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.

The Ohio Oil And Gas Commission Affirms Orders Suspending Operation Of An Injection Well Due To Low-Level Seismic Events

The Ohio Oil and Gas Commission rendered a decision on August 12, 2015, affirming two orders of the Chief of the Division of Oil and Gas Resources Management that suspended operation of an injection well operated by American Water Management Services in Trumbull County, Ohio. The orders, issued in September, 2014, were based upon two seismic events near the well that were not felt on the surface and caused no property damage. American Water argued on appeal that the orders exceeded the Chief’s authority to suspend permits in the absence of regulatory violations and were unreasonable given the low magnitude of the events and American Water’s proposal to resume operations under a comprehensive plan to monitor seismic events and cease operations if seismic events occur at specified levels. The Commission rejected those contentions, finding that the Chief has inherent authority to suspend permits to protect public health and safety even where the permit holder has not violated applicable regulatory requirements. The Commission also found that the Chief acted reasonably due to a justifiable concern that the two low-level seismic events may be predictive of larger events that may jeopardize public health and safety.

EPA Revises Low Pressure Gas Well and Storage Vessel Definitions for NSPS Subpart OOOO

The U.S. Environmental Protection Agency (EPA) is revising important definitions in the New Source Performance Standards (NSPS) rule for the oil and gas sector, NSPS Subpart OOOO, in response to stakeholder petitions.  In a final rule published today, EPA is revising the definition of “low pressure gas well”, in order to identify the wells that cannot implement a reduced emission completion (otherwise known as REC or “green completion”) because of a lack of necessary reservoir pressure.  EPA is also revising the definition of “storage vessel” to remove references to “connected in parallel” and “installed in parallel”, in order to clarify which storage vessels are subject to NSPS Subpart OOOO.  The revisions are effective immediately.

Court Holds 1961 Dual Purpose Lease Still In Effect

In the case titled Mason v. Range Res.-Appalachia LLC (2015 U.S. Dist. LEXIS 97471), the United States District Court for the Western District of Pennsylvania recently held that a 1961 oil and gas lease remained in effect pursuant to the terms of the lease.  The lease provided the lessee the right to enter the leased premises to explore, drill, produce and market oil and gas as well as inject, store and withdraw gas and protect gas stored therein.  The habendum clause of the lease provided that the lease would extend into its secondary term so long as the lessee operated the property (i) in search for oil and gas; (ii) for production of oil and gas; (iii) for storage of oil and gas; or (iv) “for the protection of any gas stored in such storage field” (emphasis added).  These types of oil and gas leases are commonly referred to as “Dual Purpose” Leases.  The leased premises is situated within a protective area for a 11,000 acre storage field located in Washington County, Pennsylvania, and no well has been drilled on and no production occurred on the leased premises.

The landowners argued, among other things, that the 1961 lease has expired because (i) the lease provides the lessee the right to use the premises to produce gas, store gas and protect gas stored on the leased premises; (ii) the lessee may not use the leased premises for the protection of gas stored on adjoining lands until it first produced gas on the leased premises; and (iii) the annual payments were insufficient to extend the lease into its secondary term.  The court applied the rationale set forth in Penneco Pipeline v. Dominion Transmission, Inc. and the rules of contract interpretation to conclude that the lease had entered into its secondary term and remained in effect.  The court held that the only reasonable construction of the granting and habendum clauses is that the lessee may use the land for protecting gas stored immediately under the leased premises or gas stored under adjoining land or both.  Because the lessee was using the leased premises to protect gas stored under adjoining land and tendered annual rental payments, it concluded that the 1961 lease is still in effect.

EPA Inspector General Reports on Hydraulic Fracturing Regulators

The U.S. Environmental Protection Agency (EPA) Office of Inspector General (OIG) recently released a report entitled, “Enhanced EPA Oversight and Action Can Further Protect Water Resources From the Potential Impacts of Hydraulic Fracturing.”  The report evaluates how EPA and state agencies have used existing authorities to address the potential impacts of hydraulic fracturing on water resources, and also recommends two areas for EPA improvement.  First, the OIG recommends that EPA improve its oversight of Underground Injection Control (UIC) permit issuance for the use of diesel fuels in hydraulic fracturing.  Second, the report recommends that EPA develop an action plan to address public comments submitted in response to the agency’s May 2014 advance notice of proposed rulemaking (ANPR) related to possible federal chemical disclosure requirements.  The OIG found that EPA does not have a plan for responding to the comments submitted in response to the 2014 ANPR, nor for making a final determination on whether to proceed with a formal rulemaking.

Ohio Adopts Horizontal Well Site Construction Rules

The Ohio Department of Natural Resources (ODNR), Division of Oil and Gas Resources Management has adopted rules requiring the approval of plans for horizontal well sites prior to the construction or material modification of the sites.  The rules, codified at OAC 1501:9-2-01, 1501:9-2-02, and 1501:9-12-01, became effective on July 16, 2015.

The rules require the electronic submission of an application for approval of the well site (consisting of the well pad, access roads, areas altered to install ponds and other water control components, storage facilities, and other areas altered for drilling and production operations), and provide that construction or material modification of the site may not commence without first obtaining a permit from the Chief of the Division.  The rules prescribe the information to be provided in the application, including detailed drawings of all features within the well site boundary prepared and certified by a professional engineer, a sediment and erosion control plan, a dust control plan, a geotechnical report, and a stormwater hydraulic report.

The applicant and a representative of the Chief must meet at the site within 15 days of notification by the Chief that the application is complete.  The applicant must submit certification by a professional engineer after completion of the well site that the site has been constructed in conformity with the approved application.  The text of the rules, a discussion of the rules’ contents, and forms prescribed by the Chief are available on the Division’s website.

Gov. Tomblin Forms the WV Commission on Oil and Natural Gas Industry Safety

On July 9, 2015, Governor Tomblin announced the formation and appointment of members to the West Virginia Commission on Oil and Natural Gas Industry Safety.  Publicized during Governor Tomblin’s State of the State address in early 2015, the Commission is charged with “reviewing current federal and state oil and natural gas workplace safety regulations and provid[ing] recommendations for improving workplace safety” according to the State Journal.  The Commission is comprised of secretaries of the DEP, Dept. of Commerce, Dept. of Transportation, and Public Safety, among others, as well as members of the natural gas industry and labor representatives.  The Commission is to issue its first report on or about November 16, 2015.