Pennsylvania House of Representatives unanimously passes bill requiring certain information in royalty statements

On Tuesday, June 11, 2013, the Pennsylvania House of Representatives gave unanimous consent to H.B. 1414, which would amend Pennsylvania’s law regarding oil and gas royalties, commonly-known as the Guaranteed Minimum Royalty Act. The amendment won’t change the net-back method of royalty calculation or change the minimum royalty amount. But, it would require producers to provide a detailed check stub or other document detailing the following information:

(1) A name, number or combination of name and number that identifies the lease, property, unit or well or wells for which payment is being made and the county in which the lease, property or well is located.
(2) Month and year of gas production.
(3) Total barrels of crude oil or number of Mcf of gas or volume of natural gas liquids sold.
(4) Price received per barrel, Mcf or gallon.
(5) Total amount of severance and other production taxes and other deductions permitted under the division order, lease, servitude or other agreement with the exception of windfall profit tax.
(6) Net value of total sales from the property less taxes and deductions from paragraph (5).
(7) Interest owner's interest, expressed as a decimal or fraction, in production from paragraph (1).
(8) Interest owner's share of the total value of sales prior to deduction of taxes and deductions from paragraph (5).
(9) Interest owner's share of the sales value less the interest owner's share of taxes and deductions from paragraph (5).
(10) Contact information, including an address and telephone number.

Plus, the bill adds an Apportionment section which allows an operator to develop contiguous leases by horizontal drilling, unless expressly prohibited from doing so in the particular leases. In such a situation, royalties would be determined, unless agreed otherwise by all affected royalty owners, by allocation “in such proportion as the operator reasonably determines to be attributable to each lease.”

Moreover, the bill allows for accumulation of royalties annually if the royalties total less than $100. There are certain exceptions to this allowance and the proposed law imposes certain escrow account requirements.

The bill now goes to the Pennsylvania Senate for consideration. As drafted, the bill would take effect 60 days after enactment.

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This article was prepared by Jeremy Mercer (jeremy.mercer@nortonrosefulbright.com or 724 416 0440) from Norton Rose Fulbright's Energy Practice.

New study shows no evidence of water contamination from shale gas drilling in Arkansas

Duke University and the U.S. Geological Society (USGS) investigated the possible degradation of water quality in shallow aquifers overlying the Fayetteville Shale formation in north-central Arkansas, where approximately 4,000 wells have been drilled since 2004 to extract unconventional natural gas.

The study which was released in mid-May 2013 found no evidence of groundwater contamination from shale gas production in Arkansas.  The scientists sampled 127 shallow drinking water wells in areas overlying the gas-producing Fayettevile Shale formation.  The samples were taken at various locations by personnel from the Arkansas Oil and Gas Commission.  The samples were analyzed for major and trace elements and hydrocarbons.  Isotropic tracers were used to identify the sources of possible contamination.  The chemical composition of any contaminants in the water samples was compared to those found in gas samples from the nearby shale gas drilling sites. The comparisons showed no spatial relationship between methane and salinity occurrences in the shallow drinking wells located in proximity to the sites.  The low concentrations of methane that were found in the water did not match the isotopic fingerprint of the methane in the gas samples in all but two cases, showing that the methane in the water was primarily produced by biological activity in the shallow aquifers.

The scientists concluded that “systematic monitoring of multiple geochemical and isotopic tracers is necessary for assessing the possible groundwater contamination in areas associated with shale gas exploration as well as the possible hydraulic connectivity between shallow aquifers and deeper production zones.”   The scientists indicated that variations in local and regional geology as well as human factors, such as drilling techniques and the integrity of the well bore, play major roles in determining the possible risk of groundwater impacts from  shale gas development and in preventing or allowing gas leakage from drilling sites to shallow aquifers.

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This article was prepared by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.

BLM releases revised proposed rules on hydraulic fracturing

The U.S. Bureau of Land Management (BLM) oversees approximately 700 million subsurface acres of federal mineral estate and 56 million subsurface acres of tribal mineral estate across the United States. Currently, nearly 36 million acres of federal land are under lease for potential oil and gas development.

On May 11, 2012, BLM published a proposed rule governing hydraulic fracturing on federal and tribal lands for public comment. The May 2012 proposal sought to update rules for oil and gas drilling on public and Indian lands by requiring the disclosure of fracturing fluids, satisfaction of various well construction standards, and management of flowback waters. BLM received over 177,000 public comments on the proposed rule.

Today, BLM released a Supplemental Notice of Proposed Rulemaking and Request for Comment, updating its earlier proposal. The supplemental proposed rule revises the set of evaluation tools oil and gas operators may use to show that groundwater is being protected and provides more detailed guidance on how trade secrets claims will be handled, modeled on the procedures promulgated by the State of Colorado.

The 30-day public comment period will start when the proposed rules are published in the Federal Register.

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This post was prepared by Heather M. Corken (hcorken@fulbright.com or 713 651 8386) and Ted Bosquez (tbosquez@fulbright.com or 724 416 0423) from Fulbright's Environmental Law Practice Group.

House reintroduces FRAC Act

On May 9, 2013, the Fracturing Responsibility and Awareness of Chemicals Act of 2013 (the “FRAC Act”) was reintroduced in the U.S. House of Representatives. The FRAC Act was first introduced to Congress in 2008. If passed, the FRAC Act would repeal the exemption for hydraulic fracturing in the Safe Drinking Water Act. The Act establishes groundwater protection safeguards for hydraulic fracturing operations and requires the disclosure of chemicals used during the hydraulic fracturing process.

Specifically, the FRAC Act would require that persons conducting hydraulic fracturing operations disclose to the state: (1) a list of chemicals intended for use; (2) the Chemical Abstracts Service numbers for each chemical and constituent; (3) Material Safety Data Sheets when available; and (4) the volume of each chemical used. The same information must also be submitted within 30 days after hydraulic fracturing operations end. Similar to chemical disclosure rules adopted by many states, the FRAC Act would not require the public disclosure of proprietary chemical formulas.

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This article was prepared by Heather M. Corken (hcorken@fulbright.com or 713 651 8386) from Fulbright's Environmental Law Practice Group and Kristen Hulbert (khulbert@fulbright.com or 713 651 5303) from Fulbright's Environmental Law Practice Group.

Senate Committee to hold forum on shale development

The U.S. Senate Committee on Energy & Natural Resources will hold a Full Committee Forum on “Shale Development: Best Practices and Environmental Concerns” on May 23, 2013, beginning at 10 a.m. EDT. Witnesses will include representatives from oil and gas companies, environmental groups, and state and federal regulatory agencies. The forum will be webcast at FULL COMMITTEE FORUM: Shale Development: Best Practices and Environmental Concerns - Hearings and Business Meetings - Hearings - U.S. Senate Committee on Energy and Natural Resources. An archived video will be available on the Committee’s website shortly after the forum.

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This article was prepared by Barclay Nicholson (bnicholson@fulbright.com or 713 651 3662) from Fulbright's Energy Practice Group.

Ohio voters reject proposal to ban hydraulic fracturing in northeast Ohio

In February 2013, the City Council of Youngstown, Ohio agreed to include on its ballot a proposal to ban hydraulic fracturing within the city limits after an anti-fracking organization, Frackfree Mahoning Valley, collected sufficient signatures for a successful petition. The unofficial results of the election held on May 7, 2013 show voters rejected this proposal by a significant margin: 57 percent opposing the proposal vs. 43 percent supporting the proposal.

In Youngstown, the proposal resulted in an unusual alliance of interest groups united in their opposition to the ban. The local business community actively campaigned against the proposal and argued this prohibition and the litigation likely to arise from the ban would have prompted companies to reevaluate their decisions to invest and expand in the area. Likewise, organized labor opposed the proposal arguing the prohibition would have negatively impacted the economic recovery of the community.

This debate over hydraulic fracturing is increasingly on display in local level elections as anti-fracking organizations pursue similar proposals to ban or otherwise restrict operations within resource-rich eastern Ohio. In November 2012, voters in Mansfield and Broadview Heights approved proposals to amend their city charters to permit the regulation of injection wells capable of storing waste associated with hydraulic fracturing operations. In Athens, an organization named the Bill of Rights Committee is collecting signatures to put the issue on the upcoming November ballot as a referendum.

Ohio sits atop the gas-rich Utica Shale formation and will likely remain a key battleground for the legal and political struggle over hydraulic fracturing. State officials anticipate the development of this formation will generate much-needed tax revenue and employment opportunities for the region.

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This post was prepared by Ted Bosquez (tbosquez@fulbright.com or 724 416 0423) from Fulbright's Environmental Law Practice Group.

USGS assesses undiscovered oil resources in Bakken and Three Forks Formations

The U.S. Geological Survey (USGS) recently completed a geology-based assessment of the oil and gas resources of the Bakken and Three Forks Formations, located in North Dakota, Montana, and South Dakota, finding that these formations together hold an estimated mean of 7.38 billion barrels of oil, 6.7 trillion cubic feet (tcf) of gas, and 0.53 billion barrels of natural gas liquids. See USGS Fact Sheet 2013–3013: Assessment of Undiscovered Oil Resources in the Bakken and Three Forks Formations, Williston Basin Province, Montana, North Dakota, and South Dakota, 2013. The Three Forks Formation was found to have 3.73 billion barrels of estimated mean resource of oil, with the Bakken Formation having a 3.65 billion barrels (approximately the same amount as was found in the USGS’ 2008 assessment of the Bakken Formation). The formations combined estimate ranges from 4.42 million barrels with a 95% change of production to 11.43 billion barrels with a 5% chance. Gas estimates ranged from 3.43 tcf (with a 95% chance of production) to 11.25 tcf (with a 5% chance) and 0.23 billion barrels (95%) to 0.95 billion barrels (5%) of natural gas liquids. This assessment was undertaken as part of the USGS’ nationwide project to assess U.S. petroleum basins using standardized methodology and protocol. Data for this assessment was provided by the North Dakota Geological Survey, North Dakota Industrial Commission, Montana Board of Oil and Gas, and multiple industry groups working in the formations.

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This article was prepared by Barclay Nicholson (bnicholson@fulbright.com or 713 651 3662) from Fulbright's Energy Practice Group.