Act 13

 

PA’s New Oil and Gas Law
 The Pennsylvania General Assembly recently enacted Act 13, which substantially revises the Oil and Gas Act of 1984. Governor Corbett signed Act 13 into law on February 14, 2012, and most of its provisions take effect on April 16, 2012. The legislation was the result of many months, if not years, of negotiations and discussions among legislators, regulators, industry stakeholders and environmental groups. Act 13 provides for: 1) new well fees to be assessed and collected on unconventional wells; 2) a formula for distribution of these fees; 3) substantial revisions to environmental protections for both surface and subsurface activities; and 4) restrictions on the authority of local governments to impose burdens on oil and gas activities beyond those required by the state or those imposed upon other commercial and industrial activities. Well Fee Assessment and CollectionThe new well fee applies to unconventional wells, which are defined as wells drilled to produce natural gas from shale existing below the base of the Elk Sandstone or its geological equivalent where natural gas generally cannot be produced at economic flow rates or in economic volumes except by hydraulic fracturing or by the use of multilateral well bores. The fee is assessed on wells located in counties that enact a well fee ordinance. The deadline for a county to adopt an ordinance assessing fees for wells drilled prior to January 1, 2012 is April 16, 2012. If a county fails to enact such an ordinance, municipalities can force the county to impose the fee if by June 13, 2012:  1) 50% of the municipalities in the county enact a resolution imposing the fee; or 2) municipalities representing at least 50% of the population in the county do so. Counties enacting a well fee after the above deadlines shall be eligible to receive fee disbursements for the calendar year subsequent to enactment. The fee is determined by the average annual price per million British thermal units (MMBtu) in the previous calendar year: 

Year $0-2.25 $2.26-2.99 $3.00-4.99 $5.00-5.99 $6.00 or higher
  $40,000 $45,000 $50,000 $55,000 $60,000
2 $30,000 $35,000 $40,000 $45,000 $55,000
3 $25,000 $30,000 $30,000 $40,000 $50,000
4-10 $10,000 $15,000 $20,000 $20,000 $20,000
11-15 $5,000 $5,000 $10,000 $10,000 $10,000

 

The fee for wells drilled prior to 2012 must be paid to the Public Utility Commission (“PUC”) by September 1, 2012. Thereafter, the fee must be paid by April 1 of the following year. The fee amounts set forth in the above table shall increase if two prerequisites occur:  1) more wells are drilled in the assessment year than in the prior year; and 2) there is an increase in the Consumer Price Index (“CPI”) for the assessment year. Wells that were in existence before January 1, 2012 are considered to be in their first year of production in 2011 for the purposes of assessing the fee. Vertical-only unconventional wells are subject to a reduced fee that is 20% of the applicable amount set forth above for years 1-10 only. Unconventional wells producing less than 90,000 cubic feet of gas per day are not subject to the fee.

Well Fee Distribution

Initial annual allocations are made to various state agencies and to a specific grant program administered by the Marcellus Legacy Fund. These allocations will total $22.25 million from fees paid in 2012, and will fluctuate in future years based upon increases in the CPI and the expiration of some of the grant programs. After the initial annual allocations, fees are distributed as follows:

  • Counties and municipalities (60%).
    • 36%:  Eligible counties, based on the number of unconventional wells in the county.
    • 37%:  Municipalities in eligible counties, based on the number of unconventional wells
      in the municipality.
    • 27%:  Municipalities in eligible counties, based on the number of unconventional wells
      in the county.

      • 50%: Municipalities with unconventional wells, contiguous municipalities or municipalities within five linear miles of such wells, based on population and highway mileage.
      • 50%: All municipalities in the county based on population and highway mileage.
    • Municipality allocation limit:  The greater of $500,000 or 50% of the municipality’s budget for the prior fiscal year, adjusted by any increases in the CPI.
  • Marcellus Legacy Fund (40%).

Reembursements are to be made by the PUC by December 1, 2012, and by July 1 each year thereafter. Fees distributed to counties and municipalities shall only be used for: the maintenance and construction of roadways, bridges and public infrastructure; water, stormwater and sewer systems; emergency preparedness; environmental programs; preservation and reclamation of surface and subsurface waters; tax reductions; projects to increase the availability of safe and affordable housing; records management, geographic information systems and information technology; social services; judicial services; and deposits into the capital reserve fund. The Marcellus Legacy Fund benefits a number of state agencies and statewide programs, including water quality initiatives, conservation, infrastructure, and hazardous site cleanup.

Environmental Regulation

Most of the new environmental provisions are directed at unconventional wells. Act 13 requires operators of unconventional wells to disclose hydraulic fracture fluids to the Chemical Disclosure Registry, which will make information about chemicals and additives available to the public. Trade secrets and proprietary information can be protected from disclosure.

Other new provisions directed to unconventional wells include:

  • Increased record keeping for transportation of waste water fluids;
  • Source reporting for air contaminant emissions; and
  • Well sites designed to prevent spills to the ground surface during drilling and hydraulic fracturing, through the use of impervious surfaces and additional practices to be promulgated by the Pennsylvania Environmental Quality Board.

Act 13 revised prior requirements related to permitting, well site locations and protection of water supplies. For example:

  • Notice must be provided to surface landowners and water purveyors whose supplies are within 3,000 feet of an unconventional well, as well as host municipalities, and to those municipalities and gas storage operators that are within 3,000 feet of an unconventional well.
    • Notice for conventional wells remains at 1,000 feet and does not include municipalities or gas storage operators.
  • Unconventional wells must provide 500 foot buffers from the well bore to existing buildings or water wells without written consent.
    • Conventional wells may not be drilled within 200 feet of existing buildings or water wells without consent.
  • Unconventional wells may not be drilled within 1,000 feet of any existing water well, surface water intake or other water supply extraction point used by a water purveyor without written consent of the water purveyor.
  • Sites for unconventional wells may not be developed within 300 feet of streams and springs.
    • Conventional well sites may not be within 100 feet of a stream or spring.
  • Variances are available for many of these setbacks if additional protective measures are employed.
  • Unconventional operators are presumed to be responsible for pollution of water supplies within 2,500 feet of the well bore when the pollution occurred within 12 months of the later of completion, drilling, stimulation or alteration of the well.
    • Conventional operators are presumed to be liable for pollution within 1,000 feet when the pollution occurred within six months after completion of drilling or alteration of the well.
  • The Department of Environmental Protection (“DEP”) must consider a broad scope of potential environmental impacts when reviewing an operator’s proposed water management plan.

Act 13 also creates a new “well control emergency response” whereby the DEP can use well control specialists, by contract, to provide emergency response services at any well site. Costs for such services are recoverable from persons responsible for the well control emergency. Additionally, Act 13 increases bonding requirements for all types of wells for permit applications received after the effective date of the Act. It also substantially increases civil penalties that may be assessed against operators of unconventional wells.

This list is not exhaustive – there are several other new requirements for inspections, reports, plans and more that will become effective on April 16, 2012.

Preemption of Local Ordinances/Reasonable Development of Oil and Gas

All local ordinances are preempted, except those adopted pursuant to the Municipalities Planning Code (“MPC”) and the Flood Plain Management Act. Ordinances cannot address the same features or purposes as Act 13, and are also preempted by state and Federal environmental statutes.

Significantly, local ordinances also must provide for the “reasonable development of oil and gas” as follows:

  • Allow pipeline/well assessment (including seismic testing) throughout the local government.
  • No conditions on construction more stringent than other industrial uses.
  • No conditions more stringent than those imposed on industrial uses or other land development in the zoning district, including those for height, screening, fencing, lighting and noise.
  • Maximum review period:
    • 30 days for use by right.
    • 120 days for conditional use.
  • Oil and gas operations are a permitted use in all districts, except that a municipality can prohibit or require a conditional use in residential districts if:
    • The well cannot be placed at least 500 feet from an existing building; or
    • The edge of the well pad cannot be placed at least 300 feet from an existing building.
  • Impoundment areas are a permitted use in all zoning districts, provided the edge is at least 300 feet from an existing building.
  • Compressor stations are a permitted use in agricultural and industrial districts and a conditional use in all other districts, provided:
    • Setback must be the greater of 750 feet from an existing building or 200 feet from the lot line; and
    • Noise level at lot line not to exceed 60 dbA.
  • Processing plants are a permitted use in industrial districts and a conditional use in agricultural districts:
    • Setback must be the greater of 750 feet from an existing building or 200 feet from the lot line; and
    • Noise level at lot line not to exceed 60 dbA.
  • Access route restrictions for overweight vehicles must comply with the Pennsylvania Vehicle Code and the MPC.
  • No limits or conditions on subterranean operations or hours of operation for compressor stations, processing plants, drilling of wells and construction or disassembly of drilling rigs.
  • Cannot exceed setbacks for unconventional wells stated in the Act as described above.
  • No setback more stringent than those imposed upon industrial uses.

Legal Review of Local Ordinances

Pre-enactment, municipalities may request the PUC to review an ordinance’s legality. This determination must occur within 120 days of submission. It is advisory and not subject to appeal. 

Post-enactment, a property owner, operator or resident may request PUC review of the legality of an enacted ordinance. The order must be issued within 120 days. An appeal from the PUC’s order may be taken to the Commonwealth Court within 30 days of issuance. Challenges also may be taken directly to the Commonwealth Court without first seeking review by the PUC.

The Commonwealth Court may award reasonable attorneys fees and costs to the plaintiff where the Court determines that the municipality enacted or enforced a local ordinance with willful or reckless disregard or to the municipality where the Court determines that the challenge was frivolous or brought without substantial justification. Municipalities found to be in violation of Act 13 shall not receive any well fee funds until the ordinance is amended, repealed or the order that the ordinance is unlawful is reversed on appeal. Municipalities have until August 13, 2012 to bring previously enacted ordinances into compliance.

For more information please contact Blaine Lucas at 412-394-5657 or blucas@babstcalland.com, Kevin Garber at 412-394-5404 or kgarber@babstcalland.com, Jean Mosites at 412-394-6468 or jmosites@babstcalland.com, or Lawrence Baumiller at 412-394-5490 or lbaumiller@babstcalland.com

Fracking Democracy: Why Pennsylvania’s Act 13 May Be the Nation’s Worst Corporate Giveaway

Pennsylvania’s Republican leaders have given the natural gas industry unprecedented power to overrule local government and drill anywhere.

Editor’s Note: This is the first of two articles about Pennsylvania’s Act 13, perhaps the worst new environmental law in the nation, and the effort to stop it from taking effect. You can read the second one here.

Pennsylvania, where the Declaration of Independence and U.S. Constitution were signed and where the U.S. coal, oil and nuclear industries began, has adopted what may be the most anti-democratic, anti-environmental law in the country, giving gas companies the right to drill anywhere, overturn local zoning laws, seize private property and muzzle physicians from disclosing specific health impacts from drilling fluids on patients. 

The draconian new law, known as Act 13, revises the state’s oil and gas statutes, to allow oil companies to drill for natural gas using the controversial process known as hydraulic fracturing or fracking, where large volumes of water and toxic chemicals are pumped into vertical wells with lateral bores to shatter the rock and release the hydrocarbons. The law strips rights from communities and individuals while imposing new statewide drilling rules.
 
“It’s absolutely crushing of local self-government,” said Ben Price, project director for the Community Environmental Legal Defense Fund, which has helped a handful of local communities—including the city of Pittsburgh—adopt community rights ordinances that elevate the rights of nature and people to block the drilling. “The state has surrendered over 2,000 municipalities to the industry. It’s a complete capitulation of the rights of the people and their right to self-government. They are handing it over to the industry to let them govern us. It is the corporate state. That is how we look at it.”
 
“Now I know what it feels like to live in Nigeria,” said recently retired Pittsburgh City Council President Doug Shields. “You’re basically a resource colony for multi-national corporations to take your natural resources, take them back to wherever they are at, add value to them, and then sell them back to you.”
 
Needless to say, Pennsylvania’s top political leadership—Republican Gov. Tom Corbett and Republican-controlled legislature—see Act 13 as a pro-business, clean-energy bill creating jobs, revenue and improving environmental laws surrounding drilling. That the 174-page bill was essentially rammed through the legislature over objections from local officials, environmentalists and a handful of legislators who said it not only turned “300 years of local zoning upside down,” but exposed the state to liability from wells, was irrelevant. “This growing industry will provide new career opportunities that will give our children a reason to stay here in Pennsylvania,” Corbett said, when signing the bill into law on February 14. It takes effect 60 days later.
 
“A lot of local officials, Republicans and Democrats, have begun to drill into this bill and… are really coming to the conclusion that in their zeal to carry the water for the gas and oil industry people, that they really overreached,” said Shields, who predicted that it was only a matter of weeks before the first legal challenges were filed. “This is really wrangling them. Maybe they are all for oil and gas drilling. And maybe they don’t care about the environment. But they sure as heck care about their power.”
 
Money Talks, Republicans Walk
 
Pennsylvania’s history has been filled with energy booms, busts and boondoggles. The nation’s first large coal mines were there. The first oil wells were drilled in Pennsylvania in 1859. The nation’s first nuclear power plant opened there in 1957. The nation’s worst commercial nuclear accident occurred there in 1979. In between these cycles, this largely mountainous and farming state has struggled economically. This is especially true in the rural areas where upwards of 200,000 wells remain from decades of drilling and mining. 
 
The oil and gas industry has always known that almost all of Pennsylvania except for its southeast corner sat above three formations of shale, known as the Marcellus, Devonian and Utica, which contain some of the world’s largest natural gas reserves. (These same formations extend into eastern Ohio and western New York.) A decade ago, the US Geological Survey released estimates of these reserves, suggesting a sizeable portion of America’s natural gas needs could be met if they were tapped. Pennsylvanians saw the prospect of millions in investment capital pouring into their beleaguered state.
 
The USGS announcement prompted a major restructuring by American gas producers who saw a once-in-a-lifetime opportunity. Texas-based firms such as Range Resources began dumping thousands of acres of other drilling leases and came into the state with a multi-prong strategy to make new fortunes. Initially, the industry started approaching property owners to lease their land for long-term drilling. Then it targeted the legislature to rewrite the state’s oil and gas laws.
 
The industry needed the legislature to rewrite those laws because a 2009 decision by the Pennsylvania Supreme Court upheld municipal rights to write zoning laws that excluded oil and gas drilling if it did not fit the community’s “character” and “special nature.” The oil and gas industry did not want to file a suit every time it wanted to drill. By late last year, private companies such as Range Resources acquired 125,000 acres of leases in Washington County, its executives reported in a recent conference call to Wall Street analysts. In total, the firm has 790,000 acres under lease, mostly in Pennsylvania. 
 
In that call to analysts, Range Resources’ executives described the enormous financial stakes in Pennsylvania—which have driven the state’s current political response. 
 
The return on investment on some Marcellus wells was “73% to 99%,” senior managers boasted. The fracking wells cost about $4 million each. In contrast, Act 13’s new impact fee, which the state is charging to offset costs such as wear on roads and bridges, is about $50,000 per well, apart from other state-required bonds. The firm’s officers, who sold other gas holdings to focus on Pennsylvania, predicted, “in 2012, our organic growth target is expected to be 30% to 35%” and “if we chose to live within cash flow, we can still grow at 15% to 20% a year.” 
 
These profit margins are among the largest of any major American industry, even if they have been inflated to lure investors. The firm is worth “more than $10 billion,” the executives said. Yet it is only one of the large gas companies that have come into the state, where, as of January 12, the Department of Environmental Protection has issued 5,751 permits and 2,891 wells have been drilled. 
 
Pennsylvania’s Republican leaders did not need to be pushed to comprehensively rewrite its oil and gas laws in nearly 30 years. Working with the industry, they drafted a 174-page bill they touted as moving Pennsylvania toward energy independence while protecting the environment. Their legislation was presented to legislators in January, quickly passed largely on party lines, and was signed within weeks. The bill’s critics were ignored. Democrats said they could not muster the votes to stop it. 
 
“This was all done in the backroom—and it was written by the oil and gas industry,” Shields said, pointing to fine print such as the confidentiality strictures for doctors who treat any patient that might be exposed to drilling fluids. “Where the hell does physician confidentiality come from? There isn’t a legislator up there that would ever have thought of that. But a good corporate lawyer will figure that out because they don’t want that to affect them in lawsuits. They know we will be coming because they know we will have spills and accidents and people are going to get hurt. They don’t want to give them a leg up.”    
 
Creating Corporate Rights
 
Act 13 does many things to elevate the rights of gas companies above the civil rights of people and communities. To start, it revokes local zoning authority to discourage oil and gas development, stating, “this section pre-empts and supersedes the local regulation of oil and gas operations” (page 162). Municipalities can adopt some rules on how drilling is to be done, but they cannot say no to drilling. Moreover, the law tells municipalities that they must revise their local ordinances to allow drilling if they want to receive payment under the new per-well impact fee. 
 
But pre-empting local zoning is only the start of Act 13’s heavy-handed approach. The law empowers the state’s Public Utilities Commission—a body of appointed, not elected officials—to overturn local zoning, and to determine if a community is eligible to share in impact fee revenues. Moreover, if a gas company or any individual does not like a local law that affects drilling, that “aggrieved” party can go to the PUC and the board will be required to “determine whether it violates” the new state oil and gas law (page 167).
 
In other words, the PUC will use state authority to help the industry achieve its aims.
 
“What they are saying is if you don’t allow us to do what we want in your communities that you won’t share in the benefit monetarily—so it is almost like a bribe,” said Steve Karas, Forest Hills Borough vice-president, whose community, like nearby Pittsburgh, recently adopted a local ordinance asserting environmental and community rights. “We are not against natural gas. We are not against drilling. We are against the imposition of something that we feel has not been proven safe yet. We talk about public safety all the time in meetings… Part of the public safety is not allowing toxic chemicals to A, poison our water supply, and B, not be treated correctly.”  
 
The law also gives the industry the power to seize private property for any part of a drilling operation. On page 65, it states, “a corporation empowered to transport, sell or store natural gas or manufactured gas in the Commonwealth may appropriate an interest in real property” for “injection, storage and removal” of hydrocarbons. However, it does not require the industry to notify any town government of leases it has acquired or of a future interest in using any property—for say, a pipeline or processing facility. Neither homeowners nor other businessmen seeking to develop property are protected if the gas industry intends to use their land. 
 
“That’s what really concerns them,” Shields said. “Let’s say I have a developer who wants to put a shopping plaza or strip mall in my township. Say one party owns the surface—and it is a split estate and someone else owns the mineral rights. You don’t have any notice of what’s going on with leasing activity. No one is sending you a copy of the lease or the deeds. And you are moving down the road with your developer and then all of a sudden the oil and gas company comes in and says, “Oh, you can’t do that. We’re gonna drill here,’ or, ‘We’re gonna put two pipelines through that land.’ And you have nothing to say about it anymore as a local official.”  
 
Late last year before it became law, the legislation’s critics included David Sanko, executive director of the Pennsylvania State Association of Township Supervisors, who said in December, “We oppose the total elimination of local control, including land use. Instead, we support the maximum possible retention of local decision-making authority to provide for the reasonable development of natural resources consistent with law.” 
 
However, by early February and an approaching statehouse vote, Sanko’s organization changed its tune. He wrote to legislators saying, “We are equally pleased to have been able to thwart the ‘nuclear-like’ attack on local land-use decision making which would have resulted in a statewide, one size fits all total pre-emption of local decisions.” A call asking Santos to explain this reversal and interpretation of the law went unanswered. 
 
The law also prevents heath professionals from discussing medical impacts. On page 99, it requires oil and gas companies to tell medical professionals what chemicals are used in drilling fluids—but only after they sign “a statement of need and a confidentiality agreement.” However those details—the chemicals in drilling fluid and medical significance—it states a page later, are secret and “shall not be a public record.” 
 
“I know exactly why that is in there,” said Shields. “That makes it extremely difficult to bring a civil suit if the information is locked away behind confidentiality agreements. A physician can’t release information during discovery. They can’t even tell another patient that they are dealing with the same thing. They can’t go to a public health official and disclose it—this lady has benzene in her blood, or methyl-whatever. He can’t do it.”  
 
Constitutional Overreach?
 
These controversial aspects raise many constitutional issues that could become avenues for legal challenges, Shields and others have said. For example, empowering the PUC to override laws created by local officials raises serious jurisdictional issues. Additionally, giving eminent domain power to one industry raises constitutional questions about equal treatment under law, just as the confidentiality rules for physicians may violate their speech rights as an unconstitutional prior restraint.    
 
The law takes effect April 14. But before then it is almost certain that not only environmental groups but aggrieved municipalities will sue to challenge sections of it and try to keep it from taking effect, Shields said. And while the law is seen as a pro-industry “model” for other states, CELDF’s Price predicted there would be a growing backlash once more Pennsylvanians learned how their civil rights have been subordinated to industry.
 
“The tables are turned,” Price said. “Americans aren’t used to being treated like they are the indigenous people being colonized. But that’s what’s happening.”
 
Meanwhile, the industry sees few obstacles to drilling anywhere in the Keystone State. 
 
“As you know, Pennsylvania recently passed legislation, which adopts an impact fee, better regulatory uniformity and enhanced environmental protection and safety regulations, all of which we believe are positive for the communities where we operate and for continued development of out acreage in Pennsylvania,” Jeffrey Ventura, Range Resources CEO, told Wall Street analysts in the February 22 call. Those were the briefing’s only remarks about the state’s politics. 
 
The industry and state’s GOP leaders are assuming that the legal and political questions have been dealt with. But they are wrong. Though it is a long shot, a handful of towns and cities have been adopting community civil rights ordinances to keep drilling out of their locales. These are not the same as zoning laws—and they also say Pennsylvania’s state constitution is on their side.  
 
“Pittsburgh is going to be the Gettysburg in this fight,” Shields predicted. “This will be the place where it will all go down.”
Arguments scheduled in Pa. Act 13 lawsuit
 
Arguments will take place between June 4 and 8 in Harrisburg. Also, according to an order issued Wednesday, a representative from natural gas trade organizations and companies will be allowed five minutes to state their objections to the suit, which asks that portions of Act 13 be overturned on constitutional grounds.

The industry previously was denied the ability to intervene by Commonwealth Court Judge Keith Quigley.

The court will hear preliminary objections to the suit by the state, and the plaintiffs will seek to have the court decide the constitutional merits of Act 13 without moving to trial. 

Cecil, Peters, Mt. Pleasant and Robinson townships in Washington County are all plaintiffs in the suit, along with South Fayette Township in Allegheny County, a Monroeville doctor, two Bucks County communities and the Delaware Riverkeepers Network. They contend that Act 13, which regulates oil and gas drilling throughout the state, unconstitutionally strips communities of their zoning and land-use planning rights.

Act 13 has won plaudits, however, from industry officials and some lawmakers who say that it brings uniformity and predictability to Marcellus Shale drillers. It was approved by the General Assembly and signed into law by Gov. Tom Corbett in February.

The companies and advocacy groups set to make arguments against it collectively include MarkWest Liberty Midstream and Resources, Penneco Oil Co., Chesapeake Appalachia, the Pennsylvania Independent Oil and Gas Association and the Marcellus Shale Coalition.

ACT 13 Frequently Asked Questions

The purpose of this FAQ is to highlight changes in the new law. This FAQ should not be used in lieu of reference to the law itself. The information in this guidance is solely advisory and does not represent a legal interpretation by the department. Nothing in this summary shall affect any statutory requirements.

General overview

1. Where can I view Act 13?

Act 13 became law when Governor Corbett signed House Bill 1950 on Feb. 14, 2012.

2. What is a conventional gas well?

A conventional gas well, also known as a traditional well, is a well that produces oil or gas from a conventional formation. Conventional formations are variable in age, occurring both above and below the Elk Sandstone. While a limited number of such gas wells are capable of producing sufficient quantities of gas without stimulation by hydraulic fracturing, most conventional wells require this stimulation technique due to the reservoir characteristics in Pennsylvania. Stimulation of conventional wells, however, generally does not require the volume of fluids typically required for unconventional wells. 

3. What is an unconventional gas well?

An unconventional gas well is a well that is drilled into an unconventional formation, which is defined as a geologic shale formation below the base of the Elk Sandstone or its geologic equivalent where natural gas generally cannot be produced except by horizontal or vertical well bores stimulated by hydraulic fracturing.

Unconventional formations that are currently being targeted or that may possibly be targeted for oil and gas development in Pennsylvania include, but are not limited to, the Marcellus, Utica, Mandata, Huron, Rhinestreet, and miscellaneous Upper Devonian formations such as the Dunkirk, Pipe Creek, Middlesex, Geneseo, and Burkett. There are some shale formations, including the Huron, Dunkirk, and Pipe Creek shales, that are younger than the oldest basal Elk Sandstone section and, therefore, do not meet the Act 13 definition of an “unconventional formation.”

4. What is a stripper well?

A stripper well is an unconventional gas well incapable of producing more than 90,000 cubic feet of gas per day.

5. What does ‘spud’ mean?

Act 13 defines “spud” as the actual start of drilling of an unconventional well. DEP considers a well to be spud when the drilling bit penetrates the surface of the land. Therefore, any well with conductor pipe or any other casing is a spud well. Well sites with only a cellar would not be considered to have a spud well.

6. I am a county, municipality or oil and gas operator and disagree with the spud data that is included on the spud report that DEP provided to the PUC. Who can I contact to resolve this matter?

Act 13 required DEP, within 14 days of passage of the Act, to provide a report to the PUC that identifies all spud unconventional gas wells that received a drilling permit from DEP. DEP met this commitment and all spud reports that DEP submitted to the PUC are available for review on DEP’s website. If you are a county, municipality or oil and gas operator and disagree with any of the data that appears on a spud report that DEP supplied to the PUC, contact DEP via e-mail at ra-epoilandgas@pa.gov. You will be contacted by DEP to discuss the matter and, if necessary, the Department will correct or update its database and report this information to the PUC.

7. Does Act 13 provide additional financial resources to assist DEP’s regulatory oversight?

Yes. Act 13 is projected to provide $6 million annually from impact fee revenues to the department for the administration of its oil and gas program and for enforcing clean air and clean water laws.

8. How does Act 13 affect local zoning of oil and gas activities?

For more information on Act 13′s effect on local zoning of oil and gas activities, please visit the Public Utility Commission’s website.

9. I am a conventional driller. How does Act 13 affect me?

Act 13 provides for enhanced environmental protections for the development of unconventional wells and for the collection and imposition of an impact fee for the development of unconventional wells. Operators of conventional gas wells are not subject to the impact fee provisions contained in Act 13.

The new bonding fee schedule implemented by the Act applies to all oil and gas wells. (Please see §3225 of the Act)

All permit applicants must notify host and adjacent municipalities of their intent to drill and list these municipalities on the permit application. The Act establishes that the department may deny a permit on the basis of the operator’s compliance history. The department may also revoke or suspend a permit based on compliance. (Please see §3211 of the Act)

All operators must post the well permit on site prior to construction. Spud notifications must be submitted to DEP electronically. (Please see §3211 of the Act)

All operators must abide by the corrosion control requirements set forth in the Act, where applicable. (Please see §3218.4 of the Act)

The siting restrictions for development in floodplains, as discussed in question 18, also apply to conventional wells. (Please see §3215 of the Act)

All oil and gas operators are required to submit well records within 30 days of drilling a well and completion reports within 30 days of completing a well. The new additions to those reports, as discussed in questions 13 and 14, apply to all operators. (Please see §3222 of the Act)

Any oil and gas operator may petition the department for an extension of the time requirement to restore a well site. Currently, sites must be restored nine months after completion of drilling a well. Should an operator demonstrate through a plan the conditions outlined in question 20, the department may extend the time requirement by up to two years. (Please see §3216 of the Act)

The rebuttable presumption of liability provisions for diminution or contamination of water supplies due to oil and gas activity remains the same for conventional well operations. Any operator, conventional or unconventional, found to have impacted water supplies must restore or replace the water supplies to either Safe Drinking Water Standards or pre-existing water quality standards, whichever is of greater quality. Operators found to have impacted a water supply within the time and distance provisions of the presumption of liability must supply temporary potable water until the supply is restored or replaced. (Please see §3218 of the Act)

Permitting, notifications, bonding and reporting

1. Does Act 13 change how operators report spudding a well to DEP?

Yes. All operators must provide 24 hours’ notice of the date that drilling will commence to the department electronically via the department’s online oil and gas reporting application.

2. Does Act 13 change how DEP issues permits?

Yes. The department will be amending its well permit application and associated materials to address the changes in the requirements.Please refer to the department’s website for the most up-to-date application materials.

The timeframe for reviewing permit applications is largely unchanged. The department must issue a permit within 45 days of submission of a permit application unless for the reasons outlined in § 3211(e.1), except the department may extend the review period for 15 days. Act 13 now allows the department to extend this review period up to an additional 15 days (for a total of 75 days) if the applicant seeks a variance or waiver request of the well location restrictions. (Please see §§ 3215(a) and (b)(4) of the Act)

Additionally, Act 13 also provides additional bases for permit denial. The department may now deny issuing a permit to an applicant if the applicant, parent or subsidiary is in continuing violation of applicable state laws and regulations, or the application has failed to pay the required impact fee or file a report under § 2303.

3. How do municipalities and gas storage reservoir operators comment on proposed drilling activity?

Municipalities where an unconventional well is proposed to be drilled may submit written comments to the Department describing the local conditions or circumstances which the municipality determines should be considered by the department.

Operators of gas storage reservoirs may comment on the proposed drilling of unconventional wells within 3,000 feet, measured from the well bore, of a gas storage reservoir. Gas storage reservoirs are the portion of a subsurface geological stratum into which gas is, or may be, injected for storage purposes or to test suitability of the stratum for storage. Storage operators may submit written comments to the department describing circumstances which the storage operator determines should be considered by the department.

Comments shall be submitted within 15 days of receipt of the notice of the plat to the department as well as all parties entitled to receive notification of the well permit application.

Written responses to a municipality or gas storage reservoir operator’s comments shall be submitted by the applicant to the department within 10 days of receipt of comments. The department may consider any comments or responses it receives in its review of a permit application. (Please see §3212.1(a)-(b) of the Act)

4. Who must obtain a water management plan?

Any person who withdraws or uses water for drilling or hydraulic fracture stimulation of any natural gas well completed in an unconventional gas formation must submit and have approved a water management plan, which includes a water reuse plan, prior to withdrawing the water. The plan’s requirements shall be presumed to have been met if the proposed water withdrawal has been approved by the appropriate River Basin Commission and is operated in accordance with conditions established by the Susquehanna River Basin Commission, the Delaware River Basin Commission or the Great Lakes Commission, as applicable. The department may establish additional requirements as necessary to comply with the laws of the Commonwealth. Compliance with the water management plan shall be a condition of any permit issued by the department. (Please see §3211(m) of the Act)

5. Have bonding amounts changed?

Yes. Act 13 increases well bonding requirements, which are currently established at $2,500 per well or $25,000 for a blanket bond. Bond amounts shall be established based on well-bore length and number of wells operated, as follows*:

For wells with total well bore lengths less than 6,000 feet:

• For up to 50 wells – $4,000/well not to exceed $35,000
• For 51-150 wells – $35,000 plus $4,000/well not to exceed $60,000
• For 151-250 wells – $60,000 plus $4,000/well not to exceed $100,000
• For more than 250 wells – $100,000 plus $4,000/well not to exceed $250,000

For wells with total well bore lengths 6,000 feet or greater:

• For up to 25 wells – $10,000/well not to exceed $140,000
• For 26-50 wells – $140,000 plus $10,000/well not to exceed $290,000
• For 51-150 wells – $290,000 plus $10,000/well not to exceed $430,000
• For more than 150 wells – $430,000 plus $10,000/well not to exceed $600,000

Bond amounts may be adjusted every two years by the Environmental Quality Board. (Please see §3225 of the Act)

*Note: The department will be establishing an administrative implementation schedule and is in the process of developing new bonding forms. Prior to securing a bond, please consult with the department for the latest information.

6. Have well record reporting requirements changed?

Yes. A well operator must file with the department a well record within 30 days of drilling a well. In addition to previous regulatory requirements defining what must be included in the well record, Act 13 requires the operator to identify true vertical depths at which methane was encountered, other than in the target formation; and the country of origin and manufacture of the tubular steel products used in well construction. The department is developing new forms for this information.

7. Have completion reporting requirements changed?

Yes. A well operator must file with the department a completion report within 30 days after completion of the well, when the well is capable of production.

Act 13 specifies that the completion report must contain the operator’s stimulation record. The stimulation record must include:

• A descriptive list of the chemical additives used.
• The trade name, vendor, and intended use of each chemical additive
• A list of chemicals used
• The percent by mass of each chemical used
• The total volume
• List of water sources
• Pump rates, pressures, total volume used to stimulate a well
• Total volume of recycled water used

An operator may designate portions of the stimulation record as containing trade secret or confidential proprietary information and the department shall prevent disclosure to the extent permitted by the Pennsylvania Right to Know Law or other applicable law.

8. Does Act 13 change the method for providing notice of the plat to certain parties as part of the well permit application process?

No, section 3211(b)(2) of the new law did not alter the method for providing notice of the plat – notice must still be provided to the listed parties via certified mail through the United States Postal Service. In accordance with the statute, the Department will not accept mail slips from commercial vendors such as UPS or FedEx. The Department will return any such submissions to the applicant and consider the permit application administratively incomplete.

9. Does Act 13 change the persons required to be provided notice of the plat via certified mail as part of the well permit application process?

As part of the well permit application parties, certain persons have to be notified.

Act 13 identified additional persons who must receive notice of the plat via certified mail as part of the well permit application process. These additional persons include:

• the municipality in which the tract of land upon which the well to be drilled is located
• each municipality within 3,000 feet of the proposed unconventional vertical well bore
• the municipalities adjacent to the well
• all surface landowners and water purveyors whose water supplies are within 3,000 feet of a proposed unconventional well bore
• gas storage operators within 3,000 feet of the proposed unconventional vertical well bore

Act 13 does not change the requirement that the following persons must continue be notified:

• the surface landowner
• all surface landowners and water purveyors, whose water supplies are within 1,000 feet of a proposed conventional well location
• the owner and lessee of any coal seams
• each coal operator required to be identified on the well permit application.

10. Which municipalities are considered to be “adjacent” for purposes of providing notice of the plat via certified mail as part of the well permit application process?

“Adjacent municipalities” are all those municipalities sharing a common border with the municipality in which the tract of land upon which the well to be drilled is located. In addition, municipalities located within 3,000 feet of the proposed unconventional well bore also must receive notice of the plat via certified mail, whether or not they share a common border with the municipality in which the tract of land upon which the well to be drilled is located.

Environmental protections and setbacks

1. When do the environmental provisions set forth by the law become effective?

The environmental protection provisions set for by the law are effective as of April 16, 2012.

2. Do the provisions of Act 13 change disclosure requirements of hydraulic fracturing chemicals?

Yes. By signing Act 13 into law, Governor Corbett enacted one of the most aggressive and transparent hydraulic fracturing disclosure laws in the country. The law is based in large part on the success of similar disclosure requirements enacted by the state of Colorado. Colorado’s requirements, upon which much of this Act’s disclosure requirements were based, were hailed by progressive industry representatives, environmental organizations and many other groups as a model for other states.

Unconventional well operators must complete a chemical disclosure registry form for publication on FracFocus.org in addition to the reporting required to be submitted to the department. The use of FracFocus.org was recommended and supported by a Department of Energy advisory panel’s report on hydraulic fracturing.

Because the registry must be used for all hydraulic fracturing of unconventional wells performed on or after April 16, 2012, the Department expects all operators to be registered with FracFocus.org and be prepared to begin using the registry. Within 60 days of the conclusion of hydraulic fracturing, operators must complete and post the chemical registry disclosure form on the registry.

Act 13 provides for immediate, verbal communication of any proprietary information to emergency responders to ensure the necessary care or treatment is delivered to anyone who may have been affected. The Act states that nothing shall prevent the department, a public health official, an emergency manager or a responder to a spill, release or complaint from a person who may have been aggrieved by the spill or release from obtaining information needed upon written request. (Please see §3222.1 of the Act)

3. Are there new setback provisions?

Yes. Act 13 extends the setback distance for unconventional wells from 200 feet to 500 feet from existing buildings or water wells, unless consented to by the owner of the building or water well.

This Act establishes a 1,000-foot setback for an unconventional well from a water supply extraction point used by a water purveyor, unless written consent is obtained from the water purveyor.

The department shall grant a variance from these distance restrictions if the operator submits a plan identifying additional measures, facilities or practices to be employed during well site construction, drilling and operations that is approved by the department. The variance, if granted, shall include any necessary additional terms and conditions of the permit ensure the safety and protection of affected persons and property.

Act 13 also extends the setback distance for unconventional wells from 100 feet to 300 feet from any solid blue lined stream, spring, or body of water or wetland greater than one acre in size as identified on the most recent 7 ½ minute topographic quadrangle map of the United States Geological Survey.

Unconventional well site pads must also maintain a setback of 100 feet between the edge of disturbance and any stream, spring, body of water or wetland greater than one acre in size.

The department shall grant a waiver for these setback requirements if the operator submits a plan identifying additional measures, facilities or practices to be employed during well site construction, drilling and operations that is approved by the department. Any waiver shall contain additional terms and conditions as necessary to protect the waters of the Commonwealth 

4. How does Act 13 affect development of well sites in floodplains?

Act 13 prohibits the preparation of any well site or drilling of any well within a floodplain if the site will include a pit or impoundment containing drilling cuttings, flowback water, produced water, hazardous materials, chemicals or wastes located within the floodplain; or a tank containing hazardous materials, chemicals, condensate, wastes, flowback or produced water within the floodway. Please consult the Act and appropriate regulation for definitions of these terms.

The Department may issue a waiver to these restrictions upon approval of a plan identifying additional measures, facilities or practices to be employed. The department may impose terms and conditions on the waiver necessary to protect the waters of the commonwealth.

Floodplain boundaries referenced are those indicated on maps and flood insurance studies provided by the Federal Emergency Management Agency. In an area where no FEMA maps or studies have defined the boundary of the floodplain, refer to defaults in § 3215(f)(5).

5. Are any well pad sites “grandfathered” from the new well location requirements?

Yes. Siting restrictions will not apply to a new permit application for a well at an existing well site that has at least one currently valid well permit issued prior to April 16, 2012. (Please see §3215(g) of the Act)

6. When must operators restore a well site?

All operators must restore the land surface within the area disturbed in siting, drilling, completing and producing the well. Within nine months after completion of drilling the well, the operator shall restore the well site, remove or fill all pits used to contain produced fluids or industrial wastes and remove all drilling supplies and equipment not needed for production, unless consent is obtained from the surface landowner. An operator may request to extend the timeframe by up to an additional two years upon a determination that (a) the extension will result in less earth disturbance, increased water reuse or more efficient development OR (b) site restoration cannot be achieved due to adverse weather conditions or a lack of essential fuel, equipment or labor.

To demonstrate that the extension will result in less earth disturbance, increased water reuse or more efficient development of the resource, the operator must provide a site restoration plan that provides for the timely removal or fill of all pits used to contain fluids or industrial wastes; the removal of all drilling supplies and equipment not needed for production; the stabilization of the well site, including post-construction storm water management best management practices; or other measures to minimize accelerated erosion and sedimentation. The plan must also provide for returning portions of the site not occupied by production or equipment to approximate original contours capable of supporting pre-drilling existing uses. (Please see §3216 of the Act)

7. What happens if drilling impacts water supplies?

A well operator who affects a public or private water supply by pollution or diminution must restore or replace the affected water supply with an alternate source of water adequate in quality and quantity for the purposes served by the supply. This replaced or restored water supply must meet to the greater of pre-existing water quality standards or water quality standards established by the Pennsylvania Safe Drinking Water Act.

Act 13 increased the presumption of liability for water supply contamination for unconventional wells. Unless rebutted, the Act presumes that an operator is responsible for pollution of a water supply if the affected water supply is 2,500 feet from an unconventional well and that pollution occurred within 12 months of the later of completion, drilling, stimulation or alteration of the unconventional well.

Operators found to have impacted water supplies within the time and distance provisions of the presumption of liability must provide temporary potable water until the supplies are restored or replaced.

Unconventional well operators must provide written notice to landowners or water purveyors that the rebuttable presumption may be void if the landowner or water purveyor refuses the operator access to conduct a pre-drilling or pre-alteration survey.

8. What are the new corrosion control requirements?

All buried metallic pipelines shall be installed and placed in operation in accordance with federal corrosion protection requirements (49 CFR Part. 192 Subpart. I).

Permanent aboveground and underground tanks must comply with applicable corrosion control requirements in the department’s storage tank regulations.

The Environmental Quality Board will promulgate corrosion control regulations for all other buried metallic structures, such as well casings, as determined as necessary.

Corrosion control procedures must be carried out under the direction of a qualified person. A pipeline operator of new, replaced, relocated or otherwise changed pipeline must comply with these requirements as of April 16, 2012. (Please see §3218.4 of the Act)

9. Are there new containment requirements?

Yes. Unconventional well sites must be designed and constructed to prevent spills to the ground surface or off the well site. Containment practices must be in place during both drilling and hydraulic fracturing operations and must be sufficiently impervious and able to contain spilled materials, and be compatible with the waste material or waste stored within the containment. Containment plans must be submitted to the department and describe any equipment that is to be kept onsite to prevent a spill from leaving the well pad.

Containment systems shall be used wherever drilling mud, hydraulic oil, diesel fuel, drilling mud additives, hydraulic fracturing additives, and/or hydraulic fracturing flowback are stored. Containment areas must be sufficient to hold the volume of the largest container stored in the area plus ten percent. (Please see §3218.2 of the Act)

10. Do unconventional well operators have to keep records concerning the transportation of waste?

Yes. Unconventional well operators that transport wastewater fluids must maintain for five years records of fluids transported and make such records available to the department upon request. The records must include the number of gallons of wastewater fluids produced during drilling, stimulation or alteration of the well; the name of the person or company that transported wastewater fluids; the location where wastewater fluids were disposed of or transported and the volumes disposed of at the well location; and the method of disposal.

Inspections and enforcements

1. Does Act 13 change how DEP responds to well control emergencies?

Yes. The department may enter into contracts with well control specialists to provide adequate response services in the event of a well control emergency. Well control specialists under contract with the Department shall be immune from civil liability for good faith response actions, except for breach of contract, intentional tort or gross negligence.

A person liable for a well control emergency is responsible for all response costs incurred by the department. (Please see §3219.1 and §3254.1 of the Act)

2. Are there any changes to penalties?

Act 13 increases penalties for criminal violations from up to $300 to up to $1,000 per offense. Civil penalties have increased for unconventional gas well operators from $25,000 plus $1,000 per day to $75,000 plus $5,000 per day. (Please see §3256 of the Act)

Democrats plan ‘fix’ for Act 13

“What we are trying to do is find a balance. We are not trying to put the industry out of business.”

Rep. Steve Santarsiero 

 By Gary Weckselblatt Staff Writer Calkins Media, Inc.

Each week since Gov. Tom Corbett signed Act 13 into law in mid-February, Steve Santarsiero has risen to speak on the House floor against the measure that imposes an impact fee on companies drilling in the Marcellus Shale.

Since his speech is contingent on no member objecting, the Democrat from Newtown has been gaveled down by objections from Republicans, the majority party, just a few sentences into his remarks.

It’s gotten to the point where Republicans have taken him aside and asked what he’s been trying to say. When he tells them, he said the response has been “that sounds reasonable.”

On Monday, House Democrats unveiled what they’re calling the Marcellus Compact. It’s a six-point plan that includes much of what Santarsiero has been pushing for months and Democrats say “fixes” Act 13. Specifically, it uses his legislation to protect natural resources by increasing environmental setbacks and bonding requirements.

Setbacks would increase from 300 to 420 feet for streams; from 1,000 to 3,000 feet for public wells; and 500 to 1,200 feet for private wells. Bonding would double to $20,000 per well.

The plan also restores municipal zoning authority; increases Act 13’s severance tax on natural gas drillers; guarantees patients’ rights to full medical disclosure when their health might have been affected by fracking chemicals; establishes a Marcellus Shale Job Creation Tax Credit; and establishes a public online tracking system for fracking wastewater storage and disposal; prohibits drilling in floodplains; and places a moratorium on discharging drilling wastewater into surface waters.

“What we are trying to do is find a balance,” Santarsiero said. “We are not trying to put the industry out of business.”

State Rep. John Galloway, D-140, said, “We’re simply trying to do what Sarah Palin did in Alaska, Rick Perry did in Texas and every state in the union has done. We want to make sure every person in Pennsylvania benefits.

“Why can’t we do it here? Is it a tax increase? Sarah Palin didn’t feel that way. Rick Perry didn’t feel that way.”

Galloway said when Republicans stood up to speak before voting for the bill, “they all said this bill is not perfect. Well, here’s their chance to fix it.”

State Rep. Gene DiGirolamo, R-18, said his best friend in the Legislature is Matt Baker, a Republican from Tioga County where drilling is taking place.

DiGirolamo said in conversations the two have had “everybody seems to be perfectly fine with (Act 13), the people who live in the area, government entities and the people doing the drilling. My stance would be to give this thing a chance to work and see how it goes.”

State Sen. Chuck McIlhinney, R-10, has said he will introduce an amendment to Act 13 that exempts Bucks County municipalities from some requirements of the new natural gas drilling law after Nockamixon and Yardley joined a lawsuit against the law.

“My colleagues in Harrisburg never intended for it to affect us,” McIlhinney has said. He hopes to have the measure passed by the end of the legislative calendar year in June.

DiGirolamo said he supports McIlhinney’s efforts.

State Rep. Todd Stephens, R-151, said some proposals in the Democrats’ bill appear worthy of consideration.

“A bipartisan majority reached a compromise to enact Act 13, which imposes fees on drillers to fund environmental and conservation programs, strengthens environmental protections, and ensures our physicians have access to information to treat their patients — all important initiatives that were never accomplished in previous sessions of the General Assembly and under the prior administration. That said, I’m always interested in ways to improve our laws where necessary.”

State Rep. Marguerite Quinn, R-143, said she has only seen highlights of the Democrats’ plan.

“Given the limited information, I am supportive of the concepts put forth,” she said. “Act 13 was a compromise bill. I was never happy with the final product, but it was the first step. I am certainly interested in working across the aisle to do what is best for Pennsylvania.”