Rice and Gulfport Enter Into Midstream Joint Venture in Utica Shale

As reported by Oil and Gas Investor, Rice Midstream Holdings, LLC, a subsidiary of Rice Energy Inc., and Gulfport Energy Corporation have teamed up to build a pipeline gathering and water line system in Ohio’s Utica Shale.  Over the next six years, the companies plan to spend a combined $640 million on 165 miles of pipeline that will connect Gulfport’s Utica shale wells in Belmont and Monroe Counties to interstate pipelines.  Speaking of the joint venture, Rice’s CEO, Daniel J. Rice IV, stated: “This joint venture will be one of the premier midstream systems in the prolific dry gas core of the Utica…”  Gulfport will dedicate about 77,000 leasehold acres and an existing 11-mile pipeline to the joint venture, and Rice will be responsible for constructing and operating the assets.  The parties have further agreed that Rice will own 75% of the joint venture and Gulfport will own the remaining 25%.  Each partner will be responsible for its proportionate share of costs.

Ohio Judge Rules in Favor of Permitting Surveys in NEXUS Pipeline Case

The Medina County Court of Common Pleas issued a decision allowing surveys to be completed on tracts of land along the proposed NEXUS pipeline route. In Nexus Gas Transmission, LLC v. Houston, the Court ruled that the plain language of Chapter 163 of the Ohio Revised Code provides a right to access private property for the purpose of taking surveys for the pipeline project. The ruling will allow the NEXUS pipeline owners to move ahead with obtaining approval for the project from the Federal Energy Regulatory Commission.

USACE Revises PASPGP-4, Requests Comments on Draft PASPGP-5

On September 29, 2015, the U.S. Army Corps of Engineers (USACE) issued a public notice regarding revisions to the Pennsylvania State Programmatic General Permit – 4 (PASPGP-4).  In general, PASPGP-4 authorizes the discharge of dredged or fill materials and the placement of temporary or permanent structures that result in impacts to one acre or less of waters of the United States, including jurisdictional wetlands.  The revisions announced by USACE are intended to “streamline the PASPGP-4 review process by adding Avoidance Measures (AMs) identified on a Pennsylvania Natural Diversity Inventory (PNDI) receipt for Federally listed threatened or endangered species as a Special Condition of the PASPGP-4 without the need for a [USACE] review of the application.”  The revisions allow certain PASPGP-4 applications to proceed under Category I or Category II review.  The changes are effective immediately.

Also on September 29, USACE released a separate public notice requesting comments on its plan to issue, for a five-year period, PASPGP-5.  PASPGP-5 would replace PASPGP-4, which is set to expire on June 30, 2016.  Comments regarding the proposed new version of the general permit are due on October 29, 2015.

Ohio Oil and Gas Commission Issues First Decision on Forced Pooling

The Ohio Oil and Gas Commission issued its first decision under R.C. 1509.28 to provide for the compulsory pooling of property for oil and gas unit operations. In Gary L. Teeter Revocable Trust v. Division of Oil & Gas Resources Management, the Ohio Oil and Gas Commission ruled that a 69-acre farm must be included in unit operations occurring under the property. While the Commission ruled that the property would be “forced” into a unit against the will of the owner of the property, it specifically noted that the owner “benefits from from the statutory protections enacted to ensure that he will be fairly compensated for any resources that might be drawn from beneath his property as a result of the operation of a well, which the majority of his neighbors wish to have drilled.”

Pa. Commonwealth Court Reverses Controversial Lycoming County Decision

Earlier today, the Pennsylvania Commonwealth Court issued a unanimous decision in the much-anticipated case of Gorsline v. Board of Supervisors of Fairfield Township, reversing the decision of the Court of Common Pleas of Lycoming County. In reversing the lower court, the Commonwealth Court upheld Fairfield Township’s decision to grant conditional use approval to Inflection Energy, LLC for an unconventional well pad. This case is significant for several reasons. First, the Commonwealth Court made it clear that it is insufficient for objectors to sustain their burden by merely stating concerns or asking questions of the developer’s expert witnesses. Instead, they must present evidence to substantiate those concerns. Second, the Commonwealth Court criticized the lower court for making its own findings of fact when it did not take additional evidence and where the municipality made its own findings of fact. Third, the Commonwealth Court recognized that the lower court erred by focusing on truck deliveries during the construction phase of the project because zoning regulates the use of land and not the particulars of development and construction. Finally, the objectors attempted to raise issues based on the Pennsylvania Supreme Court’s Robinson Township decision, arguing that natural gas development is an industrial use that is per se incompatible with a residential/agricultural zoning district and that approval of the natural gas development violated the Environmental Rights Amendment of the Pennsylvania Constitution. The Commonwealth Court summarily rejected these two arguments and noted that, because the record supported the township’s determination that the proposed well pad was compatible with the permitted uses in the residential/agricultural district and the objectors presented no evidence of harm, the objectors’ claims were unsupported by the accepted evidence of record. This final point is especially significant because many anti-industry opponents cite both the lower court’s opinion and the Delaware Riverkeeper Network’s amicus brief from this case in other zoning proceedings as support for the now rejected view that oil and gas development must only occur in industrial zoning districts.

Court Rules That Gas Lease Was Not Forfeited

The Pennsylvania Superior Court ruled on Friday that an oil and gas lease was not forfeited by the failure of the operators to pay delay rentals. In Dewing v. Abarta Oil & Gas Co., the landowners (the “Dewings”) executed an oil and gas lease that was owned by Abarta Oil & Gas Co. Inc., Talisman Energy USA, Inc. (“Talisman”) and Range Resources (“Range”, collectively, the “Operators”). The lease provided that delay rentals be paid for the primary term for the lease unless and until a well is drilled on the property or a well unit is drilled. The lease also stated that it “shall never be subject to a civil action or other proceeding to enforce a claim of forfeiture due to Lessee’s alleged failure to perform as specified herein, unless Lessee has received written notice of Lessor’s demand and thereafter fails or refuses to satisfy Lessor’s demand within 60 days from the receipt of the notice” (the “Forfeiture Clause”). The Dewings did not receive delay rentals for a period of time and sent notice of such failure to Talisman, which informed the Dewings that Range was handling the payment of delay rentals. The Dewings subsequently sent notice that the lease was forfeited to Range, and Range thereafter paid the delay rentals to the Dewings. The Dewings filed the underlying civil action, alleging that the lease had been forfeited and abandoned for failure to timely pay the delay rental. The Superior Court affirmed the trial court’s ruling in favor of the Operators, stating that although the Dewings had the right to seek forfeiture under the Forfeiture Clause, they did not prove that the Operators did not materially breach the lease. Citing a prior decision, Linder v. SWEPI, 549 Fed. Apx. 104 (3d. Cir. 2013), the Superior Court held that unless a contract contains a “time-is-of-the-essence” clause, the breach of the delay rental provision by making a late payment is not a material breach. Further, when a lease includes a 60-day cure period, it is evident that the parties intended to improve the chances of an out-of-court resolution to a breach caused by the late payment of delay rentals. Therefore, the Superior Court held that the Operators had not materially breached or abandoned the oil and gas lease under dispute.


Public Hearings Announced for EPA Air Rules Targeting Oil and Gas Sector

Today the U.S. Environmental Protection Agency (EPA) announced that it will host three public hearings in September regarding proposed Clean Air Act rulemaking actions that will affect the oil and gas industry.  Two hearings will be held in Denver and Dallas on the same day, September 23, 2015.  A third hearing is scheduled to be held on September 29, 2015, in Pittsburgh.  The hearing in Pittsburgh will take place at the William S. Moorhead Federal Building downtown.  For additional information about EPA’s proposed rules, check out our Administrative Watch: EPA Announces Clean Air Act Proposals Targeting the Oil and Natural Gas Sector.

Ohio Court Reaches Decision on Lease Forfeiture Action

On August 14, 2015, the Ohio Fifth District Court of Appeals issued a decision in Armstrong  v. Chesapeake Exploration, L.L.C., deciding that the plaintiffs may not pursue an action seeking lease forfeiture based on the nonpayment of oil and natural gas royalties absent an explicit lease provision allowing them to do so.  The plaintiffs alleged that Chesapeake failed to pay royalties owed on oil and natural gas production after the plaintiffs notified the company of their acquisition of the property from the former lessors.  The court found, however, that absent a clause in the lease allowing the lessor to declare a forfeiture for the nonpayment of royalties, nonpayment merely gives rise to an action for damages and not cancellation. 

EPA Announces Rulemaking Proposal to Curb Methane Emissions from Oil and Gas Sector

Today the U.S. Environmental Protection Agency (EPA) formally announced its highly-anticipated proposal to regulate methane emissions from the oil and natural gas sector.  Specifically, EPA is proposing to amend the New Source Performance Standards (NSPS) rule for the sector, NSPS Subpart OOOO, to include standards for reducing methane as well as volatile organic compound (VOC) emissions from sources located across the oil and natural gas source category (i.e., production, processing, transmission and storage).  This proposal is part of the agency’s broader strategy for reducing emissions of ground level ozone-forming pollutants from the oil and gas sector.  Public comments will be accepted for 60 days following publication in the Federal Register, and EPA is planning to host public hearings on the rulemaking.  In conjunction with today’s announcement regarding the proposed NSPS revisions, EPA also announced proposed guidelines for states to follow in order to reduce VOC emissions from existing oil and gas sources located in areas where the ambient air quality does not meet certain thresholds with respect to ozone.

Pennsylvania DEP Releases Latest Revisions Of Oil And Gas Rulemaking

The Pennsylvania Department of Environmental Protection (DEP) recently announced the draft final revisions to the “Environmental Protection Performance Standards at Oil and Gas Well Sites” rulemaking (Chapters 78 and 78a).  Following the most recent round of public comment, DEP decided not to include the provisions for noise mitigation and centralized storage tanks for wastewater in the final regulations.  DEP indicated that a separate process is more appropriate for noise mitigation due to the complex nature of noise mitigation.  With regard to centralized storage tanks, DEP decided it would continue to regulate these facilities under the residual waste regulations.  The amendments will be discussed at the upcoming meetings of the Conventional Oil and Gas Advisory Committee and, Oil and Gas Technical Advisory Board in late August and early September, respectively.