In representing landowners in oil and gas lease negotiations and transactions throughout Southwestern Pennsylvania, we are mindful of how changes in state law can affect our clients’ interests. House Bill 1950 was recently passed and signed into law by Governor Corbett in February of 2012. This legislation is formally known as The Act Amending Title 59 of the Pennsylvania Consolidated Statutes (Act 13 of 2012). Therefore, Act 13 serves to update the Pennsylvania Oil and Gas Act. Much of Act 13 applies only to natural gas operations involving hydraulic fracturing (“fracking”) or multilateral well boring technology. It is fair to say then that the Act in many ways specifically addresses “unconventional” Marcellus (and Utica) deep well drilling which has become a significant commercial endeavor over the course of the last several years in the region. This article will summarize how “Act 13” may impact landowners.
I. Environmental Regulation by Local Municipalities
In the recent past many municipalities have attempted to regulate and/or ban unconventional natural gas exploration by passing local ordinances. Some landowners favored such measures while others opposed them in that the ordinances could result in chilling effect on leasing activity. Regardless of how a landowner reacted to local ordinances impacting natural gas exploration in a given municipality, Act 13 clarified that environmental regulation of the oil and gas industry is the responsibility of the Commonwealth of Pennsylvania, and not local municipalities. That clarification, effective April 14, 2012, reinforced the gas industry’s ability to operate and/or explore for gas in Pennsylvania. Specifically, the Act prohibits local environmental regulation of oil and gas operations. Additionally, the Act sets restrictions and requirements on local zoning so as to allow for reasonable gas exploration and development. These provisions were intended to provide a greater degree of uniformity throughout the Commonwealth. Act 13 was intended to clarify the future of natural gas exploration in the region, however several municipalities have already challenged the Act by initiating lawsuits.
II. Additional Environmental Regulations
When we negotiate a lease on behalf of a landowner we are aware that the laws of the Commonwealth of Pennsylvania offer some degree of protection to the landowner (a well-negotiated lease provides additional protections). Act 13 changed and added to the environmental regulatory scheme associated with natural gas exploration. Some of the major changes are summarized as follows:
- Notice to landowners during permitting phase: Under the old regulatory scheme, certain landowners within 1000 feet of the proposed well bore were to be provided notice of a well permit application. Under Act 13 that distance has been expanded to 3000 feet. Once receiving notice a landowner may elect to object to the application with the Department of Environmental Protection.
- Water management: Even prior to Act 13 gas operators were required to submit water management plans with the drilling permit application. Act 13 imposes additional obligations in this regard relating to water withdrawals. Under Act 13 gas operator’s management plans must demonstrate, among other things, that there will not be diminished water supply to other users; that there will not be a negative effect on the quality of the water supply as a whole; and that the gas operator has an acceptable plan to capture and/or reuse fracking fluids.
- Well location: The placement of a well is of particular concern to landowners and Act 13 imposes new restrictions which gas operators must observe. Under the old statutory framework wells had to be set back at least 200 feet from buildings, structures and water wells. Act 13 has expanded that setback to 500 feet. The Act has also addressed increased setbacks in relation to reservoirs, streams, wetlands, springs, and other bodies of water. Further, Act 13 prohibits drilling in floodplains in certain instances.
- Damage to water supply: Under Act 13 there is a rebuttable presumption that a gas operator is responsible for pollution or diminution of a water supply if the pollution occurs within 12 months of completion of drilling or alteration of the well within 2500 feet of the affected water supply. This increases both the timeframe and distance of the former statutory provision which only prescribed a time frame of 6 months and a distance of 1000 feet.
- Containment practices: The new act imposes requirements that well sites be constructed so as to prevent spills either onto the ground or to locations surrounding the well site.
- Disclosure of chemical use: Many landowners and commentators have expressed concern that the fracking material was of an unknown chemical make up. Act 13 imposes chemical disclosure obligations and formation of a chemical disclosure registry. Specifically, service providers, vendors and gas operators must submit a record listing chemical additives to the fracking fluid with percent by volume information.
III. Drilling Impact Fee
Many landowners have expressed concern that increased gas exploration in the Commonwealth is causing strain on the local infrastructure and on the resources of the regulatory agencies without generating enough additional tax revenue to offset the burden. Act 13 established a drilling impact fee whereby individual counties can pass ordinances setting forth an impact fee. The drilling impact fee is to be calculated as a function of the average price of natural gas with a sliding scale which decreases over time. Act 13 specifies the specific amounts from the impact fee to be divided among regulatory governmental entities. Unlike the majority of the provisions of Act 13 which went into effect on April 14, 2012, the drilling impact fee became effective immediately upon the signing of the legislation in February of 2012.
Please note that this article was not intended to be a comprehensive analysis of Act 13 and is intended to provide a brief overview of the provisions of the new law which most impact landowners. If you would like to discuss the Act in detail, or if you have questions as to how the Act may impact your land and/or existing lease, please feel free to contact this law firm for a consultation.