Chesapeake Appalachia, LLC, to pay large CWA 404 civil penalty

The U.S. Environmental Protection Agency and the Department of Justice announced on December 19, 2013, that Chesapeake Appalachia, LLC, will pay a $3.2 million civil penalty and spend an EPA-estimated $6.5 million to restore 27 sites damaged by discharges of fill material into streams and wetlands and to implement a Clean Water Act (CWA) 404 compliance plan at the company’s natural gas extraction sites in West Virginia.

Of the 27 sites, four are freshwater impoundments, one is a compressor station, six involve operations related to vertical wells, and the remaining 16 sites involve operations related to horizontal drilling.

In addition to a civil penalty of $3.2 million, the Consent Order requires restoration where feasible, mitigation, employee training for five years in West Virginia, Virginia, Maryland, and Pennsylvania, and integration of a CWA Section 404 compliance protocol into its operating procedures in West Virginia.

According to EPA’s press release, the civil penalty is one of the largest ever imposed for violations of CWA 404. The penalty will be divided between the United States and West Virginia. More information, including the Consent Order, is available on EPA’s web site.

The consent decree, lodged on December 19 in the Northern District of West Virginia, is subject to a 30-day public comment period and court approval.

This post was written by Janet McQuaid (janet.mcquaid@nortonrosefulbright.com or +1 724 416 0427) from Norton Rose Fulbright's Energy Practice Group.
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Pennsylvania Supreme Court strikes down major portions of Act 13 as unconstitutional

Late yesterday, the Pennsylvania Supreme Court, in a highly fractured set of opinions, struck down major portions of Act 13, the revised Oil and Gas Act. Four opinions (totaling more than 200 pages) were issued: a majority opinion, a concurring opinion, a dissenting opinion, and a second dissenting opinion. The newest member of the Supreme Court, Justice Stevens, did not author or join any opinion.

The Court's decision:
  1. Found all applicants to have standing to sue, including those the Commonwealth Court determined lacked standing;
  2. Found the matters not to be non-justifiable and not to be political questions;
  3. Found Sections 3215(b)(4) and (d) [allowing the DEP to grant setback waivers in certain situations], 3303 [the preemption provision of the Act], and 3304 [the uniformity provision of the Act] to be unconstitutional and enjoined (while a majority of the Court reached the conclusion that these Sections of the Act were unconstitutional, they could not agree as to why these provisions were unconstitutional, with three Justices holding that the Sections violated the Environmental Rights Amendment to the Pennsylvania Constitution and one Justice concluding that the Sections violated due process rights under that constitution);
  4. Found that the rest of Section 3215(b) was not severable from Section 3215(b)(4), which it found to be unconstitutional, and, therefore, was enjoined;
  5. Found Sections 3215(c) and (e) also to be not severable and, therefore, also enjoined;
  6. Found Sections 3305 through 3309 to be not severable to the extent they enforce or implement the unconstitutional portions of the Act and, therefore, also enjoined;
  7. Found that the Commonwealth Court improperly sustained the Commonwealth's preliminary objections to Count IV (claiming Act 13 was a special law) and Count V (claiming the eminent domain provision of Act 13 was improper) and remanded those issues for consideration by the Commonwealth Court;
  8. Affirmed the Commonwealth Court's decision finding that Section 3305 (conferring on the PUC the ability to review zoning laws for compliance with the Act) did not violate the separation of powers requirements of the Pennsylvania Constitution; and 
  9. Remanded to the Commonwealth Court for a determination as to whether the valid provisions of Act 13 are severable from those the Court found to be unconstitutional.
Norton Rose Fulbright lawyers are reviewing this lengthy and important decision and will issue a Client Briefing in the near future. In the meantime, if you have questions about this decision or its impact on unconventional gas development in Pennsylvania, do not hesitate to contact the authors.

This article was prepared by Jeremy Mercer (jeremy.mercer@nortonrosefulbright.com or +1 724 416 0440) and Amy Barrette (amy.barrette@nortonrosefulbright.com or +1 724 416 0430) from Norton Rose Fulbright's Energy Practice.
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Do state energy laws preempt municipal zoning ordinances banning oil and gas development?: Briefs filed in NY CASE

On May 2, 2013, a New York state appeals court issued an order upholding a local ordinance banning all activities related to the exploration for, and production or storage of, natural gas and petroleum in the Town of Dryden, New York. The court affirmed the judgment of the lower court, entered on February 22, 2012, which held that certain amendments to the Town of Dryden zoning ordinance are not preempted by New York State’s Oil, Gas and Solution Mining Law (“OGSML”). New York State’s highest court (Case No. APL-2013-00245, New York State Court of Appeals) agreed to hear an appeal of this decision. See prior blogs, New York appeals court upholds local bans on hydraulic fracturing and NewYork Court of Appeals to consider local bans on hydraulic fracturing.

The movant filed its brief (see attached) on October 28, 2013, asserting that  “the Appellate Decision allows every municipality in the State of New York to ban any and all oil and gas development. The inevitable result is zero resource recovery, the ultimate in waste, and the obliteration of mineral owners’ correlative rights. This result starkly conflicts with the language and policies of the OGSML and the Energy Law and, therefore, cannot stand.”

The Town of Dryden responded in a brief dated December 13, 2013, arguing that the “OGSML does not expressly preempt a locality’s right to enact a zoning ordinance that regulates land use generally and designates oil and gas mining as a prohibited use within municipal borders.”  The Town urges that the two separate, distinct regulatory schemes (the Town’s zoning ordinances and the policies of the OGSML) can “harmoniously coexist.” 

On December 13, 2013, the court received an amici curiae brief (see attached) that was filed on behalf of 52 towns and villages in New York, the Association of Towns of the State of New York, the New York Conference of Mayors, and the New York Planning Federation. These interested parties asserted that a local municipality has “the constitutionally guaranteed right…to create and preserve its own community character through generally applicable land use planning and zoning laws.” New York’s energy law “preempts only local regulation of the operations of the oil and gas industry, not local land use laws that govern whether and where such operations may take place within a municipality’s borders.”

The reply brief is due January 6, 2014. Both sides have requested oral arguments.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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Dallas City Council approves strict gas drilling regulations

On December 11, 2013, the Dallas City Council adopted revisions to the gas drilling and production regulations of the Dallas Development Code.  In a 9 to 6 vote, the Council approved regulations that require pad sites to be at least 1,500 feet from homes, schools, churches, daycare centers, hospitals, nursing homes, and other protected property.  Individual drilling permits may qualify for an exception to the 1,500 feet, but any exception must be approved by two-thirds of the Council.  Also, drilling on park land would be allowed if certain conditions are met and if the state Parks and Wildlife Department gives the required approval. 

The regulations contain provisions concerning neighborhood meeting requirements, baseline sampling and testing of air, soil , noise and water, limitations on hours of operation, spill prevention and tracking, site maintenance, emissions, and materials management.  All Material Safety Data Sheets (MSDS) for materials stored on site must be kept on site and submitted to the gas inspector.  An inventory statement identifying the quantities, volumes and concentrations of all hazardous materials and chemicals stored or used at the operation site must be provided to the city.

For hydraulic fracturing, the operator must post a sign at the main gate and send written notification to each property owner and each registered neighborhood association  within 1,500 feet of the well site at least 10 days before fracturing begins.  The operator must add non-radioactive tracing or tagging additives into all fracturing fluids used at the site.  For each site, the fracturing fluid non-radioactive tracing or tagging additives must be unique for each operation site.

These regulations come after years of public meetings, including 22 meetings of the Council’s Gas Drilling Task Force held between July 2011 and February 2012, eight meetings of the City Plan Commission, three public hearings, and over 100 hours of public testimony.  Council members supporting the new regulations believe that these rules  protect the health and safety of residents without foreclosing the opportunity to drill where appropriate.  Council opponents disagree, stating that the rules essentially bar any development of the Barnett Shale within Dallas city limits and may be reduced to one line – “there will be no drilling in Dallas.”  Opponents also point to the loss of tax revenue and direct income the city could earn by leasing its own land for development.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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Spain amends environmental rules to encourage energy development

On December 11, 2013, the Spanish government amended its environmental rules to address the development of shale resources and to limit the environmental review process to six months. Spain’s review process often took three, four or five years to complete a final environmental impact statement. With the shortening of the review process period to six months (four months for review, with the possibility for a two-month extension), Spain hopes to encourage energy companies to develop its resources. While not endorsing hydraulic fracturing, the central government sends a signal that it is willing to consider the process in an objective, timely, and efficient manner. A request for hydraulic fracturing must meet standard review demands, which is the same level of scrutiny given to nuclear power plants.

Hydraulic fracturing is not without criticism in Spain. The shale-rich region of Cantabria banned hydraulic fracturing in April 2013, stating concerns about earthquakes and water contamination. But, with the country’s severe economic downturn marked by high unemployment and the fact that Spain imports more than three-quarters of its energy needs, the central government wants to encourage shale gas development to boost its economy and to decrease its reliance on foreign sources of fuel.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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Canada's National Energy Board asks companies to voluntarily publically disclose frac fluids

Canada's National Energy Board (NEB) regulates oil and gas exploration of certain Canadian frontier lands and offshore areas, including the Northwest Territories, the Arctic, the west coast offshore and the Gulf of St. Lawrence. The NEB has announced that it will begin to request companies drilling in such areas to voluntarily publically disclose the chemicals used in hydraulically fracturing on FracFocus.ca, the Canadian version of FracFocus.org.

Presently, under the Canadian Petroleum Resources Act, certain well-related information, including the composition of hydraulic fracturing fluids, is protected from public disclosure for up to two years. NEB-regulated companies will be asked to sign a waiver allowing public disclosure of their hydraulic fracturing chemicals on FracFocus.ca prior to the end of the two year confidentiality period. Hence, the public disclosure of the fracturing fluid information will be at the discretion of each company, at least until the end of the two year confidentiality period. If a well operator does not voluntarily agree to the disclosure the NEB will publically release the information via FracFocus.ca at the end of the two year period.

View a copy of the NEB press release

This post was written by Alan Harvie (alan.harvie@nortonrosefulbright.com or +1 403.267.9411) from Norton Rose Fulbright's Energy Practice Group.
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Oil and gas association challenges fracking bans in two Colorado cities

In November, the citizens of Fort Collins, Colorado and Lafayette, Colorado voted to ban hydraulic fracturing from their cities. See prior blog, “Voters in three Colorado cities ban hydraulic fracturing.” In Fort Collins, a five-year ban on hydraulic fracturing was approved with 55% of the vote. Sixty percent (60%) of the voters in Lafayette approved an indefinite ban on all oil and gas development, including the deposit, storage, or transportation of fracking wastewater through “the land, air or waters” of the city. In both cities, the City Councils had opposed the bans.

On December 3, 2013, the Colorado Oil & Gas Association (COGA) filed a lawsuit against each city, challenging the validity of the bans (Fort Collins lawsuit and Lafayette lawsuit). COGA argues that a conflict exists between the bans and state law since the cities have no constitutional or statutory authority to implement regulations on oil and gas development techniques, such as hydraulic fracturing. COGA points to Colorado Supreme Court precedent and state law to support its stance that hydraulic fracturing cannot be blocked by municipalities.

According to COGA, the state’s General Assembly has declared it to be in the public’s interest for the state to “foster the responsible and balanced development, production, and utilization of the natural resources of oil and gas in Colorado in a manner consistent with protection of public health, safety, and welfare, including protection of the environment and wildlife resources.” The Oil and Gas Conservation Act created the Colorado Oil and Gas Conservation Commission (COGCC) to administer all “rules, regulations and orders with respect to operations for the production of oil and gas,” including “permitting, drilling production, plugging, spacing and chemical treatment of wells.”

Both COGA and COGCC are currently embroiled in lawsuits against the city of Longmont, which banned fracking in 2012. For more information on the Longmont lawsuits, see latest analysis of fracking-related litigation attached to this blog.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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Pennsylvania courts determine that gas lessee has no implied obligation to develop deeper shale formation

On November 26, 2013, the Pennsylvania Supreme Court denied an appeal of a Superior Court decision which held that a gas lessee has no obligation to drill into the Marcellus Shale formation. In Caldwell v. Kriebel Resources Co., LLC, et al., filed in 2012 in the Clearfield County Court of Common Pleas, Case No. 2012-14-CD, 2012 WL 8745184 (C.P. Clearfield County, Aug. 3, 2012), the plaintiff landowners sought a declaratory judgment that would allow them to terminate their lease agreement with the defendant gas company. Id. The company had drilled a series of shallow wells on the plaintiffs’ property, which produced gas in paying quantities, but did not drill deeper wells into the Marcellus Shale formation. Id. The Court of Common Pleas dismissed the suit, holding that the company was developing the property as required by the lease. Id. The court also rejected plaintiffs’ argument that minimum royalty payments should be based on the natural gas potentially available in all strata underlying the property, finding instead that a well should be deemed to have produced in paying quantities if it resulted in any profit whatsoever. Id.

The Pennsylvania Superior Court affirmed the trial court holding by stating:

Under Pennsylvania law, we are not authorized to impose an implied duty on the lessee to develop the various strata in light of the language contained in their contract. This is so particularly in light of the fact that defendants are producing gas pursuant to the agreement, a fact that appellants acknowledge.

Caldwell v. Kriebel Res. Co., LLC et al., 72 A.3d 611 (Pa. Super. Ct. 2013). With the state Supreme Court denying the appeal, the Superior Court’s decision based on the strict language of the lease remains controlling Pennsylvania law.
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