Monday, July 22, 2019

Shale Law Weekly Review - July 22, 2019

Written by:
Sara Jenkins - Research Assistant
Jackie Schweichler - Staff Attorney

The following information is an update of recent local, state, national, and international legal developments relevant to shale gas.

Post-Production Costs: Court Determines Oil and Gas Company Cannot Deduct Post-Production Costs from State Royalty Payments
On July 11, 2019, the Supreme Court of North Dakota ruled that Newfield Exploration Company (Newfield) could not deduct post-production costs incurred by the company from royalties paid to the state (Newfield Exploration Co. v. State of North Dakota, No. 20190088). Newfield filed the lawsuit to determine whether the royalty payments made to the State of North Dakota were correct after an audit of the company found the royalties were being underpaid according to the lease. Newfield was making royalty payments to the state “based on the gross proceeds it had received from the sale of the gas to Oneok Rockies Midstream L.L.C.” once Oneok processed the gas into a marketable form. The state argued that basing the royalties on profits received from Oneok required the state to “share in post-production costs incurred to make the gas marketable.” The district court initially ruled in favor of Newfield, determining the lease “allows the reduction of the royalty payments to account for expenses incurred to make the natural gas marketable.” The North Dakota Supreme Court, however, reversed the district court’s decision, finding that the term “gross proceeds” used in the lease meant the “lessor’s royalty is calculated based on the total amount received for the product without deductions for making the product marketable.”

Public Lands: Environmental Groups File Lawsuit Against Bureau of Land Management for Issuing Oil and Gas Leases in Arizona 
On July 15, 2019, environmental groups filed a Complaint in the U.S. District Court for the District of Arizona against the U.S. Bureau of Land Management (BLM) for issuing oil and gas leases in Navajo and Apache Counties (Center for Biological Diversity v. Suazo). The leases include land near the Petrified National Forest and the Coconino aquifer. The Plaintiffs, including the Center for Biological Diversity, Sierra Club, and WildEarth Guardians, contend that BLM violated the National Environmental Policy Act (NEPA) by relying on an Environmental Impact Statement (EIS) from 1988. According to the Complaint, BLM found that the 1988 EIS “included an adequate analysis of the environment impacts and alternative actions” for the land in which the leases were located. The Plaintiffs disagree with this finding and assert that “BLM failed to consider the numerous foreseeable impacts of oil and gas development on environmental and cultural resources” in the area. The Plaintiffs are asking the court to reverse and set aside the leases awarded by BLM. 

Pipelines: Pennsylvania’s Natural Gas Pipeline Expansion Proposal Signed into Law
On July 10, 2019, Pennsylvania State Representative Jonathan Fritz issued a press release detailing the passage of SB 712, expanding the Pipeline Investment Program initiative. The bill, which was signed into law as Act 20 on July 1, 2019, amends the Fiscal Code to provide additional grant money for the program. According to the program’s website, the grants can be used for “acquisition, construction, and site preparation costs associated with extending natural gas pipelines.” The press release states that the distribution lines will be completed to provide natural gas to “business parks and existing manufacturing and industrial enterprises,” ultimately providing access to natural gas for Pennsylvania residents.

Production and Operation: Pennsylvania's Department of Environmental Protection Releases Annual Oil and Gas Report
On July 10, 2019, Pennsylvania's Department of Environmental Protection (DEP) released its annual Oil and Gas Report. The report begins with a summary of new developments and programs implemented in 2018, including an improved permit review process, a four-point methane emissions reduction strategy, and compliance assistance for oil and gas regulations. The report also includes various statistics including numbers on production amounts, permits issued, and various wells present in the state. Some notable numbers show Pennsylvania’s 2018 overall production of natural gas at 6.1 trillion cubic feet, which amounts to Pennsylvania’s largest volume of natural gas ever produced in a year. Report statistics also show that 917 oil and gas wells were drilled in 2018, and 90% of fluids produced by hydraulic fracturing operations were recycled and reused. The report follows up with a section on what to expect in 2019, including permit fee rulemaking, a geologic hazard mitigation plan, and continuous improvement for data management. 

LNG Exports: FERC Order Approves Construction and Operation of LNG Export Facilities in Jackson County, Mississippi 
On July 16, 2019, the Federal Energy Regulatory Commission (FERC) issued an order approving the construction and operation of new liquefied natural gas (LNG) export facilities in Jackson County, Mississippi. Gulf LNG Liquefaction Company, LLC and Gulf LNG Energy, LLC (collectively Gulf Liquefaction) filed an application to construct the new facilities under section three of the Natural Gas Act. According to the order, Gulf Liquefaction proposed the construction of two natural gas liquefaction trains, pretreatment facilities, support facilities, and two marine offloading facilities. FERC approved Gulf Liquefaction’s proposal, concluding that the facilities would be built on land currently used for the import terminal site, and the environmental impacts from construction would be “temporary or short term.” Commissioner Click filed a lone dissent, stating the order violated both the Natural Gas Act and the National Environmental Policy Act by not properly addressing the climate change implications of constructing the LNG facilities. 

Crude Oil by Rail: North Dakota, Montana Petitions U.S. Department of Transportation to Overturn Washington State Law Prohibiting Crude Oil by Rail 
On July 17, 2019, the Attorneys General for North Dakota and Montana filed an application with the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) to preempt a new Washington State law that restricts loading or unloading crude oil by rail. Senate Bill 5579, titled “An act relating to the volatility of crude oil received in the state by rail,” was signed into law on May 9, 2019 and takes effect July 28, 2019. The new law states that crude oil may not be loaded or unloaded “from a rail tank car unless the oil has a vapor pressure of less than nine pounds per square inch.” The law does not prohibit rail cars from transporting crude oil though Washington or require railcars to be stopped or checked for vapor pressure before entering the state. However, Attorney General Wayne Stenehjem, who co-filed the application, said in a statement that “Washington’s attempt to re-classify crude oil based on its vapor pressure is inconsistent with federal standards.” 

Methane Emissions: EPA Publishes New Data on Voluntary Methane Emissions Reductions 
On July 11, 2019, the U.S. Environmental Protection Agency (EPA) issued a news release highlighting new results from its Natural Gas STAR Methane Challenge Program. The news release states that oil and gas companies who participated in the program “reduced methane emissions equivalent to nearly 1 million metric tons of carbon dioxide” in 2017. Some of the data included in the news release shows company efforts to replace old pipelines including “1,400 miles of cast iron pipelines and more than 2,000 miles of unprotected steel pipelines.” Additionally, emission reduction efforts by the program’s participants “kept nearly $6 million worth of natural gas in the pipeline.” The EPA provides specific data on each oil and gas company participating in the program on their Methane Challenge Program webpage

Production and Operation: Analysis Shows Large Economic Impact of Energy Sector on Texas Business Activity and Job Creation
On July 8, 2019, the Perryman Group, a team of economic analysts, published a column detailing the large impact of the energy sector on business and job creation in Texas. The publication, Black Gold, found that the energy sector “directly or indirectly supports about one of every six Texas jobs.” The publication considered industry supply chains and consumer spending in its analysis, along with examining other industries to garner opportunities created from the energy sector’s influence. According to the column, oil and natural gas production in Texas has risen 500% since 2010, leading to reduced imports and an increase in U.S. crude oil. Additionally, the energy sector has created 1.9 million jobs and a total personal income of $120.6 billion.

From the National Oil & Gas Law Experts:
Charles Sartain, Industry Custom Does Not Supersede Contract Language, (July 16, 2019)

Follow us on Twitter at PSU Ag & Shale Law (@AgShaleLaw) to receive ShaleLaw HotLinks:

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This week we published a new Shale Law in the Spotlight article:

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Thursday, July 18, 2019

Shale Law in the Spotlight – The Pennsylvania Public Utility Commission Proposes Rulemaking Addressing Pipeline Safety Standards

Written by Chloe Marie – Research Specialist

On June 13, 2019, the Pennsylvania Public Utility Commission (Commission) published a notice of proposed rulemaking seeking comment on possible amendments or enhancements to regulations governing pipeline safety standards. On that same day, the Commission also published a notice of proposed rulemaking addressing financial reporting for public utilities. The Commission is looking for public input into ways of better regulating the design, construction, operations, and maintenance of public utilities, such as transportation pipelines in intrastate commerce. Ultimately, the Commission is considering whether the hazardous liquid public utility safety standards laid down in Chapter 59 of the Pennsylvania Code should be amended. In addition, with regard to financial reporting requirements, the Commission proposed to review the current public utility reporting regulations codified in Chapter 73 of the Pennsylvania Code to determine whether annual depreciation reporting, service life study reporting, and capital investment reporting requirements should be included in the legislation.

This article addresses both advance notices and provide an overview of the specific areas where comments have been requested.

First, the Commission is asking for observations and comments on the existing Part 195 regulations relating to the minimum construction and design standards of hazardous liquid public utilities especially with regards to pipeline materials and specifications, coverings over buried pipelines, underground clearances, and valves. Section 195.8 currently requires that all pipelines carrying hazardous liquids must be constructed with steel pipe; however, the Commission has requested discussion on other potential materials to be used in the construction of these pipelines. The Commission also is seeking comment on the depth-of-cover placement over a buried pipeline necessary to protect the pipeline from accidental damage, which is regulated under Section 195.248. Furthermore, the Commission is requesting comment on the initial distance of 12 inches set forth in Section 195.250 between a pipe installed underground, especially a hazardous liquid public utility pipeline, and other underground services. Finally, the Commission has asked for comment on the appropriate location of pipeline valves regulated under Section 195.258 to further reduce the risk of damage or pollution from accidental hazardous liquid discharge.

Second, the Commission has requested comment on the existing minimum operation and maintenance standards particularly when considering pipeline conversion, construction compliance, pressure testing and maximum operating pressure, line markers, inspection of pipeline rights-of-ways, emergency flow restricting devices, leak detection, and corrosion control and cathodic protection. The Commission is seeking comment on the question of how to improve the procedure involving the conversion of pipeline infrastructure as set out in Section 195.5 and how to best operate and maintain hazardous liquid public utility pipelines based on their ages, as specified in Section 195.401(c). In addition, the Commission is looking for input on pressure testing frequency for all hazardous liquid public utility pipelines as well as recording requirements for pressure testing and maximum operating pressure. The Commission also seeks comment involving the care of pipeline rights-of-way and inspection frequency, currently set to be “at least 26 times each calendar year,” according to Section 195.412. As for the impacts of hazardous liquid public utility pipelines on the environment, the Commission seeks comment on the installation of remote-control valves on such pipelines located in highly sensitive areas to serve as preventative measures on “whether minimum threshold requirements can be established for leak detection systems in all pipelines and what leak detection technologies are appropriate for use.” The Commission also invites the public to express opinions on the adequacy of measures aimed at preventing hazardous liquid public utility pipelines from suffering both external and internal corrosion.

Third and last, the Commission seeks public input on a variety of other topics, including utility interactions with local government officials, specific enhancements to public awareness programs, regulation of construction techniques (such as horizontal directional drilling), accident and reporting criteria and notification, protection of public and private water wells and supplies, background investigations of employees and contractors, and integration of new regulations on existing facilities. In the Advance Notice, the Commission declared that it needs to “proceed expeditiously, but cautiously, acknowledging that [its] actions must be compatible with the federal pipeline safety laws at 49 CFR Part 195” before adding that “significant improvements to hazardous liquid public utility safety standards can be accomplished by building upon the federal pipeline safety laws.”

The public has until August 28, 2019, to submit their comments, after which the Commission will review and consider all relevant comments and issue a formal Notice of Proposed Rulemaking with proposed regulations.

Notice of Proposed Rulemaking Regarding Depreciation Reporting and Capital Planning for Crude Oil, Gasoline, or Petroleum Products Transportation Pipelines

In this Notice of Proposed Rulemaking, the Commission proposes to require that crude oil, gasoline, and petroleum products transportation pipeline public utilities file annual depreciation reports, service life study reports, and capital investment plan reports. The purpose of these reports is to determine whether a public utility will be in a financial position to provide a reliable service to the community. In this regard, the Commission declared that it cannot “properly evaluate the justness and reasonableness of a public utility’s rates and rate structure without examining a company’s earnings and depreciation practices.”

The public has 30 days from the date of the Notice publication in the Pennsylvania Bulletin to submit their comments. The Notice has not yet been published in the Bulletin.


This material is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.

Monday, July 15, 2019

Shale Law Weekly Review - July 15, 2019

Written by:
Sara Jenkins - Research Assistant
Jackie Schweichler - Staff Attorney

The following information is an update of recent local, state, national, and international legal developments relevant to shale gas.

Infrastructure: Environmental Group files Lawsuit Against Washington State for Issuing Permit for LNG Facility 
On July 9, 2019, the Advocates for a Cleaner Tacoma (ACT) filed a Petition for Judicial Review of Agency Action against the Washington State Department of Ecology for issuing a permit for a liquified natural gas (LNG) facility (Advocates for a Cleaner Tacoma v. Washington State Dep’t of Ecology). According to the Petition, the Department issued Administrative Order 13764, granting water quality certification for Puget Sound Energy, Inc.’s proposed LNG facility. ACT contends that the Department violated the State Environmental Policies Act by issuing the permit even though analysis of greenhouse gas emissions for the LNG facility project was determined to be inadequate. The Puget Sound Energy LNG facility is being constructed at the Port of Tacoma, and is expected to be used to fuel ships, and to provide natural gas for local and commercial customers. According to the project’s website, the facility will be too small to be used for LNG exports.

Pipelines: Dakota Access Seeks to Waive Hearing Requirements for Additional Pipeline Pump Station 
On July 10, 2019, the North Dakota Public Service Commission (Commission) issued a Notice of Opportunity for Hearing following a request by Dakota Access, LLC, to waive hearing requirements for an additional Dakota Access pipeline pump station. According to the notice, the additional station would be located in Emmons County and would transport up to 1.1 million barrels of crude oil per day. Dakota Access filed an application to amend the pipeline’s current Certificate of Corridor Compatibility 179 and Route Permit 191 to allow for the additional pump station. The Commission is accepting written public comments on the application. Additionally, those with an interest in the project can file a request for hearing on the matter. The notice states that the Commission may make a decision without a hearing.

Production and Operation: Energy Information Administration Releases Short-Term Energy Outlook
On July 9, 2019, the Energy Information Administration (EIA) released its Short-Term Energy Outlook (forecast). Some highlights from the forecast include an increase in global oil production by 0.1 million barrels per day over the next year, due to the expected decrease in oil demand for 2019. The forecast also states the “U.S. crude oil production averaged 11.0 million b/d in 2018, up 1.6 million b/d from 2017, achieving a record high for total production and year-over-year growth.” Average gas prices for June were lower than May and are expected to remain around $2.65 per gallon in 2019 and $2.76 per gallon in 2020. The forecast predicts that U.S. electricity generation from coal will continue to decline, along with the use of nuclear power.

Public Health: Ohio Department of Natural Resources Works to Correct Data Used in University of Toledo Hydraulic Fracturing Study 
On June 21, 2019, Athens News published an article stating the Ohio Department of Natural Resources (ODNR) was working with the University of Toledo to correct data used in the University study associating indoor radon levels with hydraulic fracturing activities. The University also now includes a note in the news release of the study, stating the University was working with the ODNR to “examine the terminology used in this study related to fracking wells.” The study titled, Impact of the Hydraulic Fracturing on Indoor Radon Concentrations in Ohio: A Multilevel Modeling Approach, was published by Frontiers in Public Health on April 10, 2019. According to Athens News, the study incorrectly stated the total number of deep-shale hydraulic wells in Ohio, as well as incorrectly stated the number of deep-shale wells in certain counties in the state. Mark Bruce, a spokesperson for the ODNR’s Division of Oil and Gas Resource Management told Athens News that “[t]he Division is ready to help the authors [of the study] utilize and analyze oil and gas well data so that cited information is presented accurately because currently the Division is confident it is not.”

From the National Oil & Gas Law Experts:

Ann Navaro & Christine Wyman, Highlights from the Trump Administration’s Rulemaking Agenda, (July 9, 2019)

Pennsylvania Legislation:
Act 20: Provides for transfer of money from the Oil and Gas Lease Fund into the Marcellus Legacy Fund (Enacted from SB 712 - June 28, 2019).

Act 1A: Details Oil and Gas Lease Fund Appropriations (Enacted from HB 790 - June 28, 2019)

Act 14A: Details federal appropriation amounts for natural gas pipeline safety (Enacted from SB 242 - June 28, 2019)

SB619: would amend the Clean Streams Law to only require reporting to DEP if the unauthorized discharge could cause a violation of water quality or if it is reportable under federal requirements (Third consideration and final passage (Senate), Referred to Environmental Resources and Energy (House) - June 27, 2019)

Follow us on Twitter at PSU Ag & Shale Law (@AgShaleLaw) to receive ShaleLaw HotLinks:

Connect with us on Facebook! Every week we will post the CASL Ledger which details all our publications and activities from the week.

Want to get updates, but prefer to listen? Check out the Shale Law Podcast! We can always be found on our Libsyn page, iTunes, Spotify, or Stitcher.

Check the June Agricultural Law Brief! Each month we compile the biggest legal developments in agriculture. If you’d like to receive this update via email, check out our website and subscribe!