American Oil and Gas Reporter - September 2016 - 30

PIOGA's Fight For Industry Continues
By Dan Larson
Special Correspondent
WEXFORD, PA.-After a difficult but
successful negotiation to exclude conventional wells from new surface regulations, operators in Pennsylvania found
themselves again classified as unconventional under a new federal rule prohibiting
disposal of wastewater at public water
works, say industry association leaders.
Directed by the legislature to produce
separate Chapter 78 regulations covering
surface activities for conventional wells
and for unconventional wells, the state
Department of Environmental Protection
presented for legislative approval rules
that were "essentially identical," says
Louis D'Amico, president and executive
director of the Pennsylvania Independent
Oil & Gas Association.
As PIOGA prepares for its Board of
Directors meeting, scheduled for Sept.
15 in Cranberry, Pa., D'Amico says the
regulations "went too far, even for the
shale producers. They certainly went too
far for traditional producers. We would
have preferred they scrap the whole thing,
but were pleased the governor agreed to
abrogate the half that covered conventional
operations."
It seemed, D'Amico declares, that no
sooner was SB 279 signed, then the association learned of a new rule from the Environmental Protection Agency on wastewater disposal that again lumped together
conventional and unconventional wells.
As the trade group largely representing
Pennsylvania's traditional producers, PIOGA has fought to keep rules aimed at
the state's growing unconventional shale
operations from impacting conventional
operations.
In 2014, PIOGA declared that, from a
regulatory perspective, a conventional
well, "irrespective of technology or design," is a well drilled to produce gas
from anything other than a shale formation
or from shale that is above the base of
the Elk formation.
An unconventional well is, according
to the association, "drilled to below the
base of the Elk Sandstone or its geologic
equivalent in a formation from which
gas cannot be produced by horizontal or
vertical well bores, except when stimulated
by hydraulic fracturing."
It has lobbied the distinction in Harrisburg since, D'Amico says.
Drilling Down
In June, the bill regulating unconventional wells passed and was signed into
30 THE AMERICAN OIL & GAS REPORTER

law by Governor Tom Wolf, following
an agreement to hold off on a similar set
of regulations for conventional wells that
unduly would have burdened legacy operators, D'Amico says.
It remained unclear when the revised
rules for conventional or unconventional
operations would be adopted, he notes.
But following the Aug. 18 approval by
the general assembly's Joint Committee
on Documents, he adds, the revised regulations for unconventional operations are
expected to be published and become effective within three-six weeks of that date.
As passed, the legislation known as
Act 52 of 2016, directs the DEP to begin
any new rule making concerning conventional oil and gas wells "separately
and independently of unconventional
wells or other subjects." However, published reports indicate such work cannot
begin until a new panel created by the
bill is formed. Called the Pennsylvania
Grade Crude Development Advisory
Council, the new board is intended to
assist and inform the DEP on oil and gas
issues as new rules are considered.
In the meantime, conventional development has slowed. According to DEP
figures, 75 vertical wells, or fewer than
one in four of all wells, were spudded
this year. Conventional well drilling in
Pennsylvania peaked in 2007 with more
than 4,800 wells spudded, according to
published reports.
"According to DEP data, the wells
spudded this year are oil wells; gas operators have been very quiet lately," D'Amico
notes.
Gas production from conventional
wells is off by 10 percent this year while
shale gas production rose 12 percent, the
DEP reports.
Conventional Disposal
The distinction between conventional
and unconventional wells also was at the
center of a controversy arising from a
final rule issued by EPA on June 28.
The rule, 81 FR 41845, prohibits the
discharge of wastewater from onshore
"unconventional oil and gas" to publicly
owned treatment works (POTWs).
The problem, according to Kevin
Moody, PIOGA vice president and general
counsel, is a number of Pennsylvania formations that industry historically has considered conventional, and Pennsylvania
law has excluded from the definition of
unconventional, are defined as unconventional in the technical guidance documents
attached to rule. As a result, most shallow
conventional wells are mistakenly included

in EPA's new "zero discharge" rule.
And while the rule is written narrowly
to apply to wastewater from unconventional wells transferred to POTWs under
the effluent limitation guidelines in federal
regulations at 40 CFR Part 435, Moody
notes the producing formations described
are actually conventional formations for
most Pennsylvania operators.
"EPA said it did not intend the rule to
apply to conventional wells, but the guidance document specifically names formations from which our conventional operators produce," Moody states.
Moody says PIOGA plans to work
with state and federal elected officials to
convince EPA it should correct the guidance document definitions. "This will
have an adverse impact not only on producers, but on the treatment plants that
now get hundreds of thousands of dollars
from treating conventional producers'
wastewater," he says.
Getting the agency to correct a guidance
document when its rule states it is not intended to cover conventional production
"seems like a simple task, but nothing at
EPA is ever simple," Moody reflects.
Severance Tax
During his run for governor in 2014,
Wolf proposed a 5.0 percent severance
tax on natural gas. That levy increased to
6.5 percent in the governor's budget address earlier this year. Since then, D'Amico
observes, Wolf has suggested increasing
taxes on activities and goods other than
the oil and gas industry to plug gaps in
the state's budget.
When first proposed by Wolf, the 5.0
percent severance tax would have generated $1 billion in revenue. With the slide
in commodity prices since, even the higher
tax rate would not produce enough revenue
to make the political fight worth the
effort, according to published reports.
One such report projects that at current
prices, a 6.5 percent severance tax would
generate only $271 million, about what
operators pay in impact fees that are disbursed to local communities.
With prices where they are and a state
budget finally in place, the severance tax
issue has "gone away for now," D'Amico
remarked in mid-August. "However, politicians being politicians, any potential revenue source is never safe from taxation."
Forcing The Issue
In July, the Commonwealth Court of
Pennsylvania dismissed a lawsuit brought
in the name of several children that sought
to compel the governor or a state agency

American Oil and Gas Reporter - September 2016

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