggressive during inspections so they can retain their federal funding for enforcement. The final prediction is that OSHA will make greater use of its subpoena power to obtain potentially incriminating safety audits, accident reports, and other documents from employers and third parties (insurance companies, third party consultants) in order to substantiate prior knowledge and support “willful violation” findings. This trend started in 2011 and OSHA has generally prevailed in court when enforcing these subpoenas...although in a recent case the court held that OSHA needs an independent reason for believing prior knowledge exists and cannot simply use old audits as a fishing expedition prior to issuing citations. But another ruling suggests that OSHA, as a “public health agency,” would be both exempt from HIPAA and entitled to employee worker’s compensation and medical records, even absent worker consent. So now that you know OSHA’s likely game plan, have a safe and healthful 2014! ■


January 2014

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PIOGA committee schedule shifted

T

he association’s committee schedule changes in February so that the three committees that meet on a regular basis will do so on the same day at the same location. The standing date will be the second Wednesday of each month, with meetings taking place at the Regional Learning Alliance (RLA) in Cranberry Townshi. Beginning February 12, the schedule is: • 8:30 to 10 a.m. – Safety Committee • 10:30 a.m.to 12:30 p.m. – Environmental Committee • 12:30 to 2 p.m. – Lunch Break • 2 to 4 p.m. – Pipeline & Gas Market Development Committee (formerly Transportation & Marketing) The change to the schedule came at the request of members who participate in two or more of the committees. The Environmental and Safety committees have been meeting at the RLA for about a year. The facility is located at 850 Cranberry Woods Drive, Cranberry Township (www.therla.org, or see the ad on page 3). Anyone interested in participating in any of PIOGA’s committees should contact Tracy Koval at tracy@pioga.org and ask to be placed on the notification list. ■

Visit us at the Great American Outdoor Show PIOGA will be sharing a booth with the Unified Sportsman of Pennsylvania at the Great American Outdoor Show. The event will be held at the Farm Show Complex in Harrisburg, February 1-9. Stop by booth 4002 to say hello, or if you would like to volunteer to help please contact Dan Weaver at dan@pioga.org. PIOGA partners with the Unified Sportsmen of Pennsylvania because the group supports responsible drilling, “because it will free our Commonwealth from overseas oil kingdoms for the transportation, heating and cooling needs for our homes, schools and businesses, and bring American jobs back to Pennsylvania.” For more information on the Unified Sportsman visit unifiedsportsmenpa.org, or for the Great American Outdoor Show, point your browser to greatamericanoutdoorshow.org.

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The PIOGA Press

AP drilling story underscores safety of shale development The following article by Energy In Depth’s Katie Brown was posted on January 6. Visit energyindepth.org for a version of this article with links to numerous documents cited below. his weekend, the Associated Press published a story with an eye-catching headline—“Some States Confirm Water Pollution from Drilling.” But anti-fracking activists hoping for proof of their claims that shale development is “inherently dangerous” better not pop the champagne corks just yet. A deeper dive into the details reveals a much more nuanced picture. In fact, the data obtained by AP actually tell us a lot more about the historic safety of shale development than any sort of uncontrollable risk. AP investigated wells in four states: Pennsylvania, Ohio, West Virginia and Texas. Out of literally tens thousands of wells, only a small fraction resulted in any complaints related to water – and only a fraction of those wells were actually linked to water quality issues. Let’s have a look at what AP had to say: –Pennsylvania has confirmed at least 106 water-well

contamination cases since 2005, out of more than 5,000 new wells. There were five confirmed cases of water-well contamination in the first nine months of 2012, 18 in all of 2011 and 29 in 2010. The Environmental Department said more complete data may be available in several months. –Ohio had 37 complaints in 2010 and no confirmed contamination of water supplies; 54 complaints in 2011 and two confirmed cases of contamination; 59 complaints in 2012 and two confirmed contaminations; and 40 complaints for the first 11 months of 2013, with two confirmed contaminations and 14 still under investigation, Department of Natural Resources spokesman Mark Bruce said in an email. None of the six confirmed cases of contamination was related to fracking, Bruce said. –West Virginia has had about 122 complaints that drilling contaminated water wells over the past four years, and in four cases the evidence was strong enough that the driller agreed to take corrective action, officials said. –A Texas spreadsheet contains more than 2,000 complaints, and 62 of those allege possible well-water contamination from oil and gas activity, said Ramona Nye, a spokeswoman for the Railroad Commission of Texas, which oversees drilling. Texas regulators haven’t confirmed a single case of drilling-relatedwell contamination in the past 10 years, she said. (emphasis added) Granted, any instances in which water or land is adversely impacted by development activities means there’s room for improvement. That’s why the industry has supported numerous state level efforts such as in Illinois, Colorado, and Texas (among many others), that enhance

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existing regulations, including those governing well integrity. But, if you’re looking to extract some actual meaning from these data and this story, perspective and context are crucial – and, as such, it’s important to point out a few additional facts here. Right off the bat, one is struck by the enormous gap between “complaints” and confirmed cases. Even though AP spends considerable time expanding on the complaints, it does—to its credit—explain that many allegations often turn out to be completely unrelated to drilling. From AP: “Experts and regulators agree that investigating complaints of water-well contamination is particularly difficult, in part because some regions also have natural methane gas pollution or other problems unrelated to drilling. A 2011 Penn State study found that about 40 percent of water wells tested prior to gas drilling failed at least one federal drinking water standard. Pennsylvania is one of only a few states that don’t have private water-well construction standards.” (emphasis added) These facts are underscored by two recent studies by the U.S. Geological Survey which determined that there were high levels of methane in water wells in northeastern Pennsylvania and southern New York. The former included a county where no Marcellus Shale development is occurring, and in the latter, landowners are still suffering from a five-year moratorium on hydraulic fracturing. As for the confirmed cases, in Pennsylvania alone the story is quite revealing. As the Marcellus Shale Coalition explained in a blog post:

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• From January 1, 2005 through the end of 2013, there have been 32,625 oil and natural gas wells drilled in Pennsylvania (of which 7,426 were unconventional/Marcellus Shale wells), according to DEP • There are more than 1 million water wells in Pennsylvania, according to Penn State University and approximately 20,000 new water wells drilled each year. • And while the natural gas industry takes every step possible to mitigate and eliminate the risk of methane migration and surface spills,106 of the Commonwealth’s water wells have been impacted, according to AP’s analysis. Based on data from the Pennsylvania DEP, the confirmed cases that AP mentioned constitute about one-third of one-percent (0.33 percent) of all of the oil and gas wells drilled in Pennsylvania since 2005. So much for the claims of Josh Fox and his allies that 35 to 60 percent of all wells fail (they can’t decide which percentage it really is). In fact, AP’s numbers are much more in line with an August 2011 report from the Ground Water Protection Council, which found a well failure rate of less than one percent in Ohio and Texas—and that’s before many of the new well casing regulations came to be. Further, as AP’s data clearly show, the number of cases in Pennsylvania has continued to decline pretty dramatically over the years. From AP: “In Pennsylvania, the number of confirmed instances of water pollution in the eastern part of the state ‘dropped quite substantially’ in 2013, compared with previous years, Department of Environmental Protection spokeswoman Lisa Kasianowitz wrote in an


January 2014

email. Two instances of drilling affecting water wells were confirmed there last year, she said, and a final decision hasnâ&#x20AC;&#x2122;t been made in three other cases. But she couldnâ&#x20AC;&#x2122;t say how many of the other statewide complaints have been resolved or were found to be from natural causes.â&#x20AC;? (emphasis added) In Ohio, since 2010, AP uncovered six confirmed cases of contamination. EID contacted the Ohio Department of Natural Resources (ODNR), and, through a Freedom of Information Act (FOIA) request, the state regulatory body quickly provided the reports of these incidents. These documents showed that each of the cases were relatively minor and resolved immediately by ODNR and the company involved. In fact, one of these instances was caused by an orphan well that had been drilled prior to ODNRâ&#x20AC;&#x2122;s existence â&#x20AC;&#x201C; more than 60 years ago. Finally, in West Virginia, there were four potential instances in the past four years which have not been confirmed. In Texasâ&#x20AC;&#x201D; the largest oil and gas producing state in the countryâ&#x20AC;&#x201D;there have been zero confirmed cases in 10 years. Texasâ&#x20AC;&#x2122; data are also perhaps the most important because, as AP explains, this state â&#x20AC;&#x153;provided the most detail.â&#x20AC;? The story continues: â&#x20AC;&#x153;Texas officials supplied a detailed 94-page spreadsheet almost immediately, listing all types of oil and gas related complaints over much of the past two years. The Texas data include the date of the complaint, the landowner, the drilling company and a brief summary of the alleged problems. Many complaints involve other issues, such as odors or abandoned equipment.â&#x20AC;? (emphasis added)

Page 37

The bottom line is this: thousands upon thousands of wells have been drilled in the United States in recent years as our nation slashes its reliance on imported energy, creates high-paying jobs, and reduces energy costs for households across the country. Only a fraction of these wells have yielded reportable complaints, and only a fraction of that fraction of wells have actually been identified as having caused any incident at all. Anti-development activists like to claim that shale is â&#x20AC;&#x153;inherently dangerous,â&#x20AC;? and thus cannot be managed safely. The numbers actually tell a very different story. â&#x2013; 

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The PIOGA Press

DEP launches interactive online oil and gas well mapping tool

T

he Department of Environmental Protection has launched a new interactive â&#x20AC;&#x153;Oil and Gas Mapping Toolâ&#x20AC;? on its website. The mapping tool displays the location of wells across Pennsylvania and allows users to search and view specific types of wells by county, such as conventional gas, unconventional gas, oil or coalbed methane wells. Users are also able to filter search results based on the status of the well by selecting active, plugged or abandoned. After search filters are applied, users have the ability to view wells via satellite photo view, topographic map view or animated map view. Once an individual well is selected, the mapping tool displays relevant data about the well, including the operator name, well permit number, location information and name of the well. Users also can click the well permit number to view the

production and waste data reported for the selected well. In the future, the mapping tool will provide all records and data collected by the department associated with each individual well across the state. This information could include well permit documents, well drawings and maps, well records, completion reports, hydraulic fracturing chemicals used to stimulate the well, inspection reports, and photographs of the well and well site. To view the recently launched mapping tool, go to www.depgis.state.pa.us/PaOilAndGasMapping. â&#x2013; 


January 2014

This year’s Shale Gas Innovation Contest will award $100,000

T

he Ben Franklin Shale Gas Innovation and Commercialization Center has announced its 2014 Shale Gas Innovation Competition will make cash awards totaling $100,000 to the four best shale gas-oriented innovations, new product ideas or service concepts. The contest is open to researchers, entrepreneurs, or small company innovators in Pennsylvania or West Virginia or those willing to locate to either state. To download an application, visit www.sgicc.org and click on the $100,000 Shale Gas Innovation Contest tab. The deadline for applications is February 1. “We are constantly amazed at the creativity we see from entrepreneurs who want to provide products or services to the play,” remarked Bill Hall, director of the SGICC. “What’s great about this competition is that a simple online summary is all that’s required to get started. Basically any idea related to the shale energy space is eligible—even if it has already been commercially developed. In the past, we’ve seen applications related to natural gas utilization products/services, remote site monitoring, well pad EH&S products or services, natural gas or NGL conversion technologies and water management or remediation technologies.” Finalists will be chosen by a panel of industry experts at an awards event in May. In addition to the cash prizes, successful applicants will gain exposure to investors, potential partners and industry sponsors.

Page 39

MIA FAQ Have questions about the Department of Environmental Protection’s recently instituted mechanical integrity assessment (MIA) program? DEP has created a frequently asked questions sheet on its website and is updating the list as new issues arise. To locate the FAQ page, go to the Office of Oil and Gas Management’s Industry Resources page— www.portal.state.pa.us/portal/server.pt/community/industry_ resources/20301—and click on Mechanical Integrity Assessment. The MIA section also includes forms, instructions and, most recently, video tutorials.

Traditionally a Pennsylvania-focused event, the contest has been expanded to include West Virginia through a grant from the Benedum Foundation. The competition is co-sponsored by Ben Franklin Technology Partners, ANGA, Acorn Energy, AquaTech, Baker Hughes, Cabot Oil & Gas Corporation, Chevron Technology Ventures, CONSOL Energy, Chesapeake Energy, First National Bank, GE Oil & Gas, Little Pine Resources, the Marcellus Shale Coalition, Praxair, Range Resources, and Seneca Resources Corporation. For details regarding eligibility, contact Hall at 814-933-8203 or billhall@psu.edu. ■


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The PIOGA Press

Newsletter articles welcome!

A

s you may have noticed, each issue of The PIOGA Press includes articles authored by members of the association on topics ranging from legal developments and safety practices to regulatory matters and tax issues. We welcome article submissions from member companiesâ&#x20AC;&#x201D;after all, this is your association publication and you are the experts in a wide variety of fields.

PIOGAâ&#x20AC;&#x2122;s new weekly e-newsletter Last month we began a new weekly electronic newsletter for PIOGA members. Emailed to all member contacts each Friday, the PIOGA eWeekly includes: â&#x20AC;˘ A roundup of clips from newspapers around the region from the past week. â&#x20AC;˘ Legislative, regulatory and legal developments. â&#x20AC;˘ Upcoming events of note. â&#x20AC;˘ News about PIOGA activities. The goals of this e-newsletter are to keep you informed about whatâ&#x20AC;&#x2122;s going on in our industry and within PIOGA, as well as to reduce the number of mass emails sent to the membership. We hope you take advantage of this new member benefit. If you have suggestions for improving it, please contact Matt Benson, matt@pioga.org.

FLEXIBILITY

If you are interested in contributing articles, here are some guidelines: â&#x20AC;˘ While we will consider articles dealing with general business topics, we greatly prefer that the subject apply to the oil and gas exploration and production business, particularly matters specific to Pennsylvania and our region. â&#x20AC;˘ Articles cannot be â&#x20AC;&#x153;advertorials.â&#x20AC;? While it is fine to explain the advantages of a certain type of product or practice, we do not want articles that are essentially a sales pitch for your company. â&#x20AC;˘ Before submitting your article, contact Matt Benson at matt@pioga.org or 814-778-2291 to make sure the topic is acceptable and has not been addressed recently. (Past issues of the newsletter can be found at www.pioga.org/newsletter.) â&#x20AC;˘ A good target length for articles is 1,500 words, though shorter or longer submissions are fine. Your article should be submitted as a Word document with minimal formatting, such as bold, italics and bullet items. â&#x20AC;˘ If you are submitting an article that originally was printed elsewhere, make sure you have obtained permission to reprint it. â&#x20AC;˘ Photos and other graphics are always a good addition to an article, including head-and-shoulders author pictures. Images should be in high-resolution format (at least 300 dots/pixels per inch). If emailing graphics files, make sure there are not more than 8 mb of attachments in any one message. We look forward to hearing from you. â&#x2013; 

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January 2014

Page 41

Governors lead effort supporting state oil and gas regulatory programs

I

n a letter to American energy policy leaders, Pennsylvania’s Tom Corbett and the governors of 11 other oil and natural gas producing states announced their support of the States First Initiative—an effort aimed at supporting and enhancing the role of the states as the primary and appropriate regulators of oil and gas development. “Our programs, which are as varied as the geography, climate, geology and social fabric of our states, are designed to be flexible, yet effective, in providing the world’s best environmental protection and regulation,” the letter stated. “The states’ ability to design effective regulations that reflect state-specific needs is a vital element in the resurgence of our nation’s oil and natural gas industry.” States First is a partnership between the Interstate Oil & Gas Compact Commission and the Ground Water Protection Council, two state-led organizations representing governors and state regulators. Supporting states produce the majority of the oil and natural gas in the United States and include the governors of Alabama, Alaska, Colorado, Kentucky, Mississippi, Montana, Nevada, North Dakota, Oklahoma, Pennsylvania, Texas and Utah. The initiative includes the formation of a state oil and gas regulatory exchange that will allow experts to meet emerging regulatory challenges and solve unique problems in oil and gas producing states. States First launched a website (www.statesfirstinitiative.org), Twitter profile (@States1st) and YouTube channel (States1st) in an effort to educate the public about state oil and gas regulation and to provide updates on initiative supporting states and their programs. Additionally, visitors can watch governors and regula-

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tors speak about topics such as environmental protection, economic development, transparency and more through a series of online videos. Pennsylvania Department of Environmental Protection oil and gas chief Scott Perry is featured in several of the videos. Those interested can find a full copy of the governors’ letter to American energy policy leaders on the States First website or Twitter feed. ■

Share your success story

P

IOGA is looking for companies and individuals to share stories about how they are benefitting from the oil and gas industry here in Pennsylvania. Go to www.pioga.org and click on the Success Stories link to submit a few details about how you, your family or your business have benefited from the industry. We will then get in touch with you about expanding on that information to be posted on our website. You’ll also find the stories of several PIOGA members posted there on the website. If you have any questions, please contact Dan Weaver at dan@pioga.org. ■


Page 42

The PIOGA Press

PIOGA member news Becky Snyder, long-time industry associate and PIOGA volunteer, retires

R

ebecca Snyderâ&#x20AC;&#x201D;known to most as Beckyâ&#x20AC;&#x201D;of Fluid Recovery Services has retired after 30 years serving the natural gas and oil industry and wastewater industry. As one of the first managers of Hart Chemical Company, she was a pioneer in the development of new treatment methods for managing wastewaters for the industry. She helped develop and operate the first crystallizer to process natural gas brine into salable byproducts. During her many years of service and as operations manager, she wore many hats and was responsible for accounting, human resources, permitting, treatment processing, scheduling, corporate secretary, reporting to the Board of Directors, insurance, 401K, and many other responsibilities. She also had an important impact as a very active officer of West Penn Energy, providing regular meetings and training opportunities for employees in the energy industry. On January 4, more than 60 people attended a retirement party held in Beckyâ&#x20AC;&#x2122;s honor. Her popularity is due to her tireless work to serve the industry, her expertise in water management and her effort to have some fun in the process. PIOGA wishes Becky all the best in her retirement and thanks her for her continued dedication to PIOGA, POGAM and IOGA PA over the past years. Becky and her husband, Bill, were our #1 volunteers, helping at all our annual Divot Diggers golf outings, the Eastern Oil & Gas Conference and Trade Show, and other PIOGA conferences and meetings. Becky was also a valuable member of the Environmental Committee, offering her time and

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expertise to solve some of the industryâ&#x20AC;&#x2122;s regulatory/legislative issues. Thank you again, Becky, for all your support and dedication to PIOGA and our industry. You will be missed very much! Upstream | Midstream | Downstream Surveying | Engineering | Environmental | GIS

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January 2014

Chief acquires assets in the Marcellus Shale Chief Oil & Gas and working interest partners Enerplus and Tug Hill have acquired MKR Holdings LLC from Chesapeake Appalachia LLC for approximately $500 million. The acquired assets include current month production of approximately 130,000 Mcf/d and approximately 40 operated wells waiting on completion or pipeline as well as undeveloped acreage. The acquisition includes leasehold in Bradford, Lycoming, Sullivan, Susquehanna and Wyoming counties. “With this acquisition we have significantly expanded our operational footprint in the northeastern Pennsylvania region,” stated Sam Fragale, senior vice president of operations for Chief Oil & Gas. “This acquisition comes with existing cash flow from current production, increases our working interest in wells we currently operate and provides additional development opportunities in a great area.” Chief Oil & Gas had existing working interest in many of these wells and will be increasing its ownership percentage in these and future wells as a result of the acquisition. Chief Oil &

Page 43

Gas currently operates more than 100 wells in the Marcellus Shale and owns approximately 210,000 gross leasehold acres.

Mazzella’s Al Abel honored Mazzella Companies, a manufacturer and distributor of lifting products for industrial, commercial and specialty applications, has honored Al Abel with a top trainer honorable mention. This is the second time since 2008 that Abel has earned this recognition, a testament to his consistency as a great trainer. A retired high school teacher and athletic director, Abel knows how to engage students. His question and answer sessions after class are often as long as the class itself. Mazzella Companies is a privately owned business, founded in 1954, and employs over 300 people at 18 locations in Ohio, Michigan, Pennsylvania, North Carolina, South Carolina, Kentucky, Maryland, Virginia, Tennessee, Alabama, Illinois and Minnesota. ■

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CM HALL ASSOCIATES, INC. Manufacturer’s Representatives Engineered Products for the Marcellus & Utica

Craig M. Hall 326 W. Pike Street Canonsburg, PA 15317 Ofc. 724.916.3070 Cell: 724.747.6633 craig@cmhallass.com

PBV – Trunnion Ball Valves USA Compression Horizontal & Submersible Pumps Kirk Key Interlocks GEA Heat Exchangers

www.cmhallass.com


Page 44

The PIOGA Press

Natural Gas Futures Closing Prices January 9

Month February 2014 March April May June July August September October November December January 2015

High $110.73 9/6/13

Low $87.46 12/10/12

Price $3.997 3.975 3.884 3.876 3.895 3.940 3.953 3.940 3.945 4.020 4.117 4.230

Sources American Refining Group: www.amref.com/Crude-Prices-New.aspx Ergon Oil Purchasing: www.ergon.com/prices.php Gas futures: http://quotes.ino.com/exchanges/?r=NYMEX_NG Baker Hughes rig count: http://gis.bakerhughesdirect.com/Reports NYMEX strip chart courtesy of Hess Energy Marketing, 304-464-1176

Oil & Gas Stats

Pennsylvania Rig Count 140 120 100 80 60 40 20

Month Jan Feb Feb Mar Mar Mar Apr Apr May May Jun Jun Jul Jul Aug Aug Aug Sep Sep Oct Oct Nov Nov Dec Dec Jan

0

PreviousYear

CurrrentYear


January 2014

Page 45

NYMEX Natural Gas Futures Contract 12 Month Forward Strip Average Prices Through 12/23/13 $7.50 $7.00 $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $3.00

12/17/13

10/18/13

8/22/13

6/26/13

4/30/13

3/4/13

1/2/13

9/6/12

11/1/12

7/11/12

5/14/12

3/16/12

1/19/12

11/18/11

9/23/11

7/28/11

6/1/11

4/4/11

2/4/11

12/8/10

10/12/10

8/16/10

6/18/10

4/22/10

2/24/10

12/23/09

8/31/09

10/27/09

7/6/09

5/7/09

3/11/09

$2.00

1/12/09

$2.50

Bituminous has served the energy industry continuously for more than 70 years. We offer high-quality insurance protection and services — with stability. That means we don’t jump in and out of the energy business when times get tough. If you’re looking for broad insurance protection for your business at competitive rates, check out Bituminous. Our people understand your business and speak your language. We tailor insurance packages specifically for today’s energy companies and we expect to be in the market for another 70 years. Contact your local independent agent for all the facts.

Bob Gregory, CPCU, Branch Manager, Pittsburgh 1-800-253-1232 or 412-937-9000

Paul Trimble, CPCU, Branch Manager, Baltimore 1-800-346-5108 or 410-321-7670

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Page 46

The PIOGA Press

Industry Events

Calendar of Events PIOGA Events PIOGA Annual Tax Seminar January 21, Regional Learning Alliance, Cranberry Township Info: www.ipaa.org/meetings-events/upcoming-meetings Eastern Oil & Gas Conference and Trade Show May 13-14, Heinz Field, Pittsburgh Info: www.ipaa.org/meetings-events/upcoming-meetings PIOGA Summer Picnic June 16, Wanango Golf Club, Reno Info: www.ipaa.org/meetings-events/upcoming-meetings PIOGA Pig Roast, Equipment Show and Conference July 22-23, Seven Springs Mountain Resort, Champion Info: www.ipaa.org/meetings-events/upcoming-meetings 17th Annual Divot Diggers Golf Outing August 15, Tam O'Shanter Golf Club, Hermitage Info: www.ipaa.org/meetings-events/upcoming-meetings

IOGAWV Winter Meeting February 4-5, Charleston Marriott, Charleston, WV Info: events.iogawv.com IPAA Congressional Call-Up March 3-5, The Loews Madison Hotel, Washington, DC Info: www.ipaa.org/meetings-events/upcoming-meetings OOGA Winter Meeting March 5-7, Hilton Columbus at Easton, Columbus, OH Info: ooga.org/events/ooga-events IPAA Midyear Meeting June 18-20, The Broadmoor, Colorado Springs, CO Info: www.ipaa.org/meetings-events/upcoming-meetings NAPE East April 9-11, David L. Lawrence Convention Center, Pittsburgh Info: www.napeexpo.com/nape-shows/nape-east DUG East June 3-5, David L. Lawrence Convention Center, Pittsburgh Info: www.dugeast.com IOGAWV Annual Oil & Gas Equipment Show July 9-11, Buckhannon, WV Info: events.iogawv.com IOGANY Summer Meeting July 16-17, Peek'n Peak Resort,Findley Lake, NY Info: www.iogany.org IOGAWV Summer Meeting August 3-5, The Greenbrier, White Sulphur Springs, WV Info: events.iogawv.com OOGA Summer Meeting August 4-5, Zanesville Country Club, Zanesville, OH Info: ooga.org/events Shale Insight 2014 September 24-25, David Lawrence Conv. Center, Pittsburgh Info: www.shaleinsight.com IPAA Annual Meeting November 12-14, The Breakers, Palm Springs, FL Info: www.ipaa.org/meetings-events/upcoming-meetings OOGA Oilfield Expo December 2-4, IX Center, Cleveland, OH Info: ooga.org/events â&#x17E;¤ More events: www.pioga.org


January 2014

New PIOGA members — welcome! Apogee Environmental & Archaeological, Inc. 208 Main Street, Whitesburg, KY 41858 606-633-7677 www.apogee-environmental.com Service Provider Appellation Pre Fab, LLC P.O. Box 2406, Abingdon ,VA 24212 276-619-4880 www.aps-energy.com Service Provider A.W.S., Inc. P.O. Box 636, Indiana, PA 15701-0636 724-354-4400 www.appalachianwellservices.com Service Provider Barnette Energy Partners 2702 Hunters Point Drive, Wexford, PA 15090 412-508-0953 Associate Enterprise Fleet Management, Inc. 4489 Campbells Run Road, Pittsburgh, PA 15205 412-722-1877 www.efleets.com Service Provider Environmental Quality Co. 36255 Michigan Avenue, Wayne, MI 48184 734-329-8000 www.eqonline.com Service Provider Geer, Gerry W. 15265 Route 6, Clarendon, PA 16313 814-706-2973 Royalty Owner Hoyt Royalty, LLC 250 Arapaho Street, Suite 301, Boulder, CO 80302 412-228-0409 Royalty Owner IPS Engineering / EPC 501 Corporate Drive, Suite 120, Canonsburg, PA 15317 724-749-4400 www.ips-epc.com Service Provider O-Tex Pumping 2916 Old Rt. 422 East, Fenelton, PA 16034 724-256-9280 www.o-texpumping.com Service Provider Vorys, Sater, Seymour & Pease LLP Foster Plaza XI, 3rd Floor, 790 Holiday Dr., Pittsburgh, PA 15220 412-921-8613 www.vorys.com Professional Firm

Page 47

PIOGA Board of Directors Gary Slagel (Chairman), Steptoe & Johnson PLLC (representing CONSOL Energy) Sam Fragale (Vice Chairman), Chief Oil & Gas, LLC Frank J. Ross (2nd Vice Chairman), T&F Exploration, LP James Kriebel (Treasurer), Kriebel Companies Craig Mayer (Secretary), Pennsylvania General Energy Co., LLC Terrence S. Jacobs (Past President), Penneco Oil Company, Inc. Thomas M. Bartos, ABARTA Oil & Gas Company, Inc. Stanley J. Berdell, BLX, Inc. Rob Boulware, Seneca Resources Corporation Mike Cochran, Energy Corporation of America Don A. Connor, Open Flow Energy Ted Cranmer, TBC Consulting Jack Crook, Atlas Resource Partners, LP Robert Esch, American Refining Group, Inc. Frederick W. Fesenmyer, Minard Run Oil Company Michael Hillebrand, Huntley & Huntley, Inc. Cathy Kirsch, Oil & Gas Management, Inc. Ron McGlade, Tenaska Resources, LLC Jim McKinney, EnerVest Operating, LLC Steve Millis, Vineyard Oil & Gas Company Gregory Muse, PennEnergy Resources, LLC Stephen Rupert, Texas Keystone, Inc. Jake Stilley, Patriot Exploration Corporation Gary M. Violi, Appalachian Well Services Inc. Burt A. Waite, Moody and Associates, Inc. Roger B. Willis, Universal Well Services, Inc. Thomas Yarnick, XTO Energy

Committee Chairs Environmental Committee Paul Hart, Fluid Recovery Services, LLC Ken Fleeman, ABARTA Oil and Gas Company, Inc. Pipeline & Gas Market Development Committee Bob Eckle, Appalachian Producer Services, LLC Ron McGlade, Tenaska Resources, LLC Health & Safety Committee Doug Mehan, Penn Energy Resources, LLC Pat Carfagna, CONSOL Energy Meetings Committee Lou D’Amico, PIOGA Tax Committee Donald B. Nestor, Arnett Foster Toothman, PLLC Communications Committee Terry Jacobs, Penneco Oil Company, Inc. Membership Committee Cathy Kirsch, Oil & Gas Management, Inc.

Staff Lou D'Amico (lou@pioga.org), President & Executive Director Kevin Moody (kevin@pioga.org), Vice President & General Counsel Debbie Oyler (debbie@pioga.org), Director of Member Services Matt Benson (matt@pioga.org), Director of Internal Communications (also newsletter advertising & editorial) Joyce Turkaly (joyce@pioga.org), Director of Natural Gas Market Development Dan Weaver (dan@pioga.org), Public Outreach Director Danielle Boston (danielle@pioga.org), Director of Administration Chris Lisle (chris@pioga.org), Manager of Finance Tracy Koval (tracy@pioga.org), Administrative Assistant

Pennsylvania Independent Oil & Gas Association

Spread the word! •••••••••••••••••••• Shouldn’t you be advertising your products and services here? Contact Matt Benson (814-778-2291, matt@pioga.org) for more information.

115 VIP Drive, Suite 210 • Wexford, PA 15090-7906 724-933-7306 • fax 724-933-7310 • www.pioga.org Northern Tier Office (Matt Benson) Mail: P.O. Box L, Mount Jewett, PA 16740-0554 Physical address: 167 Wolf Farm Road, Kane, PA 16735 Phone/fax 814-778-2291 © 2014, Pennsylvania Independent Oil & Gas Association


115 VIP Drive, Suite 210 Wexford, PA 15090-7906

Address Service Requested


Pioga press 45