New York Lifts 40-Year Ban on New Liquefied Natural Gas Facilities

This week the New York State Department of Environmental Conservation adopted regulations establishing a permitting program for the siting, construction and operation of liquefied natural gas (LNG) facilities in New York State.  The New York Legislature previously enacted a statewide moratorium on the construction of LNG storage facilities after the explosion of an LNG tank on Staten Island killed 40 workers in 1973.  The new regulations, which take effect on February 26, 2015, require owners and operators to obtain a permit prior to the preparation of a site for, construction of, or operation of facilities that store LNG or convert LNG into natural gas.  The regulations include a maximum storage capacity of 70,000 gallons of LNG at each permitted facility.  Intrastate transportation of LNG is prohibited unless the route has been certified by the New York State Department of Transportation.  The regulations do not affect the statutory moratorium prohibiting the siting of LNG facilities within New York City.  Furthermore, the regulations do not apply to compressed natural gas or liquefied petroleum gas, and LNG-fueled vehicles and vessels are exempt from the permitting requirements.

PA Governor Tom Wolf Bans New Gas Leases For Commonwealth-Owned Lands

Today, Pennsylvania Governor Tom Wolf fulfilled a campaign promise by signing an executive order banning new oil and gas leases on public land owned by the Commonwealth.  This order ended the efforts of former Governor Tom Corbett to expand oil and gas drilling below Pennsylvania-owned parks and forests.  While environmentalists applauded the new executive order as a sign of strong environmental regulation, critics labeled it an unnecessary political action that bans the safe development of natural gas beneath taxpayer land.  Currently, Pennsylvania has leased about 700,000 acres of approximately 2.1 million acres of state forest.  This new executive order does not effect leases already in effect.

Court Rules That Search For Heirs Of Oil And Gas Estate Deficient

On January 27, 2015, the Pennsylvania Superior Court affirmed an order by the Court of Common Pleas of Susquehanna County in Sisson, et al. v. Stanley, et al.   The trial court’s order allowed the heirs of Joseph Stanley, who previously reserved all the oil and gas under a tract of land in 1953, to open a default judgment from an action to quiet title.

One of the three issues in this case was whether the lower court should have granted a petition to open a default judgment because of an insufficient search under Pa.R.C.P. 430 due to additional evidence being presented by the ‘after-found’ heirs, when the lower court already determined the Appellants conducted a sufficient good-faith investigated based upon Appellants’ affidavit and a hearing in according with Pa.R.C.P. 430.  The Superior Court held that the lower court correctly granted such petition because the heirs did not receive proper service of process.  Rule 430(a) provides that motions for service, including service by publication, shall be accompanied by an affidavit stating the nature and extent of the investigation which has been made to determine the whereabouts of the defendant and the reasons why service cannot be made.  Due process of law requires an adequate investigation for interested parties and service of process be reasonably calculated, under all circumstances, to apprised interested parties of the pendency of the action and afford them an opportunity to present their objections.

In this case, the court found the affidavit to be facially deficient for several reasons and granted the petition to open the default judgment.  First, the affidavit indicated that the appellant searched the Recorder of Deeds office and not the Register of Wills office.  The court stated that if the appellant searched the records at the Register of Wills office, he would have found the will of Joseph Stanley and identified his twelve heirs.  Second, the affidavit indicated that the appellant did not consider that some of Joseph Stanley’s heirs could have moved.  The court stated that if the appellant would have searched the local newspaper obituaries, he would have discovered that some the of heirs moved to the neighboring county.  Finally, the court indicated that the appellant’s failure to identify which Internet sites he visited or what search he ran provided a basis that he did not exercise due diligence and good faith in his efforts to locate the heirs.  It reasoned that given the ease of identifying and using sophisticated Internet services to trace ancestry and family history, it is inconceivable that the plaintiff, employing good faith efforts, was unable to locate a single heir.

Given the sparse information included in the affidavit, and the seeming ease with the plaintiff could and should have located interested parties, the court affirmed the lower court’s conclusion that the plaintiff’s investigation was deficient.

Proposed Bill Would Provide Public Utility Commission With Power To Order Unitization In Some Circumstances

On January 23, 2015, Pennsylvania Senator Gene Yaw introduced Senate Bill 313 (SB 313), which would provide a process for persons actively engaged in the business of extracting oil or gas, who own or leased at least 65% of the working interests in a proposed unit, to apply to the Public Utility Commission for an order integrating the remaining interests owned by other persons similarly engaged in the business of extracting of oil or gas. SB 313 allows for the integration of working interests for the purpose of extracting oil or gas from formations below the base of the Elk Sandstone or its geologic equivalent. The proposed bill would also repeal the act of July 25, 1961, known as the Oil and Gas Conservation Law (P.L. 825, No. 359).  SB 313 is currently awaiting approval from the Senate Environmental Resources and Energy Committee.

USEPA Seeks Small Business Input on Greenhouse Gas Rulemaking for Oil and Gas Sector

The U.S. Environmental Protection Agency (EPA) is convening a Small Business Advocacy Review Panel to discuss a rulemaking aimed at regulating greenhouse gas emissions from the oil and natural gas sector, as part of the Obama Administration’s methane reduction strategy announced in mid-January.  The rulemaking is expected to affect sources in the production, processing, transmission and storage segments of the industry.  Small businesses operating in the oil and natural gas sector that expect to be subject to the requirements of the rulemaking may be eligible to serve on the Panel as a “Small Entity Representative” (SER).  According to EPA, the role of a SER is “to provide advice and recommendations to ensure that the Panel carefully considers small entity concerns regarding the impact of the potential rule on their organizations and to communicate with other small entities within their sector who do not serve as SERs.”  Interested parties must contact EPA by February 11, 2015.

Congressman Introduces Bill to Allow Landowners to Sue New York Over Hydraulic Fracturing Ban

U.S. Representative Tom Reed (R-NY) recently introduced into Congress the Defense of Property Rights Act (H.R. 510), which would allow landowners affected by New York’s hydraulic fracturing ban to sue the government over agency action that “unreasonably impedes the use of property or the exercise of property interests or significantly interferes with investment-backed expectations.”  The bill was introduced in response to the December 17, 2014 announcement by New York Governor Andrew Cuomo of a statewide ban on hydraulic fracturing.  Representative Reed stated in a press release that “these actions by government entities often leave our neighbors and friends with property that is worth much less, hurting their families and leaving them little choice but to accept the lower value.”  Under the proposed legislation, property owners could receive compensation if the agency action diminishes the fair market value of their property by at least 20 percent or $20,000.  The bill has been referred to the House Judiciary Committee.

Three Oil and Gas Bills Pass Pennsylvania Senate Panel

A Pennsylvania senate committee recently unanimously approved two bills regarding oil and gas royalty calculations.  StateImpact Pennsylvania reported that Senate Bills 147 and 148 were approved by the Senate Environmental Resources and Energy Committee on Wednesday, January 21, 2015.  If passed into law, SB 147 would require operators to disclose more information on royalty checks, including calculations and joint ventures between companies.  The bill would also permit landowners to inspect company records, even if that right is not set forth in an oil and gas lease.  SB 148 would prohibit operators from retaliating against landowners who question the calculation of their royalty payments.  The bills are two of several that have been introduced in the state house and senate in the last year.  

 

A third bill, Senate Bill 279, also passed the senate committee with unanimous approval.  This bill would create the Pennsylvania Grade Crude Development Advisory Council, which would advise and assist the state Department of Environmental Protection with the differing regulations for conventional oil and gas operations and unconventional oil and gas operations.  All three bills will move forward for consideration by the full senate. 

Ohio Supreme Court Accepts Major Oil and Gas Lease Busting Case for Review

The Ohio Supreme Court accepted jurisdiction over Hupp v. Beck Energy, an important Ohio case involving the interpretation of oil and gas leases. The case involves a challenge by landowners in Monroe County to a standard form oil and gas lease. The landowners argued that the leases could be maintained indefinitely without development of the oil and gas and, as a result, were void against public policy. The Monroe County trial court agreed and granted the landowner’s Motion for Summary Judgment finding the leases were void ab initio. On appeal, the Seventh District Court of Appeals reversed the trial court finding that the leases have two distinct terms – a primary term and secondary term – and were not “no term” or perpetual leases. The Seventh District also ruled that the leases’ delay rental provision did not allow the lessee to extend the lease indefinitely by the payment of delay rentals.

The Propositions of Law to be reviewed by the Ohio Supreme Court are (1) whether an oil and gas lease which can be maintained indefinitely without development is a perpetual lease that is void against public policy and (2) whether the leases are subject to an implied covenant of reasonable development notwithstanding a general disclaimer of all implied covenants.

Shale Energy Law Blog will continue to post updates to the case including the scheduling of oral argument.

WV Senate Passes Permit Transfer Legislation

As reported by The State Journal, the West Virginia Senate has passed Senate Bill 280 (“SB 280”) which, if it becomes effective, would allow the Secretary of the West Virginia Department of Environmental Protection to transfer well work permits from one business entity to another, a process that has been previously prohibited by State Code. SB 280 was ultimately pushed in favor of Southwestern Energy, a company that has invested more than $5 billion to purchase wells in West Virginia and Pennsylvania. To become effective legislation, SB 280 must first pass through West Virginia House of Representatives before ultimately needing the approval of West Virginia Governor Earl Ray Tomblin.

Ohio Court of Appeals Holds Assignment of Shallow Rights Does Not Sever Lease

The Fourth District Court of Appeals held in Marshall v. Beekay Company that continuous production from shallow wells pursuant to two oil and gas leases holds the deep rights to the property. The landowners in the case claimed that an assignment of the shallow rights of the oil and gas leases split the oil and gas estate into two different pieces — shallow and deep. Although there was continuous production from the shallow wells, there was no production from the deeper oil and gas formations. The landowners argued that reservation of the deep rights created an obligation of reasonable development of the deep rights. The court disagreed holding that the assignment does not sever the lease because it granted all of the oil and gas rights under the acreage at issue for so long as oil and gas was producted in paying quantities. The court concluded that the granting clause of the lease included all oil and gas at all depths and the deep rights to the property were held by the production from the shallow wells.