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Pennsylvania Oil/Gas Industry, State Regulators Struggling for Common Ground

While attitudes are mixed about the newest relationship between Pennsylvania's oil and gas industry and state regulators, sources agree that the regulatory landscape has shifted markedly with Democratic Gov.Tom Wolf's administration.

Tensions have undoubtedly risen since Wolf took office in January and appointed two former environmental advocates to lead both the Pennsylvania Department of Environmental Protection (DEP) and the state Department of Conservation and Natural Resources (DCNR). But even if the relationship between state regulators and the industry is only temporarily strained with the new administration, as many had expected, sources say there’s a new regulatory normal for better or worse.

"There's a new guard, let's face it, most of the people that have come into leadership positions at the DEP and elsewhere have advocated against the success of the industry over the last four years," said former Marcellus Shale Coalition (MSC) President Kathryn Klaber, who now heads an energy consulting firm in the state. "Gov. Wolf made a choice in putting former members of PennFuture and other organizations into leadership roles. He made a choice about how his administration should be viewed -- that also has an impact here."

Wolf appointed John Quigley as DEP secretary and Cindy Dunn as DCNR secretary (see Shale Daily, Jan. 14). Dunn had previously served as president of PennFuture, an environmental advocacy group that has at times been critical of the state's oil and gas industry. Similarly, Quigley once served as a government relations manager for the organization. Both Dunn and Quigley also served in former Democratic Gov. Ed Rendell's administration.

Despite repeated attempts, the Wolf administration could not be reached to comment for this story. Officials at the DEP were also unavailable, but they have made several public comments in recent weeks about some of the changes at the agency and a comprehensive package of new draft rules that will be implemented for the oil and gas industry next year.

The agency has been at work on those rules, which update Chapter 78 of the state code and deal with environmental standards, for about four years. In a conference call with reporters last month, Quigley said that the rulemaking process was back on track after the agency said last year that it would be delayed until sometime in 2016 (see Shale Daily, May 13, 2014). Tens of thousands of public comments, legislation passed in recent years and the new administration have all delayed the process, which has been criticized by the industry.

On Monday, after announcing that the public comment period for the latest Chapter 78 update would be extended until May 19, Quigley said "it is imperative that DEP goes the extra mile, takes that extra step and puts in this additional work to modernize and strengthen these regulations.” The new rules deal with reducing impacts on public resources, preventing spills, waste management and restoring well sites after drilling, among other things.

Quigley, however, recently said that both the industry and the public "demanded a high level of participation" in the rulemaking process, which led to more revisions and tighter proposed regulations that were announced last month under his leadership. The agency is proposing that centralized wastewater impoundments either close within three years of the new rules' implementation, or be upgraded and repermitted. Public resources such as schools, playgrounds and drinking water protection areas will require additional consideration and the draft regulations would also establish new requirements for noise control, tighter standards for drilling near waterways and locating orphaned, abandoned and active wells.

"The concern with these proposed rules is that things came down way to the extreme side," Klaber said. "There hasn't been an overreaction, but an appropriate concern with the state of the industry and capital and cash down. There is no room to absorb a lot of uncertainty with economic impact."

Several producers operating in the region did not return calls seeking comment about the proposed regulations.

But at this year's first meeting of the Oil and Gas Technical Advisory Board, which consults DEP about oil and gas regulations, tensions boiled over. A separate committee was recently created by the administration for the state's conventional drillers and new members were appointed to the advisory board, which will focus solely on unconventional drilling (see Shale Daily, Feb. 23). At the meeting, both the Pennsylvania Independent Oil and Gas Association and the MSC claimed they were being forced to comply with stricter standards than other industries in the state.

During testimony obtained by NGI's Shale Daily, the MSC said that under the proposed DEP regulations, unconventional operators would be subjected to more stringent standards for storage tanks, waste reporting requirements and "broad and arbitrary" definitions of critical communities and endangered species.

"These are just a few of the topics that the need for which has not been adequately demonstrated, that are merely -- in our view -- designed to increase costs and threaten continued development of this industry, the tens of thousands of associated jobs and the countless downstream benefits that can be derived, including clear environmental benefits from using more clean-burning natural gas," the MSC told the board.

The trade group, which represents hundreds of producers, midstreams companies and suppliers in the state, also claimed that the comments it has submitted in recent years about previous Chapter 78 revisions have been ignored. It also questioned the DEP's legal authority to implement some of the recently proposed regulations.

As commodity prices have plummeted, producers in the basin have retreated, cutting capital expenditures, idling rigs and making plans to shut-in some production. NGI research shows that capital expenditures among some of Appalachia's biggest producers this year are going to decline by an estimated 27.4% (see Shale Daily, March 20).

"This is everything at its worst in terms of cost and uncertainty," Klaber said. "But I also think there's an alarmism right now that's more a function of tone and style. It's disappointing to see the administration and the industry in seemingly separate corners."

While others suggested that common ground seems to be lost at the moment between the industry, the administration and state regulators, they added that both sides need to focus more on resolution and compromise to bridge that gap.

"Certainly the regulatory landscape, at least as it's been proposed, has changed," said PennFuture's acting President John Norbeck. "And I think it's changing positively for human health and the environment of Pennsylvania. A number of these changes under Chapter 78 were already being done by members of the industry. What these regulations would do is level the playing field a bit."

Norbeck dismissed any connection between Wolf's appointments and PennFuture, saying both Quigley and Dunn were merely doing their jobs as regulators looking out for Pennsylvania's citizens.

"That's what we need to be focusing on; it's not just about the industry and environmental groups when it comes to regulations," he said.

Norbeck also said he didn't believe the relationship between the industry and the DEP is as strained as it's been made out to be in recent weeks. He added, however, that politics needs to be put aside when it comes to what's best for Pennsylvania. Updated regulations, he said, can be just as good for the industry as the state.

"This Chapter 78 stuff is nothing new, it's not rocket science and the industry can do this stuff -- they have been doing it. The DEP also needs to get this done and they can do that." 

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