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Energy & Environmental Law Blog

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PA Supreme Court Holds the Rule of Capture Applies to Hydraulic Fracturing Operations

Posted in Energy

On January 22, 2020, the Supreme Court of Pennsylvania decided Briggs v. Southwestern Energy Prod. Co.  The issue before the Court was whether the rule of capture applies when a developer drains oil and gas from an adjacent property by drilling a well “using hydraulic fracturing solely within the developer’s property.” (emphasis in original).

The Court “reject[ed] as a matter of law the concept that the rule of capture is inapplicable to drilling and hydraulic fracturing that occurs entirely within the developer’s property solely because drainage of natural resources takes place as the direct or indirect result of hydraulic fracturing, or that such drainage stems from less ‘natural’ means than conventional drainage.”

Cabined by pleading deficiencies with the landowners’ complaint and a narrow issue on appeal, the Court declined to address whether the rule of capture immunizes a developer from liability when hydraulic fracturing operations physically intrude into the subsurface of an adjoining property.

Click here to read the decision.

 

Supreme Court of Ohio to Determine Whether the Ohio Dormant Mineral Act Supersedes the Ohio Marketable Title Act as to Severed Oil and Gas Interests

Posted in Energy

On January 21, 2020, the Supreme Court of Ohio accepted an appeal from the Seventh District Court of Appeals’ decision in West v. Bode, Case No. 18-MO-0017. The issue accepted for review by the Court is whether, due to a perceived conflict between the statutes, the Ohio Dormant Mineral Act (R.C. 5301.56), being the specific statute, supersedes and controls over the Ohio Marketable Title Act (R.C. 5301.47, et seq.), being the general statute, as to the termination of severed oil and gas interests. The Court’s decision should provide some clarity to operators in Ohio regarding the ownership of severed oil and gas interests.

You can read the Seventh District Court of Appeals’ decision here.

Proposed regulatory amendments published for the National Environmental Policy Act

Posted in Energy, Environment

The Council for Environmental Quality recently published proposed amendments to update the procedural regulations used to implement the National Environmental Policy Act (“NEPA”). The proposed amendments were published in the Federal Register on January 10, 2020 and can be found here. The main goal of NEPA is to assure that federal agencies adequately consider the environmental impacts of major federal actions. This is primarily done through the completion of Environmental Assessments and Environmental Impact Statements. This review process can be both lengthy and expensive.

The proposed amendments are highly anticipated by industry as they include significant changes that would relax the requirements for how and when the federal government fulfills its role under NEPA. Most notably, the proposal aims to cut down review times, limit the consideration of cumulative environmental impacts (such as climate change), exempt certain projects from full review, and allow some projects to be reviewed by the developer. We will continue to review the proposal and provide updates as it progresses through the rulemaking process.

Comments on the proposed amendments are due by March 10, 2020.

Lessor Notice is Required in Certain Circumstances to Forfeit a Lease for Breach of the Implied Covenant of Reasonable Development

Posted in Energy

In Pavsek v. Wade, 18 MO 0024, Ohio’s Seventh District Court of Appeals considered whether a lessor must serve notice upon its lessee demanding that the lessee drill additional wells on the leasehold prior to seeking a partial forfeiture of the lease due to the lessee’s breach of the implied covenant of reasonable development. The Court held such notice is required if the lessee drilled a well on the leasehold that is currently producing in paying quantities. Further, the lessor must provide its lessee with a reasonable amount of time to develop the remaining leasehold prior to seeking forfeiture. In these cases, the Court will not excuse the lessor’s failure to serve notice upon its lessee simply because a long period has passed since the lessee drilled the still-producing well.

You can read the Pavsek decision here.

U.S. EPA Redesignates Ohio Portion of Stubenville OH-WV SO2 Nonattainment Area

Posted in Environment

On November 29,2019, U.S. EPA issued a final rule redesignating the Ohio portion of the Stubenville Ohio-West Virginia nonattainment area from nonattainment to attainment of the 2010 SO2 National Ambient Air Quality Standards (NAAQS), pursuant to section 107(d)(3)(E) of the Clean Air Act. EPA determined that Ohio demonstrated that the area is attaining the SO2 standard due to permanent and enforceable SO2 emission reductions. The Agency also approved Ohio’s maintenance plan that will ensure the area continues to maintain the SO2 NAAQS.

The Ohio portion of the Stubenville nonattainment area includes Cross Creek Township, Stubenville Township, Warren Township, Wells Township, and Stubenville City. U.S. EPA’s redesignation became effective on November 29, 2019.

New USEPA Title V and NSR Guidance: “Adjacent” does actually mean “Adjacent”

Posted in Environment

On November 26, 2019, USEPA published a guidance memorandum “Interpreting ‘Adjacent’ for New Source Review and Title V Source Determinations in All Industries Other Than Oil and Gas” (the November 26 Guidance).  In the November 26 Guidance, USEPA updated its interpretation of the regulations governing the scope of a “stationary source” under the NSR and Title V Clean Air Act programs.[1]

Those regulations generally define a stationary source as “all of the pollutant-emitting activities which belong to the same industrial grouping, are located on one or more contiguous or adjacent properties, and are under the control of the same person (or persons under common control)….”  See e.g. 40 CFR 52.21(b)(5)-(6) (emphasis added).

Previously, USEPA had interpreted “adjacent” to include not only physical proximity, but also the functional interrelatedness of different facilities, regardless of physical proximity.  In the November 26 Guidance, USEPA determined that it will no longer use the existence of some functional interrelationship to establish “adjacency”.

As USEPA summarized its decision:

[F]or purposes of making source determinations for NSR and title V, EPA interprets the term “adjacent” to entail physical proximity between properties. From this point forward, EPA will consider properties that do not share a common boundary or border, or are otherwise not physically touching each other, to be “adjacent” only if the properties are nevertheless nearby, side-by-side, or neighboring (with allowance being made for some limited separation by, for example, a right of way). This is inherently a case-specific inquiry where determining the appropriate distance at which two properties are proximate enough to reasonably be considered “adjacent” may vary depending on the nature of the industry involved.  Therefore, EPA is not here establishing or recommending a “bright line,” or specifying a fixed distance, within which two or more properties will be deemed (or presumed) by EPA to be in close enough physical proximity to be considered “adjacent.”  In each case, this determination should ultimately approximate the “common sense notion of a plant.”

November 26 Guidance at pg. 8 (emphasis added).

Despite the fact that USEPA did not establish a bright-line distance within which properties will be considered adjacent, adjacency may be narrowly determined, given the language USEPA uses in the November 26 Guidance (“allowance being made for some limited separation by, for example, a right of way”).  This means that the November 26 Guidance may result in fewer major stationary source determinations (because fewer facilities will be considered a single stationary source and have their emissions aggregated for major source determinations).

That said, the November 26 Guidance makes clear that it only applies prospectively, and that adjacency determinations will continue to be made on a case by case basis.  In addition, permitting authorities with USEPA-approved permitting programs (including Ohio EPA) are not required to apply the November 26 Guidance.

For example, Ohio EPA Engineering Guide #58 (still active from March 1995, supplementing Ohio EPA’s Title V regulations) still evaluates the functional interrelationship between facilities in determining adjacency (and uses five miles as a potential threshold for adjacency).  In light of the November 26 Guidance, Engineering Guide #58, which seemingly relies on USEPA determinations that existed at that time, may be out of date, but as of this writing is still Ohio EPA’s guidance on the adjacency question.

The November 26 Guidance should be considered going forward when locating a new facility in proximity to an existing facility to determine if emissions would be aggregated together for NSR and Title V purposes.  Even though many permitting authorities are not required to apply the November 26 Guidance, it will likely be persuasive authority that a permitting authority should consider in making a case-by-case adjacency determination.

[1] In a previous rulemaking, USEPA established a bright-line definition of adjacency for the oil and gas extraction industry only: “Pollutant emitting activities shall be considered adjacent if they are located on the same surface site; or if they are located on surface sites that are located within 14 mile of one another (measured from the center of the equipment on the surface site) and they share equipment. Shared equipment includes, but is not limited to, produced fluids storage tanks, phase separators, natural gas dehydrators or emissions control devices.”  See e.g. 40 CFR 52.21(b)(6)(ii).  The November 26 Guidance does not apply to this definition.

Supreme Court of Ohio Holds 21-Year Statute of Limitations Applies to Stale Lease Expiration Claims

Posted in Energy

On November 26, 2019, the Supreme Court of Ohio clarified that a declaratory judgment claim that an oil and gas lease terminated for lack of production is subject to the 21-year statute of limitations for recovery of title to or possession of real property in R.C. 2305.04.  See Browne v. Artex Oil Co., Slip Op. No. 2019-Ohio-4809. In Browne, the lessee argued that an action like the case at bar was subject to the 15-year statute of limitations for actions upon written contracts in former R.C. 2305.06.  The Court disagreed. The Court noted that the lessors were not alleging a breach of the oil and gas lease, but were simply requesting a declaration that the oil and gas lease had terminated by its terms through operation of law.  This claim was was more akin to an action to quiet title than one upon a written contract, the Court found, as the lessee had no obligation to produce under the lease and the parties did not dispute the lease’s provisions.   Relying heavily on the notion that in Ohio an oil and gas lease vests a real property interest in the lessee, the Court held that R.C. 2305.04 was the controlling limitations statute.  The Court reasoned that because the oil and gas lease vested the lessee with a real property interest and the lessors were merely seeking recognition of their reversionary interest in that real property, R.C. 2305.04, which applies to actions to recover title to or possession of real property, was the operative statute.  The Court remanded the matter to the trial court for an evaluation of the parties’ claims in light of the correct statute of limitations.

[Disclosure: Vorys represented amici curiae Ohio Oil and Gas Association and Southeastern Ohio Oil and Gas Association in this case.]

The Supreme Court of Ohio To Address Due Diligence Under ODMA

Posted in Energy

In July, we wrote about Gerrity v. Chervenak (5th Dist., Guernsey County), involving the level of due diligence that the Ohio Dormant Mineral Act requires surface owners to use when notifying mineral holders of abandonment proceedings. On October 15, 2019, the Supreme Court of Ohio agreed to hear Gerrity.  The Court will consider the following propositions of law:

Appellant’s Proposition of Law No. I:  R.C. 5301.56 Requires Strict Compliance and a Surface Owner Seeking to Capture a Severed Mineral Interest Must First Attempt Service by Certified Mail before Resorting to Publication.

Appellant’s Proposition of Law No. II: In Order to Satisfy Due Process and the Publication Provision of R.C. 5301.56(E), a Surface Owner Must Employ Reasonable Search Methods Conforming to Due Diligence Designed to Locate All Holder(s) of a Severed Mineral Interest.

In the same order, the Court declined to hear Paczewski v. Antero (7th Dist., Monroe County), which we previously covered here.

Court Reaffirms Ohio’s Marketable Title Act and Dormant Mineral Act are not in Conflict

Posted in Energy

The Seventh District Court of Appeals reaffirmed that claimants can use both Ohio’s Marketable Title Act (“MTA”) and Dormant Mineral Act (“DMA”) to extinguish and abandon, respectively, mineral interests. In West v. Bode, 2019-Ohio-4092, the appellant-surface owners attempted to extinguish a severed oil and gas royalty interest under the MTA. The holders of the royalty interest argued, in part, that the MTA did not extinguish the royalty interest because, as between the MTA and DMA, the DMA is the more specific statute with regard to terminating mineral interests and the DMA did not abandon the royalty interest. The Court rejected the royalty holders’ argument, as it had done in similar, prior cases. However, in its decision, the Court offered its strongest defense of the MTA to date. The Court explained that, pursuant to R.C. 1.51, it must construe conflicting, but interrelated, statutory provisions together so it can give effect to both. Only in the event that there is a conflict between the two provisions and the conflict is irreconcilable does the special provision prevail as an exception to the general provision, unless the general provision is the later adoption and the General Assembly manifested an intent that the general provision prevail. In this case, the Court did not find any irreconcilable conflict between the MTA and DMA. In fact, it noted the different look-back periods, savings events, and termination procedures under the two acts and found that each applies to a particular situation independent of the other. Thus, the MTA could apply to extinguish the severed royalty interest.

You can read the full decision here.

USGS: Big Increase in Undiscovered Marcellus and Utica Gas

Posted in Energy

The Marcellus and Utica Shales contain around 214 tcf of undiscovered, technically recoverable natural gas, according to a new U.S. Geological Survey (USGS) assessment.  “This is a significant increase from the previous USGS assessments of both formations. In 2011, the USGS estimated a mean of 84 trillion cubic feet of natural gas in the Marcellus Shale, and in 2012 the USGS estimated about 38 trillion cubic feet of natural gas in the Utica Shale,” the agency reports.

You can read more about the USGS’s findings here.