US Forest Service issues plan allowing fracking in George Washington National Forest

On Tuesday, November 18, 2014, the United States Forest Service’s (USFS) Southern Regional Forester issued a Revised Land and Resource Management Plan and Record of Decision allowing natural gas drilling to take place on 177,200 acres of the George Washington National Forest located in Virginia and West Virginia. The new plan will go into effect in early 2015.

Notably, the plan does not prohibit operators from utilizing hydraulic fracturing technology to develop the forest lands. This differs from the original draft management plan which would have prohibited horizontal drilling. Prior to beginning operations, however, all development proposals are required to undergo an additional environmental impact analysis and will be subject to public comment.

The USFS’ announcement comes just months after Pennsylvania Governor Tom Corbett similarly lifted a 2010 moratorium banning Pennsylvania from leasing public parks and forest lands.

Following Governor Corbett’s decision, Pennsylvania negotiated a settlement with environmental groups which barred the issuance of any new leases until the Commonwealth Court ruled on a related lawsuit regarding whether Corbett’s decision to use funds from natural gas leasing in the general budget violated the Pennsylvania constitution. Oral arguments in that case were held in October but no ruling has been issued to date.


This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) and Shannon DeHont (shannon.dehont@nortonrosefulbright.com or +1 724 416 0431) from Norton Rose Fulbright's energy practice group.

Alberta Chief Justice keeps fracking lawsuit against environmental regulator alive

The Honourable Neil Wittman, Alberta's Chief Justice of the Court of Queen's Bench, has ruled that a landowner is entitled to carry on her lawsuit against Alberta's Environment and Sustainable Resource Development Department (ESRD) for allegedly being negligent in monitoring and regulating EnCana Corporation (EnCana) in the hydraulic fracturing of a well, and negligent in investigating the alleged contamination of her water well.

The landowner, Jessica Ernst, originally sued EnCana, ESRD and the Energy Resources Conservation Board (ERCB) in 2007. Recently, the case against the ERCB was thrown out on the grounds that the ERCB did not owe her a private duty of care and that the legislation under which it operates provided statutory immunity.

Please review our previous blog posts on these decisions, including:
The most recent development is that ESRD applied to the Court to strike out parts of Ms. Ernst's pleadings to allegations of negligent administration of a regulatory regime and the relief sought, including damages on the grounds that they failed to disclose a reasonable cause of action. In the alternative, ESRD sought summary judgment dismissing the case against it on the basis that Ms. Ernst's claim has no merit.

The Chief Justice ruled against both motions.

With respect to the application to strike part of the pleadings, the Chief Justice noted that striking the parts of the pleadings requested by ESRD would have the effect of having the entire claim against ESRD struck. ESRD argued that the test for striking an entire claim is whether it is plain and obvious or beyond reasonable doubt that the claim cannot succeed. The Court, however, disagreed and applied a test of whether, assuming the facts pleaded were true, there is a reasonable prospect that the claim will succeed.

The Chief Justice then determined that prima facie there was a private duty of care owed by ESRD to Ms. Ernst as the allegations in the claim, assuming they are true, concern direct contact between ESRD officials and Ms. Ernst and assert that specific representations were made by ESRD to Ms. Ernst. The Chief Justice found that there were no public policy considerations which ought to negate or limit that private duty of care.

ESRD also argued that it had statutory immunity like had previously been found for the ERCB. However, the legislation under which ESRD operated was different than that of the ERCB, and that the provisions granting immunity only applied for acts and omissions of ESRD undertaken in good faith. As Ms. Ernst alleged that the ESRD had acted in bad faith, and as the Court presumed the facts alleged to be true for the purpose of the motion, the Court ruled ESRD did not have statutory immunity.

As for the summary judgment application, the Court applied the rule that a defendant is entitled to summary judgment when there is no merit to the claim against it. The Chief Justice noted that the onus was on ESRD to establish that there was no genuine issue requiring a trial, and that ESRD had failed to satisfy him that there was no merit in Ms. Ernst's claim.

Meanwhile, Ms. Ernst is trying to get the Supreme Court of Canada to hear her appeal of the decision allowing the ERCB to exit the lawsuit as an application for leave to the Supreme Court has been filed by Ms. Ernst.


This post was written by Alan Harvie (alan.harvie@nortonrosefulbright.com or +1 403.267.9411) from Norton Rose Fulbright's energy practice group.

Increased rail traffic leads to heightened regulations

Compared to last year, transportation of goods by rail has increased. The two commodities with the largest increase in rail traffic have been coal and crude oil products. Transportation of crude oil and petroleum products by rail has increased by 13.4 percent. From January to October 2014, more than 672,000 tank cars have transported oil and petroleum products. Commentators have suggested that the increase is a result of the increased production of crude oil and the limited amount of pipeline available to transport the material. The amount of crude oil and petroleum products transported by rail pales in comparison to the amount of coal transported. Approximately 4.9 million tank cars of coal were shipped from January to October 2014.

The increased rail traffic has led federal and state regulators to impose additional requirements on rail carriers. The United States Department of Transportation’s Surface Transportation Board (STB) recently imposed a requirement that rail carriers submit weekly reports on their delivery performance. These reports will permit the STB to track the shipments and identify any potential problems from the increased rail traffic.

In addition, Lynn Helms, the Mineral Resources Director for North Dakota, has proposed new regulations for rail carriers in the state. Under the new rules, companies must lower the volatility of crude oil before it can be transported by rail. Specifically, the proposed rules would require crude oil to have a vapor pressure lower than 13.7 pounds per square inch (psi). National standards only require crude oil to have a vapor pressure lower than 14.7 psi. The proposal has been submitted to the North Dakota Industrial Commission (Commission). The Commission will meet on December 11th to discuss whether to adopt the proposal.

Although several members of the Commission have expressed their support for the proposed rules, members of the oil and gas industry have stated their displeasure with the proposal. According to opponents of the regulation, the proposal unduly focuses on crude oil and fails to address the true problem—safe rail transportation. Opponents also argue that the treatment process envisioned by the proposal would increase the amount of volatile material needed to be transported. Lastly, opponents argue that the treatment process would cause increased emissions from the amount of heating required to remove the chemicals from the gas.


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.

According to Pennsylvania, failure to run title search constitutes bad faith in trespass to minerals suit

The Pennsylvania Superior Court upheld an award of US$250,000 in favor of the owner of subsurface rights, who claimed that those rights were drilled on without his permission.

The owner of the subsurface rights properly recorded his interest pursuant to state statute in 1997. Several years later, the defendants improperly leased the mineral rights from the surface owner without conducting a full title search, which would have disclosed the subsurface owner’s interest.

Instead, the defendants only conducted a “bring down” title search which did not disclose plaintiff’s interest. Thereafter, the defendants drilled several producing wells and paid royalties to those with whom they had entered into leases.

The subsurface owner, who did not have a lease with the defendants, later discovered the activity and initiated a claim in 2010 for ejectment, trespass, and conversion.

The trial court found in favor of the subsurface owner, determining that the trespass had been made in good faith until 2008, after which time the trespass was in bad faith due to a conversation between the parties that should have put the defendants on notice they may be trespassing on the plaintiff’s interest.

The Superior Court partially overturned the lower court’s decision, holding that Pennsylvania’s recording statute placed the defendants on constructive notice of the plaintiff’s interest and, consequently, defendants’ trespass was in bad faith for its duration.

The effect of this ruling is to open defendants up to additional damages as a result of the bad faith finding.

The court also addressed the issue of whether the plaintiff had a duty to inspect his property and discover the trespass sooner. Rejecting defendants’ claim that the statute of limitations should bar plaintiff’s claim, the Superior Court upheld the trial court’s determination that under an objective standard, a reasonable person would not have discovered the trespass.

Read the Pennsylvania Superior Court’s opinion of Dennis Sabella v. Appalachian Development.


This post was written by Michael Gaetani (michael.gaetani@nortonrosefulbright.com or 724 416 0400) from Norton Rose Fulbright's Energy Practice Group.

Pennsylvania Supreme Court considers whether estoppel-by-deed applies to oil and gas lease

An exploration & production company urged the Pennsylvania Supreme Court to uphold a lower court ruling which held that the doctrine of estoppel-by-deed applied to an oil and gas lease. “Parties should not be able to convey, under a covenant of warranty, more than they actually own, only to quiet title when the value or price goes up, and then demand more to resell the same property that was not previously conveyed,” the E&P company argued in its brief filed October 27, 2014.

The dispute stems from a 2006 lease covering a 62-acre property. After signing the lease, a title search revealed a previously unknown 1894 deed reserving half of the property’s subsurface rights in favor of a third party. As a result, the E&P company reduced its bonus payment to the landowners by half. In 2008, the landowners filed a motion to quiet title to the half interest reserved by the 1894 deed, ultimately acquiring full title to all 62 acres of subsurface rights.

In 2011, the E&P company exercised its right to extend the lease in exchange for another bonus payment, paying the landowners for the full 62 acres and claiming that the original lease was operative to hold the entire 62 acres. The landowners argued that because they did not own the rights to all 62 acres when they signed the lease in 2006, the E&P company could not extend the lease with respect to all 62 acres, but only with respect to the half interest they owned in 2006.

The E&P company argued that the doctrine of estoppel-by-deed, which mandates that lessee be given the benefit of property that lessors erroneously claim to control at the time of executing a lease agreement, operated to prevent the landowners from excluding the half interest. In March 2014, the Pennsylvania Superior Court agreed with the E&P company, and the landowners appealed.

Read the Pennsylvania Superior Court’s opinion.


This post was written by Michael Gaetani (michael.gaetani@nortonrosefulbright.com or 724 416 0400) from Norton Rose Fulbright's Energy Practice Group.

Fracking bans may thrust California localities into contentious legal battle

On November 4th, Denton became the first city in Texas to enact a ban against hydraulic fracturing. The next day, several members of the oil and gas industry and the state of Texas sued Denton, alleging that the ban was invalid. It is possible that other parties are also planning on suing Denton over the fracking ban. Mendocino and San Benito counties may be following in Denton’s footsteps.

Mendocino and San Benito counties passed legislation on November 4th prohibiting hydraulic fracturing. A fracking ban was on the ballot in Santa Barbara county, but the ban was defeated. Observers have noted that unlike Santa Barbara, oil and gas operations in Mendocino and San Benito were not extensive. Thus, the impact of the bans is expected to be minimal. Mendocino and San Benito counties are not the only localities to adopt anti-fracking legislation. Several localities throughout California have enacted similar measures.

The anti-fracking measures will likely be challenged by oil and gas operators and landowners. It is possible that the state of California may also sue the localities just as Texas responded to the Denton fracking ban. The Western States Petroleum Association (WSPA) has already filed suit against the city of Compton’s fracking moratorium. In fact, although the lawsuit is still ongoing, Compton has withdrawn the moratorium.

The fracking bans can be challenged on several grounds. First, opponents of the fracking bans can argue that the local measures are preempted by state law. In 2013, California enacted Senate Bill 4—a bill that permits oil and gas operations to continue while the state studies the potential impact of hydraulic fracturing on the environment. State lawmakers attempted to pass a moratorium on drilling until the studies were completed, but the bill was defeated. Second, parties challenging the bans can argue that the anti-fracking measures constitute unconstitutional takings. The WSPA raised both arguments in its suit against Compton. Observers have noted that a takings claim brings the added dimension of a potentially significant verdict against the counties. Many argue that localities may rescind their fracking bans rather than risk incurring a large financial obligation.

Read Senate Bill 4.



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.

Alberta Court confirms regulatory immunity

The Court of Appeal of Alberta has confirmed that the Energy Resources Conservation Board (now known as the Alberta Energy Regulator) is immune from a negligence lawsuit by a landowner claiming that hydraulic fracturing caused hazardous amounts of methane, ethane and chemicals to contaminate her water well.
 
The appellant, Jessica Ernst, owns land near Rosebud, Alberta. She sued EnCana Corporation for damage to her fresh water supply allegedly caused by EnCana's activities, notably construction, drilling, hydraulic fracturing and related activities in the region. The Energy Resources Conservation Board had regulatory jurisdiction over the activities of EnCana, and the appellant has sued it for what was summarized as "negligent administration of a regulatory regime" related to her claims against EnCana. The appellant also sued the Province of Alberta, alleging that it (through its department Alberta Environment and Sustainable Resource Development) owed her a duty to protect her water supply, and that it failed to respond adequately to her complaints about EnCana's activities. 
 
In addition, Ms. Ernst alleged in her claim that she participated in many of the regulatory proceedings before the Board, and that she was a "vocal and effective critic" of the Board. She alleged that between November 24, 2005 to March 20, 2007 the Board's Compliance Branch refused to accept further communications from her. For this she has advanced a claim for damages for breach of her right to free expression under the Canadian Charter of Rights and Freedoms.
 
The Board applied to strike out certain portions of Ms. Ernst's pleadings for failing to disclose a reasonable cause of action. The case management judge found that the proposed negligence claim against the Board was unsupportable at law. He applied the three-part analysis relating to foreseeablity, proximity and policy considerations. He found no private law duty of care was owed to Ms. Ernst by the Board.
 
In the alternative, the case management judge found that any claim against the Board was barred by s. 43 of the Energy Resources Conservation Act:
 
  • 43 No action or proceeding may be brought against the Board or a member of the Board… in respect of any act or thing done purportedly in pursuance of this Act, or any Act that the Board administers, the regulations under any of those Acts or a decision order or direction of the Board.
The Alberta Court of Appeal agreed with the lower court and dismissed Ms. Ernst's argument that the Board failed to respond "reasonably" to EnCana's activities and held that a tortuous claim alleging an omission to act was barred by section 43 of the Act. The Court of Appeal also held that section 43 barred Ms. Ernst's Charter claim for a "personal remedy". The Court of Appeal concluded that even if the Board effectively breached Ms. Ernst's freedom of expression, that "protecting administrative tribunals and their members from liability for damages is constitutionally legitimate."
 
Ms. Ernst has said in the media she will appeal this latest decision against her to the Supreme Court of Canada.