Shale Law Weekly Review - June 25, 2018

Written by:

Brennan Weintraub - Research Assistant

Jackie Schweichler - Education Programs Coordinator

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

State Regulation: Federal Court Dismisses Lawsuit Seeking Compensation for New York Hydraulic Fracturing Ban

On June 18, 2018, the U.S. District Court for the Western District of New York dismissed a lawsuit by an East Rochester resident who sued the state of New York for banning hydraulic fracturing. The resident, David Morabito, claimed that the ban constituted an unconstitutional taking of his oil and gas rights. The court, however, decided that the lawsuit was in violation of the Eleventh Amendment, which prohibits parties from suing states for money in federal court.

Pipelines: FERC Declines to Review Approval of Mountain Valley Pipeline

On June 15, 2018, the Federal Energy Regulatory Commission (FERC) issued an opinion denying a request from environmental groups for rehearing in the ongoing lawsuit against Mountain Valley Pipeline, LLC. (MVP). In November 2017, several environmental groups sought rehearing after FERC approved MVP’s Certificate Order authorizing construction and operation of the pipeline. The court held that the Certificate Order complies with all requirements including those within the Natural Gas Act and the National Environmental Policy Act. The pipeline, once completed, will carry natural gas from the Utica and Marcellus Shales in northern West Virginia to a compressor station in southern Virginia. Construction on the project has already begun and completion is expected by the end of 2018.

Pipelines: Fourth Circuit Court of Appeals Issues Stay for Mountain Valley Pipeline Construction

On June 21, 2018, the U.S. Fourth Circuit Court of Appeals issued a stay halting construction on parts of EQT Midstream Partners’ (EQT) Mountain Valley Pipeline in West Virginia (Sierra Club, et al v. U.S. Army Corps of Engineers, et al., No. 18-1173). The stay was requested by Sierra Club, which challenged a permit issued to the project that allows the pipeline to cross streams and wetlands in the southern part of the state. Sierra Club argued that it would not be possible for EQT to cross all four bodies of water within the 72 hours required by the permit. EQT responded to the stay saying that they will be using a different technique to cross the waterways that requires more time but is also is more environmentally protective.

PA Impact Fee: Pennsylvania Announces Distribution of 2017 Shale Gas Fees

On June 21, 2018, the Pennsylvania Public Utilities Commission (PUC) announced the planned distribution of the nearly $210 million collected in shale gas fees in 2017. More than half will be given to counties and municipalities across the state and nearly $80 million will be placed in the Marcellus Legacy Fund, which supports environmental and infrastructure projects in the state. Last year’s total marks an increase from 2016, when Pennsylvania took in $173 million. The PUC also announced that it has now taken in more than $1.4 billion in shale gas fees in the last seven years.

Municipal Regulation: Chatham County Extends Moratorium on Hydraulic Fracturing

On June 18, 2018, the Board of Commissioners of Chatham County, North Carolina extended a moratorium on hydraulic fracturing within the county to January 31, 2019, according to the Herald-Sun. The Board decided to extend the moratorium to conduct further research and fully consider potential impacts. The moratorium was originally put into place in August 2015. The commission received a report from an environmental consultant last October which warned of potential groundwater contamination. The state of North Carolina began allowing oil and gas exploration in 2014. State law preempts local governments from banning it entirely, though counties and municipalities may still regulate the practice.

Methane Emissions: Study Suggests Oil and Gas Industry Leaks Far More Methane Than EPA Reports

On June 21, 2018, a collaboration of researchers from various universities published a study which found that methane emissions from the oil and gas industry may be up to sixty percent higher than reported by the U.S. Environmental Protection Agency. The study estimated that yearly methane emissions from the production and transport of oil and gas are equal to about 2.3 percent of all natural gas production in the United States. The most significant source of leaks, according to the study, are vents and hatches in storage tanks. The study is entitled Assessment of Methane Emissions From the U.S. Oil and Gas Supply Chain, and was published in Science.

Public Health: Report Examines Effect of Energy Companies Located Near Disadvantaged Communities

On June 20, 2018, Food & Water Watch, a Washington, D.C. environmental group, released a report, Pernicious Placement of Pennsylvania Power Plants, detailing the impact of the Pennsylvania oil and gas industry on disadvantaged communities. Specifically, the study concluded that existing power plants were disproportionately located near communities with “lower incomes, higher economic stress, lower educational levels and/or communities of color.”  The report noted that people of color make up nearly half of the population of census tracts within three miles of fossil fuel power plants. Majority white populations, however, were found in less than ten percent of those census tracts within three miles of fossil fuel power plants according to the researchers. The report also noted that household income in Pennsylvania is considerably lower near power plants and rises as residents get further away.

International Development: Judge Says Hydraulic Fracturing is Not Banned in Scotland

On June 19, 2018, Lord Pentland of the Scottish Court of Session issued an opinion in which he agreed with the Scottish government that the nation did not have an enforceable ban on hydraulic fracturing. Scotland had been sued by Ineos Upstream, which claimed that the government had illegally banned the practice in October 2017. Instead, the court agreed with the government’s argument that Scotland’s policy on unconventional oil and gas had not yet been finalized. A representative of the Scottish government stated that the government is currently undertaking environmental impact studies and no final policy will be announced until they are completed in October.

From the National Oil & Gas Law Experts:

Ag Groups File Amicus Brief in WOTUS Case, Amie Alexander, William H. Bowen School of Law (June 18, 2018)

Texas Supreme Court Affirms Washout of a Back-in Interest, Charles Sartain, Gray Reed (June 20, 2018)  

Pennsylvania Legislation:

HB 107 An Act amending Title 66 (Public Utilities) of the Pennsylvania Consolidated Statutes, in rates and distribution systems, providing for recovery of natural gas distribution system extension costs. (re-reported as committed, June 22, 2018)

HB 2502 An amending Title 58 (Oil and Gas), further providing for well permits (referred to Environmental Resources and Energy, June 18, 2018)

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

“A greener future starts with natural gas” - Bloomberg

“An industry analyst says Ohio’s in for a chemical and plastics boon” - WKSU

“U.S. federal oil output hits record in 2017, in boost for Trump’s energy agenda” - Reuters

“Indigenous protesters in Washington insist Trans Mountain won’t be built” - CBC

“China hits pause on Appalachian energy investment citing trade war concerns” - Pittsburgh Post-Gazette

“U.S. shale producers warn Chinese tariffs would hit energy exports” - Reuters

“Presbyterian panel backs shedding investments in fossil fuels” - Pittsburgh Post-Gazette

“US prepares for next wave of LNG exports” - Financial Times

“Focus on returns now will hurt long-term U.S. shale oil investment” - Reuters

“Permian pipeline scarcity forces drillers to leave oil wells unfracked” - Bloomberg

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

This week we published our Shale Law in the Spotlight: Pennsylvania Superior Court Denies Request for Rehearing in Trespass by Hydraulic Fracturing Case

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.

Shale Law Weekly Review - April 30, 2018

Written by:

Jacqueline Schweichler - Education Programs Coordinator

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

Pipelines: New York Denies Water Quality Certification to Transco Pipeline
On April 20, 2018, the New York State Department of Environmental Conservation (NYSDEC) denied several permits to Transcontinental Gas Pipe Line Company, LLC (Transco). The denied permits included a Water Quality Certification, Endangered/Threatened Species permit, and Excavation & Fill in Navigable Waters permit. NYSDEC stated in their press release that the application materials submitted “showed potentially significant environmental impacts that raised serious concerns.” Some of the concerns listed by NYSDEC include toxic sediments handling, total suspended solids mixing requirements, wet-storage of sediment, backfilling, hydrostatic testing, and resource impacts and mitigation plans. Transco’s proposed pipeline project in New York includes the installation of 17.4 miles of a 26-inch pipe within New York waters.

Municipal Regulation: Ohio Supreme Court Rules Youngstown Initiative Should be Included on Ballot
On April 24, 2018, the Supreme Court of Ohio granted a writ of mandamus compelling the Mahoning County Board of Elections to place the proposed Youngstown Drinking Water Protection Bill of Rights on the May 2018 ballot (State ex re. Khumprakob v. Mahoning Cty. Bd. of Elections, Slip Opinion No. 2018-Ohio-1602). If adopted, the proposed amendment would recognize that Youngstown residents have the right to clean water and the right to be free from some types of fossil-fuel development. In February 2018, the board of elections certified that there were a sufficient number of valid signatures and the Youngstown City Council instructed the board to place the charter amendment on the ballot. The board, however, found that the proposed amendment contained provisions that were beyond the scope of their power to enact and refused to place the amendment on the ballot. The court allowed the ballot proposal to go forward while acknowledging that the proposed amendment is vague and likely to be ineffective.

Pipelines: Minnesota Court Dismisses Objection to Pipeline Protesters’ Use of Necessity Defense
On April 23, 2018, the Court of Appeals of Minnesota dismissed the State of Minnesota’s objection to the use of the necessity defense in a case involving climate change protests (State v. Klapstein, 2018 Minn. App. Unpub. Apr. 23, 2018). In October 2016, several climate change protesters entered property owned by Enbridge in order to shut down a petroleum pipeline. The protesters were charged with felony criminal damage and trespassing. They filed notice to present the necessity defense at trial stating that their actions were necessary to prevent the growing threat of climate change. The state argued that use of the necessity defense is inapplicable and will unnecessarily confuse the jury. The court disagreed and held that the state was unable to meet the burden of showing that the defense would have a critical impact on the case.

Municipal Regulation: Court Holds City’s Oil and Gas Rules are Preempted by Colorado Law
On April 24, 2018, the Adams County District Court in Colorado held that several oil and gas related rules adopted by the City of Thornton are preempted by state law (Colorado Oil and Gas Association, et al. v. City of Thornton, 2017 CV 31640). The Colorado Oil & Gas Association and the American Petroleum Institute filed suit against the city after Thornton adopted new oil and gas rules in August 2017. The new ordinance increased oil and gas development setback requirements to 750-feet from buildings and created more stringent standards for gathering lines. The court granted summary judgement in part, holding that the new setback and gathering line requirements are preempted by state law. However, the court denied summary judgment with regard to the Thornton rules on well consolidation and surface/site conditions.

Methane Emissions: Canada Publishes New Oil and Gas Methane Emissions Rules
On April 26, 2018, Canada published new methane emission standards for the oil and gas industry. The new regulations were created as part of Canada’s commitment “to reduce methane emissions from the oil and gas sector by 40 to 45 percent from 2012 levels by 2025,” under the Pan-Canadian Framework on Clean Growth and Climate Change. The rules require that covered compressors and well completions involving hydraulic fracturing must conserve or destroy methane to meet venting limits. In addition, oil and gas facilities will be required to implement leak detection and repair programs, limit vented methane volumes, and comply with new emission rules for pneumatic pumps and controllers. Parts of these regulations will go into effect January 1, 2020 and the remainder of the rules will go into effect January 1, 2023.

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

“A First for Panama Canal: Three LNG Tankers Crossed in a Day” - Bloomberg Markets
"NJ governor signs bill to block offshore drilling" - The Hill
"Seneca Resources using 75 percent recycled water in shale wells" - The Bradford Era
"Facing shipping constraints, Canada moving oil one truckload at a time" - Reuters
"Natural gas storage for winter underway" - News and Sentinel
"Gov. Justice order to expedite permit process could benefit business, oil gas industries" - WV News "Cambridge donor BP urges university to keep fossil fuel investments"  - Reuters
"The Next Winners From the Oil Rally" - WSJ
"EPA to unveil policy aimed at avoiding legal action over oil and gas polluters: source" - The Hill
"UK needs 6,000 shale gas wells to fill 50% of imports, study says" - The Guardian
"'Frac' intensity in shale wells wears out equipment faster: Halliburton" - S&P
"Minn. protesters get green light on climate 'necessity' defense" - EENews
"Permian Basin Is Growing Into the Largest Oil Patch in the World" - Markets

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

See our Global Shale Law Compendium and this week’s article, Shale Law Governance in Pennsylvania - Regulations from 2008 to 2010

 Check out this week’s Shale Law in the Spotlight: Background of Recent West Virginia Legislation Addressing the Deduction of Post-Production Costs from Oil and Gas Royalties.

Stay informed with our monthly Agricultural Law Brief located here.

Shale Law in the Spotlight: Valley Lateral Pipeline Project – An Overview of Status and Current Legal Developments

Written by Chloe Marie – Research Fellow

This article is intended to provide an overview of the current status of the Valley Lateral Project as well as recent legal developments related to construction activities on the project.

The Valley Lateral Project is a new pipeline project intended to directly connect and transport approximately 130,000 Dth/day of natural gas from the Millennium pipeline’s mainline in Orange County, New York to the CPV Valley Energy Center in the Town of Wawayanda, Orange County, New York. The CPV Valley Energy Center is a 680 Megawatt (MW) combined-cycle gas power plant currently under construction, which will generate electricity using natural gas coming from the Millennium pipeline in order to supply around 650,000 houses in the region.

On November 13, 2015, Millennium Pipeline Company LLC filed a certificate application with the Federal Energy Regulatory Commission (FERC) for construction and operation of the Valley Lateral Project. In the meantime, on November 20, 2015, Millennium applied to the New York Department of Environmental Consideration (DEC) for a Section 401 Water Quality Certification. New York DEC several times questioned the completeness of Millennium’s application and requested additional information. New York DEC ultimately conceded the completeness of the application on August 31, 2016. Consequently, Millennium filed a Request for Expedited Review for the Section 401 Water Quality Certification, to which New York DEC indicated it had a one-year deadline to review the application.

On November 9, 2016, FERC issued a Certificate of Public Convenience and Necessity allowing the project to go forward. On December 5, 2016, Millennium filed a petition for review to the U.S. Court of Appeals for the District of Columbia Circuit to order New York DEC to take action on delayed Section 401 certification application. Millennium alleged that New York DEC exceeded the regulatory timeline prescribed under the Clean Water Act to take action on the Section 401 certification application stating that “the Department received Millennium’s application on November 23, 2015. One year came and went on November 23, 2016, without action.” Millennium also claimed that because New York DEC failed to act within the regulatory timeline, it waived its right to issue a water quality certification.

On June 23, 2017, the U.S. Court of Appeals denied Millennium’s petition for review due to a lack of standing and ruled that FERC only has jurisdiction to provide a remedy for the delayed action. As a result, on July 21, 2017, Millennium filed with FERC a Request for Notice to Proceed with construction of the Valley Lateral Project and asked FERC to declare that New York DEC waived its authority under the Clean Water Act Section 401. Interestingly, on August 30, 2017, New York DEC denied Millennium’s application for a Section 401 Water Quality Certification.

On September 15, 2017, FERC issued a Declaratory Order holding that New York DEC indeed waived its authority to issue a water quality certification. In this order, FERC explained that, pursuant to the Clean Water Act and Congressional intent, the waiver period runs from the day that New York DEC received the certification application.

On October 13, 2017, New York DEC filed a Request for Rehearing and Stay of the Declaratory Order. In the meantime, on October 27, 2017, FERC issued a Notice to Proceed authorizing Millennium to start construction of the Valley Lateral Project.

On October 30, 2017, New York DEC filed a Request for Stay of the Notice to Proceed and also filed a petition for review with the U.S. Court of Appeals for the 2^nd Circuit asking for a temporary stay of the FERC’s Notice to Proceed pending action on New York DEC’s Request for Rehearing and Stay of the Declaratory Order.

On November 15, 2017, FERC denied New York DEC’s Request for Rehearing and Motions to Stay that were filed on October 13 and 30 contending that New York DEC failed to demonstrate irreparable injury to support its requests for stay.

Recently, on March 12, 2018, the U.S. Court of Appeals for the Second Circuit denied New York DEC’s petition for review holding that FERC has sole jurisdiction over the Valley Lateral Project and that the New York DEC had waived its authority to issue a water quality certification.

Stay tuned for further legal developments!

                                                                

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

Shale Law in the Spotlight: Oil and Natural Gas Severance Taxes in the United States (Florida, New York, Tennessee, Illinois, and Virginia)

Written by Chloe Marie – Research Fellow

This series addresses severance taxes on oil and natural gas imposed by various states, and this seventh and last article will review the severance tax systems for the state of Florida, New York, Tennessee, Illinois, and Virginia. In six prior articles, we addressed the severance tax systems for the states of Pennsylvania, Ohio, and West Virginia; for the states of Texas, Oklahoma, Louisiana, and Wyoming; for the states of North Dakota, Arkansas, New Mexico, and Colorado, for the states of Kansas, South Dakota, Montana, Utah; for the states of Indiana, Kentucky, Alabama, and Mississippi; and for the states of Michigan, Alaska, Nebraska, and California.

Florida

In Florida, there is a production tax imposed on oil and natural gas severed in the state (Fl. Code Chapter 211). Oil is taxed at a rate of 8% of the gross value at the point of production. Oil produced from wells capable of producing less than 100 barrels per day is taxed at a reduced rate of 5% at the point of production. For oil that has escaped from wells, the tax rate is set up at 12.5%. In addition, oil produced using tertiary methods is taxed based on the value or market price of a barrel of oil at the wellhead using tiered formulas, as follows: 1% is levied on the first $60 of gross value; 7% is levied on the gross value greater than $60 and less than $80; 9% is levied on the gross value greater than $80.

Natural gas is taxed at a rate determined annually by the Florida Department of Revenue and is based on the volume of gas produced and sold or used by a producer during the month. The tax rate is calculated based on the previous calendar year’s producer price indices published by the U.S. Bureau of Labor Statistics and, as of July 1, 2017, the natural gas production tax rate is $0.172 per Mcf.

Tax exemptions also are provided for oil or gas production used for lease operations on the lease or unit where produced; gas reinjected into the producing field; unsold gas vented or flared directly into the atmosphere; oil and gas produced from new field wells, completed after July 1, 1997, for a period of 60 months after the completion date; oil and gas produced from new wells in existing fields as well as from shut-in wells or temporarily abandoned wells or wellbores, completed after July 1, 1997, for a period of 48 months after the completion date; and oil and gas produced after July 1, 1997, for a period of 60 months after the completion date from any horizontal well or any well having a total measured depth in excess of 15,000 feet.

The revenue received from the severance tax is collected by the Florida Department of Revenue and deposited in the Oil and Gas Tax Trust Fund. From the balance of this fund, a “sufficient amount” must be appropriated to the Chief Financial Officer for refund purposes while the remainder must be distributed to the General Revenue Fund of the board of county commissioners of producing counties and to the Minerals Trust Fund.

New York

In New York, there is no statewide severance tax on oil and gas production; however, the New York Real Property Tax law provides for an annual assessment of oil and gas rights in New York oil and gas producing properties based on the appropriate unit of production value and determined by the New York Office of Real Property Tax Services (ORPTS). Oil and gas producing properties include oil and gas wells, pipelines, reserves, etc.

According to the ORPTS’ Overview Manual, the unit of production value for oil is stated as a dollar amount per daily average of oil production or per barrel of oil produced while the unit of production value for natural gas is expressed in dollars per 1,000 cubic feet (Mcf) produced or dollar per daily average. In March 2017, the ORPTS issued a certificate providing for the Final 2017 Oil and Gas Unit of Production Values.

Tennessee

The Tennessee Code imposes a severance tax on producers removing oil and gas from the ground in Tennessee at a rate of 3% of the oil and gas sale price (T.C.A. § 60-1-301). In addition, the Tennessee Code provides that the revenue received from the severance tax is exclusively for the use and benefit of the state and local governments and must be distributed as follows: 1/3 of the revenue collected must be allocated to the county where the wellhead is located while the remaining 2/3 of the revenue must be allocated to the state general fund.

Illinois

The Illinois Hydraulic Fracturing Tax Act (35 ILCS 450/2-15) levies a statewide severance tax on oil and natural gas produced on or after July 1, 2013, based on different rate formulas. During the first 24 months of initial production, the Illinois legislature provides for a 3% reduced tax rate of the value of the oil and gas severed within the state. The tax rate thereafter is determined as follows:

-          A tax rate of 3% applies to the value of oil where the average daily production from the well is less than 25 barrels on a monthly basis;

-          A tax rate of 4% applies to the value of oil where the average daily production from the well is 25 or more barrels but less than 50 barrels on a monthly basis;

-          A rate 5% applies to the value of oil where the average daily production from the well is 50 or more barrels but less than 100 barrels on a monthly basis;

-          For natural gas, a 6% tax rate applies to the value of natural gas.

The Illinois Hydraulic Fracturing Tax Act also provides for a tax exemption where the oil is produced from a well with average daily production of 15 barrels or less for the first 12 months of initial production. Tax exemptions also apply to gas injected into the ground for the purpose of lifting oil, recycling, or repressuring; gas used for fuel in connection with the operation and development for, or production of, oil or gas in the production unit where severed; gas lawfully vented or flared; and gas inadvertently lost on the production unit by reason of leaks, blowouts, or other accidental losses.

Virginia

The Virginia Code § 58.1-3712 authorizes counties and cities to levy a severance tax at a rate that should not exceed 1% of the gross receipts from the sales of natural gas severed within the county or city. The counties concerned are Tazewell, Dickenson, Buchanan, and Wise counties as well as the City of Norton, and all impose a 1% tax rate of the gross receipts from the sale of natural gas severed.

The money received from the severance tax for each county and city must be paid into a special fund of such county or city called the Coal and Gas Road Improvement Fund, and this money must be used for the purpose of improving public roads (§ 58.1-3713).