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Legislative Activity Update - Ten Pennsylvania Bills, Including New Severance Tax Bill

The following already-introduced bill has been acted upon by the Pennsylvania General Assembly:

PA House Bill 621      Format of documents recording lease assignments
Sponsor:Sandra Major (Republican – parts of Susquehanna and Wayne Counties [northeast Pennsylvania])
Overview:Requires that documents presented for recordation that contain or reference multiple leases include an addendum containing (1) the names of the lessor(s), (2) the prior recording information for the leasehold interest, and (3) the property with which each lease is associated.

 Allows recorder of deeds to refuse, and his/her sole discretion, to record documents incorporating by reference or exhibit more than fifty (50) leases.
Current Status:Unanimously passed by House of Representatives on May 13, 2015.

 Referred to Senate Committee on Environmental Resources and Energy on May 28, 2015.

 The following bills have been introduced since the last Legislative Activity Update blog post:
PA Senate Bill 116     Natural Gas Severance Tax
Sponsor:James R. Brewster (Democrat – parts of Allegheny and Westmoreland Counties [outside Pittsburgh])
Overview:Extensive natural gas severance tax bill imposing a tax of (1) “[f]our and seven tenths cents for each unit of natural gas severed measured at the wellhead meter,” (2) “[f]ive percent of the average market price … of each unit of the dry natural gas derived from the natural gas severed,” and (3) “[f]ive percent of the gross value of the natural gas liquids derived from the natural gas severed as shown by the gross proceeds derived from the sale by the producer.”

 Sets a price floor of $2.97 per unit for purposes of calculating tax.

 Prohibits producer from making the tax an obligation of the landowner or leaseholder.

 Requires every producer to obtain a license from the Department of Revenue (“Department”) “before severing natural gas from this Commonwealth.”

 Imposes criminal penalties for severing gas without a license from the Department.

 Does not repeal or alter the Impact Fee, meaning that both the Impact Fee and the Severance Tax are payable by producers.

 Alters distribution scheme for Impact Fee revenue.
Current Status:Referred to the Senate Committee on Environmental Resources and Energy on May 14, 2015.

PA Senate Bill 801     Publication of Permits by DEP
Sponsor:Andrew E. Dinniman (Democrat – part of Chester County [outside Philadelphia])
Overview:Requires Department of Environmental Protection (“DEP”) to publish, on DEP’s website, the entirety of applications and supporting materials filed with the DEP related to the following permits:
  • Air quality permits under the “Air Pollution Control Act”;
  • Water allocation permits under the “Water Rights Law”;
  • Water obstruction permits under the “Dam Safety and Encroachments Act”;
  • Water quality permits, except those relating to coal mining activities, under the “Clean Streams Law”; and
  • Solid waste and hazardous waste permits under the “Solid Waste Management Act.”
Current Status:Referred to the Senate Environmental Resources and Energy Committee on May 14, 2015.

PA Senate Bill 802     Notification of pipeline construction
Sponsor:Andrew E. Dinniman (Democrat – part of Chester County [outside Philadelphia])
Overview:Requires notice and information to be given to landowners within a half mile from boundary of proposed activity requiring certain permits.

 Permits for which notice and information must be given include:
  • Air quality permits under the “Air Pollution Control Act”;
  • Water allocation permits under the “Water Rights Law”;
  • Water obstruction permits under the “Dam Safety and Encroachments Act”; and
  •  Water quality permits, except those relating to coal mining activities, under the “Clean Streams Law.”
Information provided in notice includes the following:
  • A description of the type of permit application;
  • Brief description of activity planned for project;
  • Statement that project activity is anticipated to have one or more impacts on landowner(s); and
  • Brief description of anticipated impact(s).
Notice must be given within 30 days of submission of application for permit.
Current Status:Referred to the Senate Environmental Resources and Energy Committee on May 14, 2015.

PA Senate Bill 803     Protection of Act 43 farmland 
Sponsor:Andrew E. Dinniman (Democrat – part of Chester County [outside Philadelphia])
Overview:Amends Agricultural Area Security Law to require approval by Agricultural Lands Condemnation Approval Board of pipeline projects that would involve condemnation of land used for “productive agricultural purposes” by Pennsylvania Public Utility Commission and/or Federal Energy Regulatory Commission.

 Applies only to the following county classes:
  • First Class (Philadelphia County);
  • Second Class and Second Class A (Allegheny, Bucks, Delaware, and Montgomery counties); and
  • Third Class (Berks, Chester, Cumberland, Dauphin, Erie, Lackawanna, Lancaster, Lehigh, Luzerne, Northampton, Westmoreland, and York counties).
Current Status:Referred to the Senate Environmental Resources and Energy Committee on May 14, 2015.

PA Senate Bill 804     Amends Gas and Hazardous Liquids Pipelines Act
Sponsor:Andrew E. Dinniman (Democrat – part of Chester County [outside Philadelphia])
Overview:Pipeline operators purchasing or obtaining an easement for public land, agricultural-easement land, or permanently preserved land for new or expanded pipelines must purchase or grant an easement for an equivalent section of land within the respective county for recreational use.

 Easement replacement obligation applies only to the following county classes:
  • First Class (Philadelphia County);
  • Second Class and Second Class A (Allegheny, Bucks, Delaware, and Montgomery counties); and
  • Third Class (Berks, Chester, Cumberland, Dauphin, Erie, Lackawanna, Lancaster, Lehigh, Luzerne, Northampton, Westmoreland, and York counties).
Pipeline operator engaged in construction or replacement of pipelines involving the alteration or development of land must ensure that post-construction volume and maximum rate of storm water runoff does not exceed pre-construction levels.
Current Status:Referred to the Senate Environmental Resources and Energy Committee on May 14, 2015.

PA Senate Bill 845     Licensing of Soil Scientists
Sponsor:Judith L. Schwank (Democrat – part of Berks County)
Overview:Requires soil scientists to be licensed and provides for qualifications for same.
Current Status:Referred to the Senate Committee on Consumer Protection and Professional Licensure on May 20, 2015.

PA House Bill 1099    Provides for independent counsel for the Environmental Quality Board
Sponsor:John Maher (Republican – parts of Allegheny and Washington Counties [outside Pittsburgh])
Overview:Requires the Department of Environmental Protection to appoint independent counsel for the benefit of the Environmental Quality Board (“EQB”).

 Independent counsel shall assist EQB on all matters, “including, but not limited to, the review of rulemaking petitions submitted to the [EQB], the drafting and development of amendments to proposed and final rulemaking and advice relating to procedural matters.”

 Provides that discussions between independent counsel and EQB are privileged.
Current Status:Reported out of House Committee on Environmental Resources and Energy (18 to 7) on May 12, 2015.

PA House Bill 1253    Professional licensure of engineers, land surveyors, and geologists
Sponsor:Mark Mustio (Republican – part of Allegheny County [outside Pittsburgh])
Overview:Removes certain exemptions to the professional licensure requirement for engineers, land surveyors, and geologists.

 Specifically, the following exemptions from licensure have been eliminated:
  • The practice of engineering, land surveying or geology, not exceeding thirty days in the aggregate in one calendar year, by a nonresident not having a place of business in this Commonwealth;
  • The practice of engineering, land surveying or geology by any person or by any employee of any copartnership, association or corporation upon property owned by such person or such copartnership, association or corporation; and
  • The practice of engineering, land surveying or geology work by a manufacturing, mining, communications common carrier, research and development or other industrial corporation or by employees of such corporation, provided such work is in connection with or incidental to products of, or non-engineering services rendered by, such corporation or its affiliates.
Current Status:Referred to House Committee on Professional Licensure on May 28, 2015.

PA House Bill 1292    Hydraulic fracturing chemical disclosure requirements
Sponsor:Dan Frankel (Democrat – Pittsburgh)
Overview:Amends Oil and Gas Act to clarify obligations of health professionals with respect to disclosure of trade secrets and/or confidential proprietary information.

 Prohibits health professional from disseminating trade secret and/or confidential proprietary information except in following instances:
  • Disclosure relates to diagnosis or treatment of a patient and is provided to a person whose knowledge the health professional deems important to the diagnosis or treatment of the patient;
  • The disclosure occurs during procurement of payment for services rendered or planned;
  • The disclosure is provided to a public health official or is intended to further public health; or
  • The disclosure is used for the study of any chemical involved.
Removes ability of vendor, service provider, or operator to request a statement of need and a confidentiality agreement from health professional.
Current Status:Referred to House Committee on Environmental Resources and Energy on June 5, 2015.
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EPA study confirms that fracking is not responsible for widespread water contamination

On June 4, 2015, the Environmental Protection Agency (EPA) released its highly anticipated study on the impact of hydraulic fracturing on drinking water. The EPA has been working on this study for a number of years. In the study, the EPA concluded that hydraulic fracturing is not the cause of widespread contamination of drinking water.

The EPA’s report is one of many studies over the past couple of years to conclude that hydraulic fracturing has minimal impact on groundwater. For instance, the United States Department of Energy released a study that tracked hydraulic fracturing fluids over a twelve month period. The report found that the fracking fluid did not contaminate the groundwater. Other studies reaching this conclusion include reports by: the United States Geological Survey, the Government Accountability Office, the Massachusetts Institute of Technology, and the Groundwater Protection Council. According to the EPA, its study is the most comprehensive study conducted on the subject. In fact, the EPA relied on more than 950 different sources.

The EPA’s study acknowledged that there have been some cases of wells leaking fluids; however, the report concluded that this concern could be addressed strengthening wells and ensuring that wastewater is properly disposed.

The EPA’s study will not be finalized until it is reviewed by the Science Advisory Board and the public has had an adequate opportunity to review and comment. Instructions on how to submit commits will be published today.

Read the report.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) and Johnjerica Hodge (johnjerica.hodge@nortonrosefulbright.com or 713 651 5698) from Norton Rose Fulbright's Energy Practice Group.
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United States Congress weighs the "Frack Pack"

Currently, the United States Congress is considering a group of bills aimed at extending the ability of the federal government to regulate hydraulic fracturing. The bills, commonly referred to as the “Frack Pack,” have been sponsored by Democrats in the Senate and House of Representatives. In response, Republicans in the Senate and House of Representatives have proposed legislation that would limit the federal government’s authority to regulate hydraulic fracturing.

One of the bills, the Fracturing Responsibility and Awareness of Chemicals Act of 2015 (FRAC), would empower the United States Environmental Protection Agency (EPA) to regulate hydraulic fracturing. Specifically, FRAC would remove the hydraulic fracturing exclusion from the Safe Drinking Water Act (SDWA). Currently, the SDWA does not apply to hydraulic fracturing unless the fluids used in the fracking process include diesel fuels. Additionally, FRAC would impose heightened disclosure requirements. For instance, FRAC would require companies to disclose the types of chemicals used in their fracking process. That said, FRAC contains a provision that would provide the companies with trade secret protection.

Yet another bill currently before Congress is the Safe Hydration is an American Right in Energy Development Act of 2015 (SHARED). This bill would add a provision to the SDWA, mandating that oil and gas operators implement groundwater testing before drilling operations begin. Additionally, SHARED would require operators to conduct monitoring throughout drilling operations. Under SHARED, the test results would be listed on the internet.

Additionally, Congress is considering the Focused Reduction of Effluence and Stormwater runoff through Hydrofracking Environmental Regulation Act of 2015 (FRESR). Under FRESR, oil and gas operations would no longer be exempt from the Clean Water Act’s (CWA) stormwater permitting requirements. If enacted, oil and gas operators would be required to obtain a permit permitting stormwater run-off through each stage of the fracking process.

Congress is also evaluating the Bringing Reductions to Energy’s Airborne Toxic Health Effects (BREATHE) Act of 2015. BREATHE is directed at the Clean Air Act (CAA) and would add hydrogen sulfide as a hazardous air pollutant (HAP). In addition, the bill would add oil and gas wells as a major source of hydrogen sulfide. If oil and gas wells are listed as a major source of hydrogen sulfide, the EPA would have the ability to establish thresholds for the amount of hydrogen sulfide that could be emitted from the wells. Moreover, BREATHE would also repeal the provision of the CAA that prohibits the aggregation of oil and gas wells and compressor stations when determining whether an activity constitutes a major source.

Democrats in the House of Representatives have also sponsored the Protect Our Public Lands Act (POPLA). If enacted, POPLA would ban any hydraulic fracturing operations on land leased by the federal government. However, drilling operations in operation when the bill is enacted would be permitted to continue until the lease expired or was adjusted.

On the other end of the spectrum lies the Fracturing Regulations are Effective in State Hands Act of 2015 (FRESH) and the Protecting States Rights to Promote American Energy Security Act of 2015 (PSRPAES). Under FRESH, states would have sole authority to regulate hydraulic fracturing. In fact, FRESH would authorize states to regulate hydraulic fracturing on federal lands. PSRPAES targets the Mineral Leasing Act and would bar the Department of Interior from regulating hydraulic fracturing if the state in which the drilling operations will occur already has regulates hydraulic fracturing. Indeed, PSRPAES directs the Secretary of the Interior to defer to state regulations irrespective of whether the regulations are less restrictive than federal rules or differ from federal regulations.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) and Johnjerica Hodge (johnjerica.hodge@nortonrosefulbright.com or 713 651 5698) from Norton Rose Fulbright's Energy Practice Group.
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North Dakota utilizes tax incentive scheme to encourage oil production

According to the North Dakota Industrial Commission, the amount of crude oil produced in the state has decreased dramatically. Whereas 1.2 MMb/d of crude oil was produced in the state in December, only 37 Mb/d was produced in January. In addition, the number of wells completed in the state also dropped. Commentators have speculated that the drop in production and well completions is the result of low crude oil prices. However, companies may simply be biding their time until North Dakota tax incentives are triggered.

Two taxes apply to the majority of the crude oil produced in North Dakota. The gross value of crude oil produced in the state is subject to a 5% gross production tax (GPT) and a 6.5% extraction tax. Crude oil produced on American Indian land is exempt from the GPT. During times of low crude oil prices, North Dakota has waived or, at a minimum, lowered the extraction tax applicable to crude oil.

One tax incentive employed by North Dakota is the Small Trigger. The Small Trigger became effective in February 2015. The North Dakota Legislature created the tax incentive to encourage the drilling of new wells and increase crude oil production. The tax break is available whenever the monthly average price for West Texas Intermediate (WTI) crude oil is below $57.50/Bbl. Rather than imposing a 6.5% tax, the extraction tax lowers to 2% for the first $4.5 million or 75 MBbl produced, whichever is first. This tax break continues up until the first eighteen months once a well is completed and only covers wells finished after February 1, 2015. The tax incentive is only available until June 30, 2015. If the average WTI price rises above $72.50/Bbl, however, the tax break would no longer be available.

If crude oil prices remain lower than $55/Bbl, another tax incentive referred to as the Large Trigger would go into effect. Under the Large Trigger, if the price of oil drops below $55.09/Bbl, the 6.5% tax on extraction will be waived. The tax incentive is not triggered until the monthly average WTI price falls below the threshold for at least 5 consecutive months. If triggered, the tax incentive would be available until the average monthly oil price rises above the threshold for five consecutive months. For the first 24 months after the incentive is triggered, the incentive permits oil producers to avoid paying the entire 6.5% extraction tax on old and new producing wells. After the initial 24 month period, the Large Trigger reduces the extraction tax to 4%.

For more information on drilling economics, click here.


This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) and Johnjerica Hodge (johnjerica.hodge@nortonrosefulbright.com or 713 651 5698) from Norton Rose Fulbright's Energy Practice Group.
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