Regulatory Update on Pennsylvania Oil and Gas

On January 7, 2015, the Commonwealth Court of Pennsylvania issued an opinion rejecting a challenge by the Pennsylvania Environmental Defense Fund (PEDF) of the Commonwealth’s administrative budgetary decisions regarding the leasing of state lands as being in violation of the Environmental Rights Amendment of the Pennsylvania Constitution. The court declined to follow an expansive interpretation of the Environmental Rights Amendment suggested in the plurality opinion of the Pennsylvania Supreme Court in the Robinson Township case.   The court concluded that the plurality decision was not binding precedent and it should follow settled case law. Some industry attorneys view the decision by Commonwealth Court as an important rebuke of the plurality interpretation of the Environmental Rights Amendment in the Robinson Township case.

PEDF has sought re-argument before Commonwealth Court and may appeal to the Pennsylvania Supreme Court if they are unsuccessful. Since two of the three justices who joined in the expansive reading of the Environmental Rights Amendment have retired, it is uncertain how the Pennsylvania Supreme Court would rule if the issue comes before it again.

Within two weeks of taking office, Governor Tom Wolf followed through on his pledge to impose a moratorium on granting new leases of state park and forest land for oil and gas drilling. Governor Wolf signed an executive order on January 29, 2015, in a ceremony at Benjamin Rush State Park in Philadelphia, reversing an executive order issued by Governor Corbett in May 2014. Governor Corbett’s previous executive order overturned a moratorium on leasing issued by former Governor Rendell in 2011.

On January 28, 2015, the Pennsylvania Senate unanimously passed two bills addressing royalty payments for oil and gas production. Senator Gene Yaw (R-Bradford) was the primary sponsor of the “Oil and Gas Lease Protection Package” consisting of Senate Bills 147 and 148. SB 147 would require drillers to disclose more detailed information on royalty check stubs. It would also afford landowners the right to inspect companies’ records to ensure proper payment and assure payments are made within 90 days of production. SB 148 would prohibit a gas company from retaliating against a royalty interest owner by terminating the lease agreement or ceasing development because a landowner questions the accuracy of the royalty payments. The bills will proceed to the Pennsylvania House Environmental Resource and Energy Committee but their fate is uncertain since the House failed to approve similar legislation in 2014. The House also failed to move forward in 2014 with House Bill 1684, which would limit producers’ ability to charge landowners for post-production costs including fees associated with processing and transporting gas.

The Pennsylvania Department of Environmental Protection (DEP) continues to pursue significant enforcement actions against energy companies for regulatory violations. On January 16, 2015, DEP announced that Range Resources had agreed to pay a penalty of $1.75 million to settle allegations it had failed to keep proper records of its water withdrawals from July 2009 to February 2014. DEP noted that although in some cases Range exceeded its limits, none of the violations resulted in any environmental harm.

As energy companies determine how best to develop their resources in a challenging economic environment, the regulatory and legislative climate will continue to pose additional hurdles and obstacles as Governor Wolf and the General Assembly move forward with their agendas.

Stephen Smith focuses his practice on environmental and energy-related matters including regulatory counseling and litigation, administrative law, governmental affairs and lobbying. He represents clients before federal and state courts and administrative agencies. He provides client counseling and advice on compliance, permitting and agency communications as well as business transactions.
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