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Pennsylvania Oil, Gas Industry Told It Will Have to Wait For Long-Delayed Regulations

A top official from the Pennsylvania Department of Environmental Protection (DEP) on Tuesday told hundreds of members from one of the state's largest oil and gas trade associations that it could be two years before a comprehensive package of new environmental regulations is implemented. It was not what they wanted to hear.

That's mainly because the DEP has been at work since 2011 on a series of proposed regulatory changes that would update Chapter 78 of the state code, which sets out environmental protection standards. The rule changes deal with reducing impacts on public resources, preventing spills, waste management and the final restoration of well sites after drilling, among other things. They were required by the state's omnibus oil and gas legislation Act 13, which Republican Gov. Tom Corbett signed in February 2012 (see Shale Daily, Feb. 15, 2012).

As he addressed the Pennsylvania Independent Oil & Gas Association's (PIOGA) annual conference in Pittsburgh, DEP Deputy Secretary Scott Perry said the agency had received more than 24,000 individual comments from all corners of the state, including some that were more than 100 pages. Given the industry's level of concern about some of the proposed rule changes, the extensive feedback from the public and some proposals that would inevitably need to be reworked, Perry said more review and a longer public comment period would likely delay implementation until 2016. 

The Pennsylvania Environmental Quality Board first approved the agency's proposals last August (see Shale Daily, Aug. 29, 2013), and a series of public hearings that coincided with an online comment period was originally scheduled to end in February (see Shale Daily, Jan. 23;Jan. 14).

Regulations were high on the list during the first day of PIOGA's two-day conference. Pennsylvania’s energy industry is on the ascent as the state is home to one of the nation's most prolific natural gas fields: the Marcellus Shale.

But even as Pennsylvania is poised to provide nearly a quarter of the nation's natural gas supplies by next year, said PIOGA President Lou D'Amico, the industry remains on edge about a number of immediate challenges it faces, including more regulations and the political uncertainty of November's gubernatorial election in which Corbett is considered to be one of the most vulnerable incumbents in the country.

The four candidates running in an upcoming primary to challenge him have called for a new severance tax to help generate more revenue for the state, which has also received more air time as of late in the state capital (see Shale Daily,Jan. 28).

Concerns were voiced on Tuesday about what any new taxes and regulations would mean for smaller conventional operators.

"In terms of new regulations, there is a negative impact, especially when you look at it from a cost-benefit perspective for small businesses," said Ken Fleeman, manager of engineering at Pittsburgh-based Abarta Energy, which has an interest in more than 1,700 natural gas wells, most of which are vertical. "At this point, perhaps it's a moot point. You can pick any of these regulations and consider each of them just another nail in the coffin."

Fleeman said regulations already account for roughly 15% of his company's operating expenses. He said Abarta spends tens of thousands of dollars annually on compliance alone. More regulations, he said, could hurt the company if natural gas prices dip lower, like they did in 2012 when the company was forced to layoff part of its workforce.

"At some point, as you add and add regulations, it becomes a moot point because the money is not there," Fleeman said. "There is an economic component and burden to this and a decision is going to have to be made when the rest of this [Chapter 78 update] comes to play. We have uncertainty in the regulatory package, and we have greater uncertainty over the political environment in the next year or two years. There may have to be some very tough decisions by conventional operators, and may god bless us when that time comes."

An update to Chapter 78 would call for an operator to notify the agency if a well site is within 200 feet of a publicly owned park or wildlife area and if the site could disrupt "critical communities" or wildlife that are of "special concern."

The proposed regulations will also require operators to identify and plug any abandoned wells within 1,000 feet of new pads. Significant requirements for secondary containment units, such as dikes, berms and double-walled storage tanks have been suggested under the proposals as well.

Perry said he understood the concerns of conventional operators and acknowledged that his agency had not gone far enough in minimizing the regulatory burden.

He said a large part of the regulatory delay would come from further review of how the Chapter 78 update could harm conventional operators.

"The overwhelming majority of operators in Pennsylvania are really small businesses by definition, whether you're Range Resources or Abarta," Perry said. "I can assure you that the distinction for me is conventional and unconventional. We have tried extraordinarily to draw an appropriate line between conventional and unconventional. I will also readily admit that we did not sharpen the pencil enough in some of those regards."

But Perry stressed that some of the industry's concerns are far-flung. He said, for instance, that storage tanks would not need to be retrofitted with "vandal-proof" equipment as some online comments had alleged. He also pleaded with PIOGA members to consider the rationality of searching for and plugging abandoned wells, saying that it was the only conceivable way groundwater could be contaminated during drilling operations. If that were to happen, he said, it could eventually lead to even more regulations.

"I think we've demonstrated at the DEP that we are ready, willing and able to engage folks in productive conversations about what's necessary and appropriate," Perry told the crowd. "If you can give us a chance, we can demonstrate to you our adaptability, but we also need you to work with us so we can demonstrate to the public that these [producing] wells that have been out there for years and years are indeed mechanically sound and not presenting any public risk to the health and safety of the environment.

"I don't have the staff to do it. There is a demand from the public that we inspect each of these wells annually. I did a back-of-the-envelope calculation and found that, at a minimum, we would need an extra 175 people to the tune of something like $8 or $9 million in new well permit fees to pay for that. I don't propose doing that. I think we have a system in place that answers the concerns of the public and does so in a reasonable way."

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