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

At least that's what the court of appeals in Trans-Western Petroleum, Inc. v. United States Gypsum Co. (Case Nos. 08-4120 & 08-4121) recently found.  In that case, Wolverine Gas & Oil Corp. had acquired a lease on certain properties in Utah containing a unitization provision that read:

In connection with operations for the production of oil and gas or either of them, Lessee may at any time or times pool or unitize this lease . . . with other lands and leases in the same area or field so as to constitute a unit or units whenever, in Lessee’s judgment, necessary or advisable to comply with a law, rule, order or regulation of a governmental authority having jurisdiction, . . . by filing for record an instrument so declaring subject to the following: . . . (b) Units formed . . . shall allocate to the portion of this lease included in any such unit a fractional part of production from any part of such unit on one of the following bases: (i) the ratio between the quantity of recoverable production allocable to the portion of this lease included in such unit and the total of all recoverable production allocable to such unit; or (ii) such other basis as may be approved by the governmental authority having jurisdiction thereof.  (Emphasis added.)

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The Pennsylvania Department of Environmental Protection (PA DEP) has started collecting new fees for vertical wells (see here).  Bore length up to 2,000 feet - base permit fee of $250.  Additional $50 for each additional 500 feet of length.  Marcellus and horizontal wells have a different fee structure.

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The Pennsylvania Department of Environmental Protection (PA DEP) has revoked three erosion and sedimentation control permits issued to Ultra Resources, Inc., and Fortuna Energy, Inc., and sent notices of violation to the three licensed professionals who prepared the permit applications.  For more, see here.

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U.S. EPA is seeking comments on a significant rulemaking proposal that would establish initial major source applicability thresholds for GHG emissions under the Clean Air Act's PSD (Prevention of Significant Deterioration) and Title V programs at 25,000 tons per year on a CO2-equivalent basis.  It justifies a departure from existing statutory thresholds - which are substantially lower - "[b]ased on the long-established judicial doctrines of 'absurd results' and 'administrative necessity.'"  It appears that concerns expressed by industry that U.S. EPA will move on this issue to force Congress to act were well founded.

For more, see here.  Comments are due December 28, 2009.

Question:  What will be the impact on global temperatures if the proposed rule is finalized?

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The Senate Committee on Environment and Public Works heard testimony yesterday from U.S. EPA Administrator Lisa P. Jackson and others on the Clean Energy Jobs and American Power Act.

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Chesapeake Energy has decided that it won't drill within the upstate NY watershed, according to this NYT article.  Why?  Newly proposed regulations.

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Researchers with the Nature Conservancy, Audubon Society and University of Montana have issued a study finding that oil and gas development in the west could significantly reduce the sage grouse population, according to this NYT article.  In terms of timing, the Administration is expected to determine whether the sage grouse should be listed as an endangered species in February.

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Climate legislation introduced in the Senate is discussed in this article in the NYT, including a link to the draft text of the bill.  Wildlife and conservation issues more specifically are addressed in this NYT article.

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Today, it should come as no surprise that everything is viewed as impacting health care.  The NYT is reporting that burning fossil fuels costs the U.S. $120 billion in health care costs primarily related to premature deaths and air pollution.

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The president of the Center for American Progress is chastising Canada for substantial increases in greenhouse gas emissions due to Alberta oil sands development, according to this article in the NYT.

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Without examining the merits of the arguments pro and con, the Philadelphia Inquirer has an article on how the PA state budget came to omit a natural gas severance tax this year.  Not surprising.

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In a separate matter, U.S. EPA has imposed a $7,150 fine on the Hunt Oil Company for violating federal Spill Prevention, Control and Countermeasure (SPCC) regulations by failing to provide the required secondary containment and documentation of plan approval.

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A jury award of more than $5 million against the Hunt Oil Company for negligent failure to protect a producing oil formation was recently reversed by the Texas appellate court in Hunt Oil Company v. Live Oak Energy, Inc. (No. 05-07-01553-CV) (a copy of which can be found here).  It serves as a warning to counsel and companies undertaking oil and gas asset transactions to do their due diligence.

The facts were straightforward:  Live Oak acquired certain leasehold interests in the Pettit formation located in the East Haynesville oil field in northwest Louisiana.  Prior to its acquisition, Hunt Oil had drilled some fifty wells through the Pettit formation to recover oil from formations below.  Live Oak claimed that Hunt Oil had failed to properly case and cement many of those wells, creating a 'leaky bucket' in the Pettit formation above  - damaging Live Oak's leasehold interests.

The issue was whether Live Oak's claims were barred by the applicable statute of limitations.  The court of appeals held that it was - rejecting the claim by Live Oak that the discovery rule applied to toll the limitations period.

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The INGAA Foundation recently issued a report on the need for natural gas infrastructure in the United States.  It finds (in part):

To accommodate the changes in natural gas supply and demand, the U.S. and Canada will need 28,900 to 61,900 miles of additional natural gas pipeline by 2030.  This will require an investment of $108 to $163 billion in pipeline assets. ***

Changes in gas supply and demand also require significant investment in gas storage.  Between 2009 and 2030, the U.S. and Canada will need 371 to 598 Bcf of additional gas storage capacity.  *** Much of the new storage capacity that is needed is high deliverability storage to meet the growth in gas demand for electricity generation.

You can find a copy of the report here.

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Members of the U.S. House of Representatives launched a new caucus yesterday to promote the use of natural gas as a low emission energy source.  The Oklahoman has a good article on the caucus' first hearing, which focused on how to expand this energy resource to take advantage of new shale discoveries.

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The Interior Department has invited production companies interested in oil shale plays on federal lands in the West to apply for a new round of research, development and demonstration leases, reports this article in the Washington Post.

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The Houston Chronicle is reporting on the third-quarter results for Nabors Industries, the world's largest onshore oil and natural gas driller.  It gives a (not-unexpected) sense of drilling activity in the U.S. and worldwide.

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The NYT is reporting on the global potential for natural gas vehicles.  It finds that the enthusiasm for NGV's, especially in Europe, is waning as oil prices decrease.  We'll see.

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The Energy Information Administration (EIA) has published a report on the potential for oil and gas development in the Arctic (found here).  It concludes, in part:

The good news is that the Arctic holds about 22 percent of the world’s undiscovered conventional oil and natural gas resources, based on the USGS mean estimate. The bad news is that: (1) the Arctic resource base is largely composed of natural gas and natural gas liquids, which are significantly more expensive to transport over long distances than oil; (2) the Arctic oil and natural gas resources will be considerably more expensive, risky, and take longer to develop than comparable deposits found elsewhere in the world; (3) unresolved Arctic sovereignty claims could preclude or substantially delay development of those oil and natural gas resources where economic sovereignty claims overlap; and (4) protecting the Arctic environment will be costly. The high cost and long lead-times of Arctic oil and natural gas development undercut the immediate importance of these sovereignty claims, while at the same time diminishing the economic incentive to develop these resources.

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On Friday, October 16, 2009, the 5th Circuit ruled that plaintiff landowners had standing under Mississippi tort common law to assert causes of action for negligence, private and public nuisance, and trespass against oil companies for their release of greenhouse gases, which caused rising sea levels and increased the ferocity of Hurricane Katrina. The action is pending as a putative class action against the oil companies and has been remanded to a Mississippi district court for further proceedings. See the decision here.

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On October 15, 2009, US EPA announced its intention to step up enforcement under the Clean Water Act.  The Clean Water Action Enforcement Plan announced by US EPA outlines how it will strengthen the way it addresses water pollution, with the goals of (1) targeting enforcement to the most significant pollution problems; (2) improving transparency and accountability through better public access to water quality information; and (3) strengthening state and federal enforcement performance levels and improving consistency.  US EPA’s Office of Enforcement and Compliance Assurance developed the plan at Administrator Jackson’s direction following data indicating the nation’s water quality is unacceptably low in many areas.  

More information on the Plan can be found at http://www.epa.gov/compliance/civil/cwa/cwaenfplan.html.  This plan is seen as a first step in the revamping of the compliance and enforcement program.

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The biofuels industry is seeing increased investment from an unexpected source - the oil majors - according to this article in the WSJ.  Interesting.

(Note:  Subscription required.)

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The NYT is reporting on the views of different segments of the domestic energy industry on climate legislation.  The take away:  "Some supporters of global warming legislation believe that the division in the once-monolithic oil and gas industry, as well as other splits among energy producers, could improve the prospects for the legislation."

[Update:  For a related NYT article, see here.]

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The Natural Gas Supply Association (NGSA) has posted its 2009-2010 Winter Outlook (which can be found here).  Not surprisingly, it finds that the "[e]conomy [is] likely [to be] more significant to natural gas price pressure than weather this winter."

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The NYT is reporting on impact that fugitive methane emissions have on climate change.  "Natural gas consists almost entirely of methane, a potent heat-trapping gas that scientists say accounts for as much as a third of the human contribution to global warming."  The article urges, in part, an aggressive campaign to rein in methane emissions from well production equipment.

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The Houston Chronicle is reporting on New Mexico's Tres Amigas SuperStation in Clovis, N.M., which would interconnect the country's three massive power grids and help address significant barriers to the use of alternative energy in the U.S.  "Tres Amigas would build a triangular pathway of underground superconductor pipelines, combined with AC/DC converters that synchronize the flow of power between the interconnections. The equipment allows electricity to be transferred from grid to grid."

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Research suggests that oil demand peaked in industrialized nations in 2005, according to this article in the NYT.  This is due in large part to efficiency gains in the transportation sector, aging populations and growth in renewable fuels.  Not surprisingly, growth in oil demand will come from the developing world.

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We reported previously on energy security issues in Europe (see here).  The NYT has a recent article discussing new pipeline infrastructure being considered between Russia and the West that would allow Russia to leverage energy issues and again dominate former Soviet-bloc countries.

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The NYT is reporting that technologies developed to produce shale gas in the United States are going global.  "Italian and Norwegian oil engineers and geologists have arrived in Texas, Oklahoma and Pennsylvania to learn how to extract gas from layers of a black rock called shale."  Leading innovation again ... nice.

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The Canadian and Alberta governments have stated that they would contribute approximately $822 million to help fund a commercial-scale carbon capture and storage project by Royal Dutch Shell PLC, according to this article in the NYT.  The project itself is designed to capture and store 1 million metric tons of carbon dioxide from the Athabasca Oil Sands.  Very interesting.

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The WSJ has a good article on Chevron's use of new enhanced recovery technologies to extend production in the Kern River field.  Using steam, "The company hopes eventually to coax out as much as 80% of the field's oil compared with the 30% that is typical in many fields around the world."

[Note:  Subscription required.]

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Click here to read a speech by the EU Commissioner for the Environment at the Stakeholder Conference on Nanomaterials held in Brussels today.  The speech also touches upon REACH's application to nanomaterials.

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The Energy Information Administration (EIA) has posted both its Short-Term Energy and Winter Fuels Outlook for October 2009 and a report on new pipeline capacity added to the U.S. pipeline network in 2008.  The Outlook notes, for example:

The Henry Hub spot price averaged $3.06 per Mcf in September, $0.17 per Mcf below the average spot price in August. Spot prices fell early in September then moved higher as pipeline maintenance reduced available supply and natural-gas-fired electric generators increased demand. * * * Prices are expected to increase in 2010 but, even with a projected winter storage withdrawal greater than the 5-year average, end-of-March inventories still will be the highest recorded since March of 1991. * * * EIA expects the Henry Hub spot price to average $3.85 per Mcf in 2009 and $5.02 per Mcf in 2010.

It also notes that EIA is now tracking uncertainty in futures prices and the market’s assessment of the range in which those futures prices might trade, and will report confidence intervals around NYMEX crude oil and natural gas futures prices.

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The Ohio Oil and Gas Association (OOGA) recently held a seminar to prepare producers for anticipated Occupational Safety and Health Administration (OSHA) inspections in the oilfield.  Highlights of the presentation, as well as a self-inspection checklist, can be found on the OOGA website, here.  In addition, note that the Association and the Ohio Oil & Gas Energy Education Program (OOGEEP) will be offering additional seminars on H2S and oilfield safety in October and November this year.

[Update:  OOGEEP has posted its new training schedule. (Moved up).]

[Disclosure:  Several members of the Vorys firm are active members of the Association and serve on the Association's Board of Trustees, including as the Chair of the Environmental and Safety Committee.  Also, one member of the Vorys firm was a presenter at the Association's OSHA seminar in September.]

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The U.S. Department of Labor's Occupational Safety & Health Administration (OSHA) has proposed to amend its Hazard Communication Standard (HCS) with provisions of the United Nations Globally Harmonized Communication System of Classification and Labeling of Chemicals ("GHS"). 

Under the HCS, chemical manufacturers and importers must evaluate hazards of chemicals and provide information to future users.  Most are familiar with the hazard communication program with which employers must comply.  The proposed rules would address inconsistencies in the OSHA HCS program and the GHS program to align the two standards.

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The Public Utilities Commission of Ohio (PUCO) has proposed several amendments to its natural gas pipeline safety regulations (see here).  The major changes appear to address testing for leaks prior to initial operation or reestablishing residential or nonresidential gas service, including after an outage.  Comments are due no later than October 30, 2009.

To follow the docket, see here (Docket No. 09-0829-GA-ORD).

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Yesterday, Public Citizen - a nonprofit consumer advocacy organization - sued the Texas Commission on Environmental Quality (TCEQ) to force the commission to regulate CO2 emissions when considering permits for new coal-fired power plants and other facilities.  A copy of the organization's press release can be found here, including a copy of the complaint that was filed.

If successful, expect to see similar suits around the country.

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The New York Department of Environmental Conservation (NYDEC) has released for comment its draft Supplemental Generic Environmental Impact Statement (SGEIS) for natural gas drilling operations in the Marcellus Shale.  The SGEIS looks at the range of potential environmental impacts of shale gas development using large volume hydraulic fracturing and proposes standards and mitigation strategies that may be required of producers applying for related permits.

Comments are due by November 30, 2009.  A copy of the draft SGEIS can be found here.  A related NYT article can be found here.

[Update:  The press is already reporting on the conflicts generated by the SGEIS.  See, for example, here (from pressconnects.com).  (Moved up.)]

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Climate legislation was introduced into the Senate today by Senators Boxer (D-CA) and Kerry (D-MA), according to this article in the NYT.  It calls for a 20% reduction in greenhouse gas (GHG) emissions by 2020 and an 80% reduction by 2050 (using 2005 as a baseline).  Note - the terms "climate change" and "global warming" do not appear in the title ...

[Update:  The Fort Worth Business Press has an article finding that the Senate's climate legislation may help the natural gas industry.  (Moved up.)]

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The WSJ has a good article on the impact that natural gas over-supplies can have on independent electric power producers.  "Electricity prices are set by the last generating plant to be switched on. In most U.S. markets, that generator burns natural gas. That makes the revenue of all merchant generators highly susceptible to gas prices."

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Dreams of drilling offshore California remain.  The LAT is reporting that supporters of a project to drill the first well off the California coast in 40 years are hoping to move legislation in the state assembly that would create a governor-appointed panel that could approve the project on its own authority, overriding the state lands commission's previous rejection.

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We reported earlier last month that PA Governor Ed Rendell had taken a new extraction tax on natural gas off the table for the year (see here).  It seems that PA House Democrats think otherwise.  The Philadelphia Inquirer is reporting that the PA House Democrats passed their own tax package on Friday that included a new natural gas severance tax.

[Update:  Not everyone agrees that it's a good idea (from the Sun Gazette).  Moved up.]

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The Eagle Ford shale is turning out to be one of the most sought after prospects in the United States, despite declining prices and demand, according to this article in the Houston Chronicle.  Interesting:  "Producers in the Eagle Ford can break even when natural gas is priced as low as $3.88 per million British thermal units, the [Ross Smith Energy Group] said, versus break-even prices of $5.18 in the Barnett, $3.74 in the Marcellus and $4.49 in the Haynesville."

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At the beginning of the year, we reported on the Department of Interior's unsuccessful efforts to suspend royalty relief established by Congress under the Outer Continental Shelf Deep Water Royalty Relief Act (see here).  The NYT is reporting that the U.S. Supreme Court has decided not to review that case.

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President Obama signed an Executive Order yesterday "that sets sustainability goals for Federal agencies and focuses on making improvements in their environmental, energy and economic performance."  The stated goal is to lead by example with some deadlines requiring initial action by governmental agencies within 90 days.

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U.S. EPA just announced core principles that outline the President’s goals for Congressional reform of the Toxic Substances Control Act (TSCA):

• Chemicals should be reviewed against risk-based safety standards based on sound science and protective of human health and the environment;
• Manufacturers should provide EPA with the necessary information to conclude that new and existing chemicals are safe and do not endanger public health or the environment;
• EPA should have clear authority to take risk management actions when chemicals do not meet the safety standard, with flexibility to take into account sensitive subpopulations, costs, social benefits, equity and other relevant considerations;
• Manufacturers and EPA should assess and act on priority chemicals, both existing and new, in a timely manner;
• Green Chemistry should be encouraged and provisions assuring Transparency and Public Access to Information should be strengthened; and
• EPA should be given a sustained source of funding for implementation.

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The US EPA just announced a new research strategy designed to generate information about the health and environmental risks of nanomaterials.  See the strategy here.

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We've reported previously on air quality concerns raised with respect to natural gas development (see here, for example).  The Fort Worth Star-Telegram is reporting also on the issue, noting several recent air quality reports finding high levels of disulfide compounds associated with natural gas production.

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We have reported several times on the conflict between environmentalists looking for greater disclosure of the chemicals used in hydraulic fracturing and the service companies looking for protection for their trade secrets.  According to a NYT report, based on a few industry statements, "The natural gas industry is moving to disclose information about chemicals used in controversial extraction technologies in the wake of spills at drilling sites in Pennsylvania and as New York is proposing new regulations."

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In the last three days the U.S. EPA has made two announcements to change its pesticides program.  On September 30, 2009, they announced that they will publish proposed rule making within the next few months to require disclosure of all pesticide inert ingredients.  Typically, inert ingredients are only disclosed to U.S. EPA and are not disclosed to the public.  U.S. EPA believes disclosure requirement will discourage the use of inert materials that may be hazardous.  You can see the U.S. EPA announcement here.

The second announcement came today.  To further increase transparency, the agency is establishing a process for the public to review and comment on pesticide risk assessments and proposed registration decisions.  Starting TODAY, pesticide risk assessments and proposed registratioon decisions will be added to the public docket for a 30-day comment period.  Read more here.

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The Energy Information Administration is reporting that working gas in storage reached 3.589 Tcf (trillion cubic feet), as of September 25, 2009.  "This represents a net increase of 64 Bcf from the previous week. Stocks were 491 Bcf higher than last year at this time and 481 Bcf above the 5-year average of 3,108 Bcf."  EIA's related chart:

For more, see this article from the Houston Chronicle.

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