Energy & Environmental Law Blog : Energy & Environmental Lawyer & Attorney : Vorys, Sater, Seymour and Pease Law Firm : Oil, Gas & Green Technology

Adopted by the PA Environmental Quality Board:  "The new fee structure sets a base permit cost of $900 for all Marcellus Shale wells up to 1,500 feet deep, and imposes an additional cost of $100 for every 500 feet of depth past 1,500 feet. The increased fees will take effect in early spring."  The average permit fee for a Marcellus Shale well, according to this article from the Tribune Review, could - according to the PA Department of Environmental Protection - increase to $2,600.  (Link has been corrected.)

[Update:  Following Pennsylvania's lead, New York is considering a similar increase.  (Moved up.)]

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The SEC has announced new oil and gas company reporting requirements:  "The new disclosure requirements approved by the Commission include provisions that permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserves volumes."  The new rules will also allow companies to disclose their probable and possible reserves to investors (rather than only proved reserves) and the reporting of oil and gas reserves using a 12-month average price rather than year-end prices.

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This year was a good year for shale.  According to this report from the Fort Worth Business Press, the technology pioneered in North Texas’ Barnett Shale over the past several years is now being used to develop shale reservoirs in New York, Louisiana and Wyoming.

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Nancy Pelosi, Henry Waxman, Barbara Boxer.  According to this article in the Washington Post, each is in a position to legislate on global warming, promote 'green' industries and alternative energy, and/or limit the use of toxic chemicals.

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There have been several articles recently on alternative energy possibilities in Ohio.  From one such article from the Dayton Daily News:  "Gov. Ted Strickland has targeted advanced energy as a key to reviving Ohio. Studies say the state is positioned to play a heavy role in the manufacturing chain to produce renewable power-generating equipment. That could mean jobs and money for the Dayton region's high- and low-tech industries."  See here for another.  And another.

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Per a recent article in the WSJ, many American natural-gas producers have drilled themselves into a financial hole.  Production increases have left the market oversupplied by four or five billion cubic feet per day.  This has led to declining prices at the same time that many producers have stretched their credit limits to fund new drilling projects.

The potential white knight (according to the article) - new environmental legislation designed to curb carbon dioxide emissions.  (Subscription required.)

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The 30-inch, 182-mile long natural gas pipeline from Corning to Ramapo, NY, took $1 billion and 18-months to build, according to this article from LoHud.com (New York's Lower Hudson Valley).  And there's still more work to be done.

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Pipeline infrastructure is a hot topic - both within and outside the energy industry.  One particularly challenging issue is the use of eminent domain by interstate natural gas pipeline companies to construct and expand their pipeline transmission systems.  Last week, the U.S. Court of Appeals for the Ninth Circuit in Transwestern Pipeline Co. v. 17.19 Acres of Property refused to enhance the ability of these companies to condemn private property.  The court held that until an order of condemnation issues under Section 717f(h) of the Natural Gas Act, a pipeline has no substantive right of possession - rejecting a claim for a "quick take" of the property.  A copy of the court's decision can be found here.

[Update:  It's not just an issue for pipeline construction; the use of eminent domain by interstate pipeline companies  to acquire storage facilities is also a hot topic according to this article from the Altoona Mirror.  (Moved up.)]

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From the Houston Chronicle:  "In contango, long-term futures contracts are priced higher than short-term ones. In other words, traders are betting that prices will rise during the next couple of years. * * * For example, crude for January delivery closed Friday at $33.87 a barrel on the New York Mercantile Exchange. For June delivery, the price was $50.05, and the price increases for later months. It was $55.97 for January 2010 and $62.63 for January 2011.”

The article points out that it may help smooth volatility as the price rises in the future.

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Ever wonder how shale can be used to produce natural gas?  The Natural Gas Supply Association (NGSA) has an explanation.

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Regarding natural gas prices:  "The Henry Hub spot price averaged $6.87 per Mcf in November. Natural gas prices, which have declined from a monthly average of $13.06 per Mcf in June, reflect the impact of increased domestic production, the weak economy, and lower oil prices. * * *  On an annual basis, the Henry Hub spot price is expected to average $9.17 per Mcf in 2008 and $6.25 per Mcf in 2009, compared with $7.17 per Mcf in 2007."

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Parcels totaling 164,000 acres went up for auction in Utah on Friday by the U.S. Bureau of Land Management.  Not everyone is happy about it, however.  According to this article at MSNBC.com, the auction has been called a "fire sale" by opponents because of the shortened time frame from announcement to sale.

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According to this article in the Houston Chronicle, OPEC has agreed to cut 2.2 million barrels from its daily production while Russia and Azerbaijan have announced their own cutbacks as well (in the range of hundreds of thousands of barrels).  Attempted price manipulation?  You bet.

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We have noted in previous posts the challenges presented in New York for producers looking at the Marcellus Shale.  One involves the possible use of a Supplement to the Generic Environmental Impact Statement (GEIS) applicable to natural gas and oil drilling issued by the NY Department of Environmental Conservation.  A draft of the Supplemental GEIS was published for public comment in October of this year, and included topics such as the use of water from surface and groundwater sources; and the removal and proper disposal of spent fracture fluids from the well site.  The public comment period closed this past Monday, December 15, 2008.

At least one congressman has urged the Department to delay issuing any new gas drilling permits in the shale until after completion of the Supplemental GEIS, according to this article in the Hudson Valley Press Online.  He has also introduced legislation to eliminate the exemption for hydraulic fracturing in the Safe Water Drinking Act.

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Central City, Ky., may be the site of a new coal-to-natural-gas facility to be constructed by ConocoPhillips and Peabody Energy Corp., according to this article in the Houston Business Journal. Designated Kentucky NewGas, the facility is expected to adopt low-emissions design criteria that will result in less than 5 percent of the emissions of a similarly sized traditional coal plant.

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According to this article in the NYT, dozens of major oil and gas projects have been suspended or canceled in recent weeks both in the U.S. and worldwide as companies adjust to the new energy markets.  Not unexpected given this year's volatility.

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The Susquehanna River Basin Commission has adopted several amendments to its regulations governing approval of E&P projects targeting the Marcellus and Utical shale formations and involving the withdrawal, diversion or consumptive use of waters of the Susequehanna River Basin.  Effective January 1, 2009, the new rules require - among other things - use of the approval-by-rule process for consumptive water uses associated with these projects.  For more, see a copy of the final rules here.

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Both the economy and tougher access to credit are having an impact on contract negotiations.  According to this article in the Houston Chronicle, electric power retailers are more concerned today about customer defaults. As a consequence, rates for business customers may include risk premiums of $5 to $10 per megawatt hour, or as much as 1 cent per kilowatt hour.  Retailers are also seeking address default risk by requiring larger deposits and using more limited term agreements.

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Ever wonder whether storage can hold a lease's production rights?  Recently the U.S. Court of Appeals for the Third Circuit confirmed that it could.  In Penneco Pipeline Co. v. Dominion Transmission, Inc., the court upheld a lower court determination preserving numerous "dual-purpose" oil and gas leases held by Dominion in the South Bend and Oakford Storage Fields, including the production rights set forth in the leases.

The facts were straightforward:  Dominion had acquired numerous oil and gas leases in Armstrong and Indiana Counties, Pennsylvania, and relied on those leases to develop and operate its South Bend and Oakford Storage Fields.  While the original leases did not provide for the underground storage of gas, that right was added in the 1940s through the 1960s through either lease modifications or the execution of new leases.  This resulted in combined production and storage leases, commonly referred to as "dual purposes" leases.

The related landowners and Penneco Pipeline, which had been given top leases on the properties, sued for a declaration that the oil and gas production rights contained in the leases had terminated.  The reason:  Lack of production during Dominion's tenure on the property.

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This week the Colorado Oil and Gas Conservation Commission adopted new rules to regulate oil and gas development in the state.  There are concerns, however:  The Colorado Oil and Gas Association has characterized them as some of the most expensive, burdensome in the country.

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In Order No. 712, the FERC revised Commission regulations governing the release of interstate capacity in light of changes in the market for short-term pipeline transportation services.  Among other things, it addressed market-based pricing for asset management agreements and the prohibition against tying and bidding requirements for capacity releases associated with state-approved open access programs.  The FERC recently denied rehearing generally of that order in Order No. 712-A, but also clarified several issues raised by marketers and others with respect to asset management agreements and state open access programs.

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President-elect Obama appears likely to name the current director of the Lawrence Berkeley National Laboratory, Steven Chu, as his Energy Secretary; and Carol M. Browner, the former U.S. EPA Administrator, as the top White House official on climate and energy policy.  Officials state that he is also likely to name  Lisa P. Jackson, New Jersey’s commissioner of environmental protection, as the new head of U.S. EPA.  From the NYT:  "[T]hey will have the task of carrying out Mr. Obama’s stated intent to curb global warming emissions drastically while fashioning a more efficient national energy system. And they will be able to work with strong allies in Congress who are interested in developing climate-change legislation, despite fierce economic headwinds that will amplify objections from manufacturers and energy producers."

No mention in the article of likely costs to the economy, however.

[Update:  Appointments were formally announced here.]

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The American Gas Foundation:  "The continued success of the utility sector to deliver natural gas safely and reliably depends on a strong and viable infrastructure that will meet growing local distribution company (LDC) customer demands.  The infrastructure development needed to address new and aging infrastructure relies heavily upon the ability of the industry to attract strong capital investment."  A report commissioned by the Foundation concludes, in part, that financial markets view allowed returns on equity below 10-percent as a "red flag" that could turn away investment.  A copy of the full report can be found here.

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Local regulation of E&P activities is a hot topic around the country.  In the context of a preliminary injunction request, the U.S. District Court for the Northern District of Texas recently held that the federal Pipeline Safety Act did not preempt (in large part) a local government's zoning requirements because they regulated the aesthetics of a natural gas compressor station, and not its safety.  See Texas Midstream Gas Services, LLC v. City of Grand Prairie.

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Possibly.  According to this Bloomberg article, natural gas futures fell to a 15-month low right after Dow Chemical Co., the largest U.S. chemical maker, reported that it intended plant closures and job cuts due to declining sales.

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Not everyone is against development.  Last summer, NY imposed a moratorium on horizontal drilling in order to study its environmental impacts.  The NY Chemung County Chamber of Commerce  is encouraging Albany to finish the study and begin drilling, according to this report on WENY-TV.  Lost revenue and jobs is the concern - measured potentially in the billions of dollars.

[Update:  Is it driving development to Pennsylvania?  According to this article from Pressconnects.com, Fortuna is looking south to PA because of the regulatory matters in NY.  (Moved up from an earlier post.)]

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In earlier posts we have noted concerns regarding the hydraulic fracturing of natural gas wells and the potential for its regulation.  Legislation has been introduced in Congress to repeal the exemption for hydraulic fracturing under the SWDA, and referred to the House Committee on Energy and Commerce.  More from the Star-Telegram:  "A study by the Environmental Protection Agency determined that hydraulic fracturing posed little risk to water. Environmentalists say that the study is flawed and that the exemption poses health risks."  Not a bad article overall.

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Last year, U.S. EPA and the Army Corps of Engineers issued a guidance document addressing the scope of the agencies' jurisdiction under CWA s.404 after the U.S. Supreme Court's decision in Rapanos v. United States.  That document has been revised following receipt and review of over 66,000 public comments, and can be found here.  Some of the points identified by the agencies as "key" -

The agencies will assert jurisdiction over traditional navigable waters, which includes all the waters described in 33 C.F.R. s.328.3(a)(1), and 40 C.F.R. s.230.3(s)(1); [and,]

The agencies will assert jurisdiction over wetlands adjacent to traditional navigable waters, including over adjacent wetlands that do not have a continuous surface connection to traditional navigable waters.

And don't forget the significant nexus analysis that the agencies will use to assert jurisdiction over certain "non-navigable tributaries" that are intermittent in nature!

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With an eye toward the Marcellus Shale, PA county commissioners are looking once again to assess oil and natural gas inventories for property tax purposes, according to this article in the Susquehanna Independent Weekender.

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Ohio has its own facility to train firefighters and others to understand and implement effective emergency response practices at typical oilfield drilling sites and production sites (developed by the Ohio Oil & Gas Energy Education Program).  Recently, from the Akron Beacon Journal:  "The Ohio fire-training program, which was started in 2001, was reportedly the first of its kind in the United States.  To date, more than 350 fire departments from 33 Ohio counties and seven other states have participated in the program, which is funded by the state's gas and oil industry."  Nice.

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According to this article in the AP, access to credit and capital needed for E&P operations are the biggest obstacles facing oil companies in 2009 (as per a new survey).

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According to this article in the Guardian, President-elect Obama is no longer planning to implement a windfall profit tax on oil companies because prices have dropped below $80 a barrel.  Well, that's good news (if it holds).

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The FERC recently issued two enforcement orders approving stipulations between the Office of Enforcement and natural gas marketing and asset management companies that resolve self-reported violations of the FERC's shipper-must-have-title requirements.  NorthWestern Corporation and NorthWestern Services, LLC, agreed to a civil penalty of $450,000.  Cornerstone Energy, Inc., agreed to a civil penalty of $325,000.

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Among other things, residents are concerned about the use of local lake and ground water by drilling companies, according to this article in the Shreveport Times.  This isn't the only basin that shale production raises issues over water with local citizens.

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Indiana Gasification, LLC, has withdrawn its plans to build a coal gasification plant in Rockport, Indiana, due to regulatory uncertainty, according to this article in the Chicago Tribune.  The withdrawal followed a decision by Vectren Corp. that there was too much uncertainty over possible federal carbon regulations to commit to a 30-year gas purchase arrangement.

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