December 2014 • Issue 56

The

PIOGA pressThe monthly newsletter of the Pennsylvania Independent Oil & Gas Association

(Continues on page 3)

(Continues on page 32)

®

As a gubernato-rial candidate,Tom Wolf

promised to make theenergy industry pay itsfair share through aseverance tax and topursue more aggressiveenforcement of envi-ronmental regulationsagainst the energyindustry. His websiteidentified numerous issues he would address and included thefollowing prescription under “the Marcellus Shale issue”: “TomWolf will make sure state agencies tasked with environmentaloversight are adequately funded, staffed, and supervised to pre-vent reckless drilling, and that irresponsible companies are heldaccountable.”

While he cannot impose a severance tax without theRepublican-controlled General Assembly enacting legislation,Wolf has much greater control over enforcement as theCommonwealth’s chief executive. By selecting former rival can-didate and former Department of Environmental ProtectionSecretary Katie McGinty1 as his chief of staff, we assume thatGovernor-elect Wolf will have less of a learning curve on theimplementation of strategies that will likely reflect a moreaggressive enforcement posture by DEP.

As Governor-elect Wolf prepares to take the reins in January,energy operators in Pennsylvania should understand some impor-tant features of the regulatory framework and authority of DEP.This article discusses certain aspects of the Commonwealth’senforcement authority and what Pennsylvania oil and gas opera-tors can do to prepare for the new regulatory climate.

A time of change: Prepare for heightened enforcementDEP is an enforcement agency with broad discretion

It is important to remember that DEP’s mandate is environ-mental protection. As a result of bipartisan legislation enacted in1995 supported by then-Governor Tom Ridge, the formerDepartment of Environmental Resources split into the DEP andthe Department of Conservation and Natural Resources, whichfocuses on the needs of state parks and forests. DEP’s websiteincludes sections devoted to various regulatory programs includ-ing oil and gas. The home page of the Oil and Gas Programnotes in its opening sentence, “DEP’s Office of Oil and GasManagement is responsible for the statewide oil and gas conser-vation and environmental programs to facilitate the safe explo-

PIOGA Conventional Producers RoundtableProducers advised to adaptin order to surviveBy Matt BensonDirector of Internal Communications

In the wake of the shale-gas revolution, the natural gas indus-try has reinvented itself over the past several years, and con-ventional producers must adapt and work together in order to

survive in this new world. That was the challenging messagedelivered during PIOGA’s November 10 Conventional ProducersRoundtable in Greensburg.

“We can’t operate the way we have for the last hundredyears,” President and Executive Director Lou D’Amico told theapproximately 100 members in attendance.

The event was organized by PIOGA’s Pipeline and GasMarket Development Committee and featured Chairman Bob

Eckle of Appalachian Producer Servicesas moderator, along with panelistsFrank Ross of T&F Exploration,Donnie Conner of Open Flow Energyand Hugh Byers from Direct EnergyBusiness Marketing. The group dis-cussed how and why the market haschanged, where it is headed, and therole of the conventional producer in thenew market environment. D’Amicoaddressed the legislative and regulatoryarenas and talked about PIOGA’s role in

PIOGA chairman: Looking back and ahead . . 8Oil & gas tax and accounting seminar . . . . . 12Gas-electric group seeks participation . . . . . 13PIOGA’s 2015 Winter Meeting . . . . . . . . . . . 13Title due diligence: Part 3 . . . . . . . . . . . . . . . 15DEP reminder about diesel idling . . . . . . . . . 18Little hope for more state leasing . . . . . . . . . 19November Spud Report . . . . . . . . . . . . . . . . 20Winter driving safety . . . . . . . . . . . . . . . . . . . 24Additional insured coverage . . . . . . . . . . . . . 26Update: State legislative leadership . . . . . . . 27

EIA releases 2013 reserve report. . . . . . . . . 28Marcellus exceeds economic expectations. . 29MEET-U needs your help . . . . . . . . . . . . . . . 31Upcoming recruiting events . . . . . . . . . . . . . 31PIOGA Member News . . . . . . . . . . . . . . . . . 31Oil & Gas Trends. . . . . . . . . . . . . . . . . . . . . . 36Member Profile: Steel City Safety . . . . . . . . . 38New PIOGA members . . . . . . . . . . . . . . . . . 39Calendar of Events . . . . . . . . . . . . . . . . . . . . 39PIOGA contacts . . . . . . . . . . . . . . . . . . . . . . 39

Stephen Smith

Authors:

Jon BeckmanSteptoe & Johnson, PLLC

Page 2 The PIOGA Press

February 2014 Page 3December 2014 Page 3

Heightened enforcement: Continued from page 1

ration, development, recovery of Pennsylvania’s oil and gasreservoirs in a manner that will protect the commonwealth’snatural resources and the environment [emphasis added].”

DEP’s O&G Program homepage includes articles under “Oiland Gas News.” Notably, each of the three articles listed (at thetime of this writing) address enforcement actions (“DEP FinesRegency Marcellus Gathering LLC More Than $300,000 forPipeline Construction Violations in Three Counties,” “DEP Seeks$4.5 Million Penalty from EQT Production Company for MajorPollution Incident in Tioga County” and “DEP Fines NFGMidstream Trout Run LLC $250,000 for Pipeline ConstructionViolations in Lycoming County”). In addition to these notewor-thy enforcement actions, Range Resources agreed in Septemberto pay a $4.15-million penalty to settle a DEP enforcementaction related to alleged violations at six oil and gas wastewaterimpoundments in Washington County.2 On October 3, DEPissued a proposed “tough” new policy for enforcing violations ofoil and gas regulations.3 It is interesting that the apparentincreased emphasis on enforcement by DEP has taken placeunder the direction of a Republican governor criticized by somefor being too soft on the energy industry. If DEP’s new marchingorders are to be even more aggressive in enforcement, manymore operators may feel the sting of enforcement.

DEP has a variety of weapons in its enforcement arsenal. Itcan issue enforcement orders, seek injunctive relief, assess civilpenalties, and seek criminal enforcement for violations of the oiland gas laws and regulations.4 While DEP’s guidance may helpexplain what may happen in the course of an enforcement action,DEP has broad discretion as to whether it will issue a notice ofviolation or an administrative order, or take more aggressiveaction.5 In cases where DEP believes there is imminent threat ofenvironmental harm, DEP may seek injunctive relief.

As a result of the Pennsylvania Supreme Court’s decision inRobinson Township6 declaring portions of Act 13 unconstitution-al, non-governmental organizations advocating for environmentalprotection (NGOs) have seized upon the court’s discussion ofArticle I, Section 27 of the Pennsylvania Constitution (oftenreferred to as the Environmental Rights Amendment) to assertchallenges to projects and permits and to urge DEP to becomemore aggressive in enforcement. Under a new administration,DEP may give vitality to the Environmental Rights Amendmentin the development and implementation of new policies, includ-ing those related to enforcement.

Criminal prosecutions may increaseWhen the Pennsylvania attorney general initiated a criminal

enforcement action against XTO Energy, Inc. in September 2013based upon an alleged release of produced fluid from storagetanks, some viewed it as a politically motivated maneuver by aDemocratic attorney general seeking to flex her muscle.7 InOctober 2014, Attorney General Kane filed a criminal complaintagainst EQT Corporation regarding an incident in 2012 relatingto the alleged release of flowback water from a site in TiogaCounty. The complaint was based on a referral from thePennsylvania Fish and Boat Commission (PFBC). Theseenforcement actions illustrate the risk of criminal enforcement.

With the arrival of a Democratic governor, regulated indus-tries may face an even greater risk of criminal prosecutions

Page 4 The PIOGA Press

through coordination of investigations and communicationsresulting in more referrals to the attorney general for prosecutionthrough the Commonwealth Attorney’s Act.8 While DEP, thePFBC and attorney general each have their own regulatory niche,it is likely they will be aligned in their perspectives on enforce-ment, particularly with regard to releases of pollution to watersof the Commonwealth.

There are limits to zealous enforcementWhile DEP has broad enforcement discretion, there are some

limitations. DEP cannot act in a manner that deprives an individ-ual or entity of their property or rights without due process of thelaw. Additionally, DEP cannot intentionally treat, or target, anindividual or entity differently from other similarly situated indi-viduals or entities. DEP is also barred from bringing an enforce-ment action in retaliation when individuals or entities exercisetheir legal rights. These limitations were all tested in the case ofMFS, Inc. v. DiLazaro, where a mineral wool manufacturer fac-ing enforcement action brought claims against DEP employeesas individuals, alleging the employees acted outside the scope oftheir official duties.9

At the conclusion of the MFS, Inc. trial, the jury found fourDEP employees10 retaliated against MFS for contacting membersof the legislature; violated MFS’s right to due process of the law;and violated equal protection by treating MFS differently thanother similarly situated corporations. The jury awarded MFS$6.5 million and found the DEP employees personally liable forthe damages. This decision surprised many, but the federal judgewho presided over the trial vacated the jury award and dismissedthe suit, concluding the DEP employees were covered by sover-eign immunity, and that the DEP’s actions were not outside thescope of its duties and did not “shock the conscience” in a waythat warranted liability. While this litigation does not provide anybright line guidance on when zealous prosecution becomesexcessive and therefore unlawful, it illustrates that there are lim-its on the enforcement discretion of agency officials.

How to prepare: Make environmental compliance a priorityExperienced environmental professionals agree that DEP has

broad authority to take a variety of enforcement actions. Further,many recognize that responding to or defending an enforcementaction is often time consuming and expensive. The best way toavoid being targeted for an enforcement action is to continuouslyoperate in compliance. To do so, an operator must develop andmaintain a robust environmental compliance program, which isadmittedly difficult given the dynamic regulatory environmentand continual revisions to the laws and regulations. Based uponour experience, companies that are successful in maintaining aneffective environmental compliance program often share com-mon features: a corporate commitment to make environmentalcompliance a company priority or core value;11 a dedicated staffof environmental professionals who are not under the direct con-trol of operations; an environmental management system;12 rou-tine training; and authorization to consult with experienced out-side consultants and counsel when necessary or appropriate.

Not every energy company has sufficient resources to have adedicated staff of environmental professionals. Fortunately, thereare several trade associations that track regulatory programsimpacting the oil and gas industry. PIOGA’s EnvironmentalCommittee utilizes experienced environmental professionals

who, along with member company representatives, carefullytrack regulatory developments and communicate with DEP andother agencies, not only to track regulatory developments but toinfluence the development of policy and regulatory initiatives.PIOGA monitors regulations pertaining to conventional andunconventional wells and collaborates with the Marcellus ShaleCoalition, the Independent Petroleum Association of Americaand other trade associations regarding various regulatory devel-opments applicable to many industries (U.S. EPA’s proposedrevision to the definition of the “waters of the United States” willbe the focus of comments by numerous organizations). By col-laborating on issues of common concern, these trade associationscan be an invaluable resource for current, accurate regulatoryinformation. Further, they offer useful networking opportunitiesand synergies for understanding regulatory obligations andaddressing issues confronting a company.

Regardless of the size of the company, each operator has anopportunity to demonstrate to DEP and other agencies its com-mitment to environmental compliance in its day-to-day opera-tions and in communications with the agencies.13 Companies thatdemonstrate they understand their regulatory obligations maydevelop a positive relationship with agency inspectors and man-agers. Maintaining a positive relationship with agencies does notmean that a company should not challenge the agency whenappropriate. Indeed, it is beneficial for the operator when theagency realizes that any enforcement action will be carefullyevaluated and challenged if the agency exceeds its authority oracts unreasonably.

Developing a robust environmental compliance programmay pay dividends

While it is true that dedicating resources to the developmentof a strong corporate environmental compliance programrequires a financial commitment, a robust program can pay greatdividends. Each time an operator seeks a new permit, DEP mustconduct a compliance review, consider the history of complianceand determine whether the operator has demonstrated an unwill-ingness or inability to comply with regulatory requirements inpast operations. Operators must also understand that DEP is notthe only organization reviewing the compliance histories. Onetactic utilized by NGOs is to appeal permits. NGOs may hope toslow down the project, draw attention to an issue (which mayhelp fundraising) or overturn the permit. Pennsylvania oil andgas operators should understand that NGOs such as DelawareRiverkeeper, Mountain Watershed Association, PennFuture, andSierra Club monitor and sometimes challenge draft permits,arguing in some cases that DEP failed to properly evaluate theoperator’s history of non-compliance. While NGOs may chal-lenge permits for operations near state parks or perceived sensi-tive ecosystems regardless of the permittee’s compliance history,it will surely be detrimental for operators in any proceeding ifthey must explain or defend their compliance record.

The Marcellus Shale play has attracted the attention ofinvestors looking for positions in the energy boom. Based uponour experience, investors will carefully review the operator’scompliance history in evaluating the risk before making a sub-stantial investment. This review may entail a comparison of thecompliance history of similarly sized companies operating in thesame region making a company’s compliance history a reportcard for review by potential investors.

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ConclusionGovernor-elect Wolf is expected to direct DEP to more aggres-sively enforce the laws and regulations governing the energyindustry. Companies operating out of compliance may feel thesting of this heightened enforcement. Prudent operators shouldreview and enhance their compliance programs to minimize therisk that they may be targeted which will enhance their ability tooperate unimpeded by enforcement proceedings and enjoy therewards of the energy boom. ■

1 Kathleen Alana “Katie” McGinty previously served as an advisor to Vice

President Al Gore and she became a key environmental advisor to President Bill

Clinton.

2 See StateImpact Pennsylvania article “Range Resources to pay $4M for viola-tions at western Pa. impoundments” https://stateimpact.npr.org/pennsylva-

nia/2014/09/18/range-resources-to-pay-4m-for-violations-at-western-pa-impound-

ments/

3 See article entitled “DEP proposes tough new policy for enforcing oil and gas

violations and responding to water contamination complaints” in October 2014

Issue 54 of The PIOOGA Press. 4 See 58 P. S. §§ 3253-3256.

5 In any enforcement action, an operator should consult with experienced envi-

ronmental counsel to assure its rights and interests are adequately protected. For

example, if DEP issues a notice of violation (which is not a “final” appealable

action) or order directing the operator to respond to a spill, the operator may be

inclined not to challenge DEP if the operator agrees that the spill occurred and

corrective action is appropriate. However, if DEP is incorrect as to any factual

finding or conclusion, the operator should dispute the finding to preserve the

ability to challenge it in any subsequent enforcement action.

6 Robinson Twp v. Commonwealth, 83 A.3d 901 (Pa. 2013) (plurality)

7 XTO is seeking to have the complaint dismissed as being a politically motivat-

ed selective prosecution.

8 Section 205 of the Commonwealth Attorneys Act provides: “The Attorney

General shall have the power to prosecute in any county criminal court the fol-

lowing cases: (6) Criminal charges investigated by and referred to him by a

Commonwealth agency arising out of enforcement provisions of the statute

charging the agency with a duty to enforce its provision.” 71 P.S. § 732-205.

9 MFS, Inc. v. DiLazaro, 771 F. Supp. 2d 382 (E.D. Pa. 2011). The facts are illus-

trative of the outer-boundaries of enforcement discretion: MFS received an

enforcement order from DEP at 5:05 p.m. on a Friday evening, which required a

response by the next business day. During the appeal, the EHB stated the DEP

staff were acting “like children” and evidenced hostility toward MFS. MFS com-

plained to its local legislator. DEP then issued 13 notices of violation to MFS, 10

of which were issued in contravention of DEP policy. Unable to satisfy the DEP,

MFS could not obtain the necessary permits to continue operating, requiring it to

sell its facilities and liquidate its assets.

10 The four DEP employees included the regional director who was the former

regional counsel.

11 This corporate commitment should be adopted by company executives and

expressly stated. Further, the executive team and chief legal officer should assure

that the policy is explained to the employees, incorporated into corporate policy

statements, new hire training and refresher training and that appropriate resources

are committed to implementation. Merely adopting a corporate policy without

appropriate implementation will be viewed merely as lip service.

12 Since 1997, the U.S. EPA has encouraged agencies to require the violator to

implement an EMS as a condition of settlement based on the belief that compli-

ance problems arise from inadequate environmental management systems. See

Compliance-Focused Environmental Management System Enforcement

Agreement Guidance, EPA-330/9-97-002R (August 1997, Revised June 2005).

13 We recommend operators consider each communication with an agency to

present an opportunity to demonstrate the company understands its regulatory

obligations (or to reiterate DEP’s interpretation and seek confirmation its under-

standing is correct) and is committed to compliance.

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Page 8 The PIOGA Press

The following article will appear in The American Oil & GasReporter’s 2015 Presidential Papers in the January issue of themagazine. The article provides a good overview of PIOGA’saccomplishments in the year past and our expectations for 2015.By Gary E. SlagelPIOGA Chairman

Election Day 2014 marked the first timea Pennsylvania governor has beendenied reelection in the 46 years since

the state began allowing its chief executive toseek a second term. Although Governor-electTom Wolf did campaign for a 5-percent sever-ance tax on unconventional natural gas, the election was not somuch an endorsement of Wolf’s platform; rather it was backlashagainst outgoing Governor Tom Corbett. Governor Corbett wascharacterized as anti-education and viewed by many as ineffec-tive in accomplishing anything meaningful during his four yearsin office. Nevertheless, Governor Corbett was a strong supporterof unconventional gas development who recognized the value ofthe industry to the Commonwealth. He also understood that aseverance tax, on top of the existing 3-percent impact fee andother taxes that Pennsylvania businesses already pay, would beharmful to the growth of the industry.

But as the new Democratic governor attempts to rally legisla-tive support for a production tax and other ways of boosting taxrevenue, the elections also strengthened Republicans’ hold onboth chambers of the General Assembly. Additionally, legislativeleadership changes will mean a more conservative legislative

agenda will dominate the coming session. We are hopeful that itwill continue to be an unfriendly climate for any new taxes.

Still, PIOGA will again have to wage an all-out offensiveagainst a severance tax. We can’t afford to do otherwise, particu-larly if other revenue sources fail to materialize. One reason iscontinued low gas prices. The operating margins for manyunconventional dry gas producers are already razor-thin and thesituation is critical for our conventional producers. With its com-plex and comprehensive regulatory system and its multitude ofbusiness-related taxes, Pennsylvania is an expensive place to dobusiness—a new 5-percent tax would severely and negativelyimpact natural gas development.

The same is true of expansive and expensive new regulations.Pennsylvania’s Department of Environmental Protection is in themidst of an ambitious overhaul of its Chapter 78 oil and gas reg-ulations. The draft regulations are full of provisions we believeare overly prescriptive, costly and in some instances not author-ized under state law. DEP is rethinking some of the more oner-ous requirements as the department responds to 25,000 industryand public comments that were submitted and works on a secondformal draft of the regulations. At the same time, we are wary ofhow the change in administrations will affect this effort—includ-ing who will be named DEP secretary and how department poli-cy might change. Interestingly, former DEP Secretary KatieMcGinty is the governor-elect’s new chief of staff and one of histop campaign advisors was another former DEP secretary, JohnHanger. We expect the issue of who leads the DEP will be on thefront of the new administration’s agenda

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It is important that elected officials and regulators tread care-fully now with regard to Pennsylvania’s bright energy future. Asthe Commonwealth rapidly approaches having the ability to sup-ply one-fourth of the nation’s natural gas, we have a goldenopportunity to attract more industry to Pennsylvania to takeadvantage of this abundant, reliable energy source. Natural gashas already transformed Pennsylvania for the better and it holdsthe potential to transform it even further for the better. What hap-pens in Harrisburg—in the governor’s office, the state capitol andthe offices of regulatory agencies—will determine whether thisvision becomes reality.

Outside the government arena, we are focusing a large part ofour association’s efforts on developing new markets for our natu-ral gas and expanding existing markets. PIOGA even has a fulltime staff person and a supporting committee both dedicated tomarket development. We believe we are the only state oil and gasassociation working to this degree on promoting more end usesfor natural gas. We see it as positive all around—for the econo-my, the environment and, of course, our industry.

We view electric generation as the biggest opportunity forexpanding natural gas use due to more stringent emissions regu-lations and ample gas supplies. There has been announcementafter announcement of new natural-gas-fired generation projectsin Pennsylvania. PIOGA is working closely with PJMInterconnection, a regional transmission organization covering a13-state area, on a variety of gas-electric coordination issues.The electric industry is unlike any other end user we haveworked with, but we believe that huge dividends will come as aresult of our efforts to find innovative new methods of deliveringour product in a way that meets its needs.

In additional to growth of gas-fired electric generation andindustrial use of natural gas and gas byproducts, PIOGA sees bigmarket potential for liquefied natural gas. The green light givento Dominion’s Cove Point LNG export project in Maryland iswelcome news. We also believe that LNG in high horsepowerapplications will become significant for applications for locomo-tives, heavy equipment and marine uses. PIOGA member com-panies are developing projects involving LNG and compressednatural gas for things ranging from transportation to “virtualpipelines” that can serve facilities not connected to gas utilities.

Needless to say, it’s an interesting new world for us, andPIOGA is continually working at helping our members adapt andfind new solutions. However, one particular concern continues tobe the plight of the conventional producers and the increasingeconomic and environmental burdens being placed on their oper-ations.

As mentioned above, a big point of concern has been the mis-application of many regulations during the ongoing rewrite ofDEP’s Chapter 78 regulations. The first draft of these rules didnot make it clear whether certain requirements applied to con-ventional and unconventional operators alike. Fortunately,PIOGA encouraged the inclusion of a provision in the state’s fis-cal year 2014-15 budget legislation that directed DEP to split itsoil and gas regulations into separate sections—one for conven-tional operations and one for unconventional operations. Thedepartment recently showed an early version of the dividedChapter 78 regulations, intended to be fleshed out as the rule-making process continues over the next year or so.

Time ran out on the legislative session before we could seepassage of another proposal that would have benefitted our con-

Page 10 The PIOGA Press

ventional producers. Senate Bill 1310 would have created thePennsylvania Crude Oil Development and Advisory Council, agroup representing industry, state government, economic devel-opment and academic interests that would focus on everythingfrom regulations to affordable wastewater-treatment options fromthe viewpoint of the small operator, particularly oil producers.The bill won Senate approval during the just-ended session, andwe hope to see it all the way to the governor’s desk next timearound.

PIOGA also was looking out for the interests of conventionaloperators in legislation that would have transferred authority overthe Pennsylvania One Call System from the Department of Laborand Industry to the Public Utility Commission. While we sup-ported that particular change, we opposed the bill’s end to anexemption for oil and gas gathering lines from mandatory partic-ipation in One Call. PIOGA had enough support to amend thebill to continue the exemption for conventional oil and gas opera-tions, but the legislation failed to advance further before the endof the session. We expect to see it introduced again.

Two oil and gas related bills that PIOGA had reservationsabout made it through the General Assembly and were signed bythe governor in the waning days of the session. One requiresunconventional producers to report their production to DEP on amonthly basis rather than every six months, and the other pro-vides a formal method for landowners with an oil and gas leaseto obtain a release from the lease upon its termination or cancel-lation. PIOGA had pointed out inconsistencies and vaguerequirements in both bills, but they were approved nonetheless.

In all, PIOGA tracked more than 200 pieces of legislation in

the past session, 65 of which we considered high priority. As ourPresident & Executive Director Lou D’Amico often notes, notthat long ago it was common for PIOGA to monitor a dozen orso bills during a two-year session, and perhaps one or two ofthose would be important. Things have certainly changed in thepast several years since “Marcellus Shale” became a householdterm. This past year, PIOGA created a Legislative Committee tohelp review newly introduced bills, develop positions on piecesof legislation and encourage members to take a more active rolein impacting the legislative process. We expect this committeewill keep busy in 2015.

In fact, I can’t say enough good things about the work ofPIOGA’s committees in promoting the interests of our industry.In addition to our Legislative Committee, our EnvironmentalCommittee is kept busy with a host of state and federal regulato-ry matters, the Pipeline and Gas Market Development Committeeis focusing on new markets and hosted the recent ConventionalProducers Roundtableto help that segment of our membershipunderstand how the markets are changing. Our Safety Committeeis sharing best practices and other information about how we canwork more safely and our Tax Committee is sharing details abouthow we can hang onto as much of our money as possible. All ofthese efforts are worth far more than the cost of membership—and that doesn’t even take into account the good work done byour staff and board of directors!

As the saying goes, the only thing constant is change. I amproud to be a part of the Pennsylvania Independent Oil & GasAssociation and its role in helping guide our industry throughthese constantly changing times. ■

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More than 40 people attended the annual oiland gas tax and accounting seminar onDecember 2, sponsored by PIOGA’s Tax

Committee and member company Arnett FosterToothman, PLLC.

Participants received a full review of all areas offederal and Pennsylvania income tax, productiontaxes, oil and gas accounting, revenue distribution,due diligence audits, joint operating agreement andother contract management, and general record-keeping in the oil and natural gas industry.Throughout the seminar, there was always a specialemphasis on ways companies can save money andreduce their tax debt.

PIOGA’s Tax Committee chair, Don Nestor fromArnett Foster Toothman, was the lead presenter andwas joined by Charlene Tenney, Bill Phillips, RyanNestor and Kevin Highlander.

Participants left equipped with all the informa-tion resources that included easy access to datasuch as industry definitions, accounting disclosures,income tax elections, production tax filing updates and other use-ful industry information.

PIOGA extends a sincere thank-you to the team from ArnettFoster Toothman for all their efforts to organize this annual oiland gas tax and accounting seminar and to provide this valuableeducational material to PIOGA members and guests. ■

PIOGA’s 2014 oil and gas taxand accounting seminar

Participants in PIOGA’s annual oil and gas tax and accounting seminar at theRegional Learning Alliance in Cranberry Township listen to presentations by ateam of experts from Arnett Foster Toothman, PLLC.

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February 2014 Page 13December 2014 Page 13

Natural gas is increasingly becoming the fuel of choiceto generate electricity, and gas demand from the powersector is currently the largest market segment slated for

growth. The Gas-Electric Subcommittee will contribute to themonthly PGMD agenda by addressing how the natural gas andelectricity markets can best coordinate to increase reliability forconsumers.

To review the Gas-Electric Subcommittee’s mission alongwith four categories that will aid future discussions in 2015,please go to www.pioga.org/wp-content/uploads/2014/12/PIOGA-G-E-coord-mission-w-categories_12-2-14.pdf. We arelooking for members in all industry capacities who feel theywish to offer their expertise to the discussion. If you would liketo be an active member of the subcommittee, please emailJoyce Turkaly at joyce@pioga.org with your contact informa-tion and indicate which of the four subcommittee categoriesyou wish to contribute to—rate structure, reliability, pipelines

(unregulated) or operations. Membership is open; however, wewould like to hear back from you by December 31.

Additionally, PIOGA is pleased to announce that SandySpencer, business development specialist, Appellation Pre-Fab,has agreed to lead the Gas-Electric Subcommittee. With contin-ued support from current members and new interest, we arelooking forward to a year of lively discussions around the roleof natural gas in electric generation. Sandy has been an activemember of the PIOGA Pipeline and Gas Market DevelopmentCommittee and has been providing the committee with energyproject updates in Bradford and Lycoming counties.

We also wish to note that Ron McGlade, the former chair-man, intends to stay on as a participant of the subcommittee.PIOGA would like to recognize and thank Ron for lending histhoughts and ideas in order to initiate the subcommittee.

Thank you for your consideration of joining this importantgroup.

A message from PIOGA’s Pipeline and Gas Market Development Committee

Make Plans to Attend

PIOGA’s 2015 Winter MeetingTuesday & Wednesday, February 24-25

Seven Springs Mountain ResortChampion, PA

Sporting Clays

Shoot!

Monday,

February 23

Monte CarloNight!

Tuesday,February 24

• Education

• Networking

• Fun

Watch your email soon for the full agenda and registration,or visit the PIOGA Events section at www.pioga.org

“We will discuss the expected impact of newly elected Governor Tom Wolf’s policies on our industry. We also will address the over-supply of natural gas in our state and nationwide, and our association’s efforts to create and increase natural gas demand. Theseissues and others are important to all our members because they are important to the overall profitability and viability of the oil andgas industry in Pennsylvania. The focus at this winter meeting and all other association events is the long-term vitality of the industryin our state.” —PIOGA President & Executive Director Lou D’Amico

Page 14 The PIOGA Press

February 2014 Page 15December 2014 Page 15

Title due diligence:The seller’s response to asserteddefects, preparation for closingand post-closing issuesThe following is the third and final article in a series preparedby Babst Calland regarding title due diligence.

In this series of articles regarding title due diligence, we havediscussed the importance of the purchase and sale agreement(PSA) in defining what constitutes a “defect” for purposes of

title due diligence examination, as well as the scope of examina-tion to be conducted in order to verify the seller’s title to theassets involved in the deal. This article will focus on the seller’sresponse to the buyer’s asserted defects, the buyer’s and seller’spreparation for closing and post-closing procedures, and poten-tial issues that may be encountered subsequent to the closing.

At this point, the buyer has conducted its review of the seller’stitle to the assets to be acquired and determined the matterswhich constitute defects under the PSA. The buyer’s counsel hassent defect notice reports or acquisition title opinions to thebuyer reporting its findings from the title due diligence examina-tion. The buyer has then notified the seller of the title defects ithas identified in asserting that title to the assets may not meet thequality warranted by seller pursuant to the terms of the PSA.

I. Seller’s response to asserted title defectsDepending upon the terms of the PSA, the seller may have a

window of time in which to attempt to“cure” title defects and/or dispute the sameprior to or after closing. If the seller doesnot cure or dispute defects, the PSA mayprovide that such inaction would be deemedan acceptance of the defect, which could inturn entitle the buyer to a potential reduc-tion in the purchase price or exclusion ofthe asset from the deal. In these circum-stances it is common for the seller to either(i) object to the defect, (ii) attempt to curethe defect to a level acceptable to the buyer,or (iii) object in part and attempt to cure inpart toward negotiating a settlement suchthat the transaction moves forward at amutually acceptable price for the asset.

The seller may object to the value attrib-uted to a particular defect, or refute thevalidity of the defect altogether. The sellermay be aware of additional facts or circum-stances that reduce the risk presented by thedefect, may have a different interpretationof the applicable law, and/or assertthat the facts do not constitute adefect pursuant to the definitionsset forth in the PSA. The responseprepared by the seller may be a formal letter, depending on theprocedure outlined in the PSA, and should describe the defect indetail, in its assertion as to why the defect does not rise to thelevel of a title defect pursuant to the terms of the PSA.

Sarah M.Carter, Esq.

Elena L.Rorabaugh, Esq.

Authors:

Page 16 The PIOGA Press

In addition to a formal response to the defects, or in lieuthereof, the seller may seek to provide curative material to thebuyer to resolve the defects. The seller may have access tounrecorded agreements or assignments that resolve potentialdefects. Other defects may only require minimal curative workthat the seller may be willing to pursue, such as obtaining andrecording affidavits of heirship regarding gaps in the chain oftitle that may affect the validity of the lease, or obtaining stipula-tions of interest regarding gaps in the leasehold chain of title tothe asset being sold. However, some curative efforts may bemore involved and take a longer time to complete. Therefore,where title due diligence occurs prior to closing, the parties mayopt to delay the closing with respect to those specific assets, orproceed with the closing and resolve any remaining issues per-taining to such assets subsequent to closing. After the seller hasresponded to or attempted to cure the buyer’s asserted defects,the parties will then determine if the defects have been sufficient-ly “cured” to a level acceptable to both parties and determinehow to proceed with any uncured defects.

II. Proceeding with uncured defectsOnce title defects have been asserted by the buyer, if the par-

ties determine that any of the defects will not be cured, the PSAwill often provide several options for proceeding. The partiesmay decide to adjust the purchase price of the assets based onthe decrease in value caused by the defect. The PSA may includea formula for determining the value of a defect. Nevertheless,there are typically multiple ways in which the value of a defectmay be calculated. For example, the value of a defect, whichresults in the asset being owned 50 percent less than the amountclaimed by the seller, may be calculated by multiplying the allo-cated value of the asset by 50 percent. Alternatively, the defectvalue for an unreleased mortgage or judgment lien is usually cal-culated based on the liquidated amount required to satisfy thelien. The subjective opinions of each party may also play a rolein negotiating the value of particular defects, including how eachparty analyzes the business risk associated with a defect. If theseller has received value from an asset, such as a lease, over timein spite of a defect that buyer has received, the seller may con-sider the defect to present an acceptable risk, and therefore, mayassert that the value of the defect is lower than what the buyerasserts. On the other hand, if the buyer believes that it couldreceive a great benefit from the asset, it may be willing toassume the risk associated with a certain defect. These factorswill all play a role in the negotiation process when setting valuesfor the title defects.

Another option available to the parties after they have deter-mined that a defect will not be cured by the seller is to excludethe defected asset from the transaction. Excluding certain defect-ed assets from the transaction allows the buyer to avoid assuming

the risk associated with the defects, and it may adjust the pur-chase price accordingly by removing the total value of the leaseor other asset. However, the PSA may state that the defect valuemust reach a certain threshold amount before the buyer may optto exclude the asset from the transaction. Therefore, the determi-nation of defect values is an important part of the due diligenceprocess and requires the parties to work closely to reach anagreement. Lastly, if the seller will not cure the defect and thevalue of the defect does not warrant excluding the asset from thetransaction, the buyer may choose to waive the defect and acceptthe risk associated with the defected asset. The buyer may alsoagree to postpone the attempts to cure until after closing or nego-tiate some other settlement that may mitigate the risk associatedwith uncured defects. This decision rests with the buyer in ana-lyzing its business risk in terms of the potential benefit of acquir-ing the property.

III. Preparations for closing and post-closing issuesWhere due diligence title defect negotiations occur prior to

closing, after the parties reach an agreement regarding theclaimed defects, or depending on the terms of the PSA an arbi-trator makes a decision where the parties are unable to reach anagreement, the parties will finalize preparations for closing.Where the due diligence title defect negotiations occur post-clos-ing, upon making a final determination as to claimed defects, theparties may release any sums held in escrow and determine ifany re-assignments of assets are necessary where certain assetsmay have been excluded from the transaction. Closing checklistsare vital to ensure that all of the necessary documents are pre-pared in advance, including assignments or deeds, exhibitsdescribing the acquired properties, certificates and third partynotices. Curative documents such as mortgage satisfactions,assignments and affidavits must be obtained and recorded.Buyers who are foreign or new corporations must register to con-duct business in the state where the assets will be operated.Environmental permits, bonds and other regulatory approvalsmust be obtained or transferred from the seller to the buyer toensure a smooth transition of operations after closing.

After closing, the buyer takes physical possession of the filesand other records of the seller. Prior to performing operations onor under the leaseholds purchased by the buyer, or including theacreage in a pooled or producing unit, it is recommended thatbuyers conduct a full title examination of the assets and acquiredrilling title opinions. A full title examination will cover issuesthat may have been excluded by the limited scope of the due dili-gence acquisition, title searches and defect notices. ■

This series of articles prepared by Babst Calland examine thecomplexities involved in due diligence when a transactionincludes the purchase and sale of oil and gas assets, includingthe standard of review, scope and process of a due diligence titleexamination, the drafting and delivering of title defect reports,responses and negotiations surrounding defects, and issues thatmay arise pre- and post-closing. The due diligence process playsa vital role in identifying and limiting risk and verifying thevalue associated with acquisitions.

Correction

We misidentified one of the authors of the article on page 17of last month’s issue, “Title due diligence: Conducting the titleexamination, reporting title defects and establishing thebuyer’s pre-closing title objections.” The authors were KristinaM. Beer, Esq. and Brittany A. Roof, Esq. of Babst Calland.

February 2014 Page 17December 2014 Page 17

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Page 18 The PIOGA Press

DEP reminder about diesel idling

With the onset of colder weather, the Department ofEnvironmental Protection says it has receivedincreased complaints about idling trucks, including

those associated with the oil and gas industry. The departmenthas asked us to remind members about the requirements of Act124 of 2008, the Diesel-Powered Motor Vehicle Idling Act.

Diesel vehicles are a significant source of emissions that con-tribute to elevated ozone and fine particulate concentrations inPennsylvania. Act 124 prohibits the owners and drivers of anydiesel-powered motor vehicle with a gross weight of 10,001pounds or more engaged in commerce from idling the engine formore than five minutes in any continuous 60-minute period.

In addition to vehicle drivers and owners, the owners andoperators of locations where such vehicles load, unload or parkalso are responsible for compliance with Act 124, and many ofthese locations must post signs indicating that diesel idling isrestricted.

Below are several sections from a DEP fact sheet. A copy ofAct 124 and full details about the idling program can be found atwww.portal.state.pa.us/portal/server.pt/community/automo-biles/21813/diesel_idling_and_act_124_information/1829987.

Q. What is meant by the term ‘engaged in commerce’ asused in Act 124?

A. A motor vehicle is “engaged in commerce” under Act 124if it has a business name or logo visible on the outside of thevehicle. The term includes, but is not limited to, vehicles carry-ing a load or a trailer and vehicles on their way to pick up a loador trailer. School buses and other types of vehicles specificallyreferenced in the act are also considered to be “engaged in com-merce” for purposes of Act 124. A diesel-powered motor vehicleused exclusively for private use is not considered to be engagedin commerce.

Q. Are there exemptions to allow idling longer than 5 min-utes?

A. Yes. Buses, school buses and school vehicles may idle for15 minutes in a continuous 60-minute period when passengersare aboard. Other exemptions address excess idling due to factorsoutside the drivers’ control, such as traffic or mechanical issues.There are also exemptions addressing idling during maintenance,vehicle equipment inspection, and emergency or utility servicefunctions and idling for security reasons. [Although not men-tioned on the fact sheet, Act 124 provides an exemption foridling when a vehicle’s “primary propulsion engine is necessaryto power work-related mechanical, safety or electrical operationsother than propulsion”—which is pertinent to the oil and gas

industry. This particular exemption does not apply when idling isdone for cabin comfort or to operate nonessential onboard equip-ment.] Additionally, the restriction on idling does not apply if avehicle exhibits a label issued by the California Air ResourcesBoard under 13 CCR §1956.8(a)(6)(C) showing the vehicle’sengine meets the optional NOx idling emission standard.

Q. Who is required to post permanent idling restrictionsigns?

A. Owners and operators of locations where subject vehiclesload and unload, as well as owners and operators of locationsthat provide 15 or more parking spaces for subject vehicles, arerequired to post PennDOT-approved signs.

Q. Who has the authority to enforce the idling restrictionsimposed under Act 124?

A. DEP and state andlocal law enforcementofficers are authorized toenforce Act 124 require-ments.

Q. What are thepenalties for violatingthe requirements of Act124?

A. Drivers and ownersof vehicles and ownersand operators of locationswhere subject vehicles load or unload, or where 15 or more park-ing spaces are provided for vehicles subject to the Act, found tobe in violation of this act commit a summary offense. A convic-tion will result in a fine ranging from $150 to $300, plus courtcosts. DEP is also authorized to assess civil penalties, not toexceed $1,000 per day for each violation of Act 124, in accor-dance with the procedures and factors specified in Section 9.1 ofthe Pennsylvania’s Air Pollution Control Act.

Q. What options are available to reduce idling?A. The simplest way to reduce idling is to turn off the engine.

Modern diesel engines do not require long warm-up or cool-down periods or constant idling in order to operate efficiently.The most common alternatives for main engine idling are auxil-iary power systems and stationary idle reduction technologies.Auxiliary power systems are devices installed on vehicles to pro-vide power for cabin temperature control and other electric needstypically provided by main engine idling. Stationary idle reduc-tion technology provides some type of plug-in system at loca-tions where subject vehicles park. ■

February 2014 Page 19December 2014 Page 19

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Little hope for additionalstate-lands leasing

Time running out on the Corbett administration and a pairof lawsuits make it very unlikely the state will see any ofthe $95 million in revenue budgeted for new gas leasing

on state lands during the current fiscal year.At a briefing early this month Budget Secretary Charles

Zogby said some of the one-time revenue measures in the fiscalyear 2014-15 budget probably will not come to fruition, leavingincoming Governor Tom Wolf with a projected $2-billion short-fall.

Governor Corbett issued an executive order in May rescindinga moratorium on issuing new leases for natural gas developmenton state-owned lands that was put in place during the final day ofhis predecessor, Ed Rendell. Corbett’s order allows new leasingif the gas can be accessed without additional surface disturbanceson lands administered by the Department of Conservation andNatural Resources or via horizontal drilling from adjacent privatelands (August PIOGA Press, page 15). Lawmakers then included$95 million from such no-surface-impact leasing in the currentstate budget.

But state-lands leasing and whether any of the money can bedirected to the state’s general fund are the focus on two lawsuitsbefore Commonwealth Court.

The first was filed in 2012 by the Pennsylvania EnvironmentalDefense Fund (PEDF) and challenges the governor’s authority tolease state forest lands and to use the proceeds for general stateexpenses and DCNR operating expenses.

Revenue from leasing goes into the dedicated Oil & GasLease Fund and is to be spent only on conservation, recreationand flood control projects at the direction of DCNR. Beginningin 2009, lawmakers have tapped the fund for general spending.The PEDF lawsuit gained new vigor with Corbett’s executiveorder and the subsequent budget action. In July, the Corbettadministration and PEDF agreed to a settlement under whichthere would be no new leasing until the case is decided and thefoundation would not contest the use of Oil & Gas Lease Fundrevenue for DCNR’s operating budget.

In October, the Delaware Riverkeeper Network filed a directchallenge to Corbett’s order.

“With that matter tied up in the courts, it’s very much unlikelythat we will see that resolved in time for this fiscal year to beaccounted in our spending plans,” Zogby said in his Decemberbudget update.

With Wolf taking office in January, there would likely be nonew leasing anyway. The Democrat has said he supports main-taining a moratorium on leasing in state parks and forests. Thegovernor-elect used Zogby’s briefing as an occasion to repeat hiscampaign pledge to work with the legislature on a shale gas sev-erance tax as a way of raising new revenue. However, any pro-posals to impose new levies or raise existing taxes will be atough sell in a General Assembly that further solidified itsRepublican majorities in November’s election. ■

Page 20 The PIOGA Press

Bald Hill Oil 1 11/10/14 053-30739 Forest Howe TwpBranch John D 4 11/18/14 123-47610 Warren Pleasant Twp

11/18/14 123-47611 Warren Pleasant Twp11/18/14 123-47612 Warren Pleasant Twp11/24/14 123-47613 Warren Pleasant Twp

Bull Run Energy LLC 2 11/3/14 123-47633 Warren Sugar Grove Twp11/24/14 123-47731 Warren Warren City

Cabot Oil & Gas Corp 8 11/17/14 115-21893* Susquehanna Ararat Twp11/17/14 115-21894* Susquehanna Ararat Twp11/17/14 115-21895* Susquehanna Ararat Twp11/11/14 115-21805* Susquehanna Harford Twp11/11/14 115-21806* Susquehanna Harford Twp11/11/14 115-21809* Susquehanna Harford Twp11/11/14 115-21810* Susquehanna Harford Twp11/11/14 115-21811* Susquehanna Harford Twp

Cameron Energy Co 3 11/4/14 123-47723 Warren Sheffield Twp11/11/14 123-47721 Warren Sheffield Twp11/17/14 123-47720 Warren Sheffield Twp

Catalyst Energy Inc 7 11/3/14 121-45530 Venango Cranberry Twp11/4/14 121-45529 Venango Cranberry Twp11/7/14 121-45528 Venango Cranberry Twp11/11/14 121-45527 Venango Cranberry Twp11/13/14 121-45526 Venango Cranberry Twp11/10/14 121-45503 Venango Rockland Twp11/13/14 121-45501 Venango Rockland Twp11/18/14 121-45502 Venango Rockland Twp

Chief Oil & Gas LLC 6 11/25/14 115-21609* Susquehanna Harford Twp11/4/14 115-21784* Susquehanna Springville Twp11/4/14 115-21786* Susquehanna Springville Twp11/5/14 115-21781* Susquehanna Springville Twp11/5/14 115-21782* Susquehanna Springville Twp11/6/14 115-21785* Susquehanna Springville Twp

Willard M Cline 2 11/6/14 083-56632 McKean Lafayette Twp11/17/14 083-56631 McKean Lafayette Twp

CNX Gas Co LLC 6 11/15/14 059-26493* Greene Center Twp11/15/14 059-26494* Greene Center Twp11/15/14 059-26415* Greene Center Twp11/15/14 059-26416* Greene Center Twp11/15/14 059-26495* Greene Center Twp11/15/14 059-26417* Greene Center Twp

Curtis Oil Inc 1 11/3/14 083-56362 McKean Lafayette TwpD&S Energy Corp 1 11/5/14 083-56607 McKean Hamilton TwpEQT Production Co 20 11/3/14 003-22284* Allegheny Forward Twp

11/15/14 003-22312* Allegheny Forward Twp11/8/14 047-24803* Elk Fox Twp11/8/14 047-24833* Elk Fox Twp11/5/14 059-26606* Greene Morgan Twp11/13/14 059-26696* Greene Morgan Twp11/15/14 059-26579* Greene Washington Twp11/15/14 059-26580* Greene Washington Twp11/15/14 059-26581* Greene Washington Twp11/15/14 059-26582* Greene Washington Twp11/15/14 059-26583* Greene Washington Twp11/15/14 059-26584* Greene Washington Twp11/15/14 059-26585* Greene Washington Twp11/15/14 059-26586* Greene Washington Twp11/15/14 059-26693* Greene Washington Twp11/15/14 059-26694* Greene Washington Twp11/10/14 065-27062* Jefferson Washington Twp11/12/14 065-27061* Jefferson Washington Twp11/14/14 065-27060* Jefferson Washington Twp11/16/14 065-27059* Jefferson Washington Twp

Gas & Oil Mgmt Assoc Inc 1 11/20/14 123-47518 Warren Mead TwpHilcorp Energy Co 3 11/14/14 073-20412* Lawrence Neshannock Twp

Spud Report:November

The data show below comes from the Department ofEnvironmental Protection. A variety of interactive reports are

OPERATOR WELLS SPUD API # COUNTY MUNICIPALITY OPERATOR WELLS SPUD API # COUNTY MUNICIPALITY

available at www.portal.state.pa.us/portal/server.pt/community/oil_and_gas_reports/20297.

The table is sorted by operator and lists the total wells report-ed as drilled last month. Spud is the date drilling began at a wellsite. The API number is the drilling permit number issued to thewell operator. An asterisk (*) after the API number indicates anunconventional well.

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11/14/14 073-20414* Lawrence Neshannock Twp11/26/14 073-20415* Lawrence Neshannock Twp

David L Hill 1 11/7/14 083-56518 McKean Corydon TwpHoward Drilling Inc 3 11/10/14 047-24855 Elk Jones Twp

11/20/14 083-56599 McKean Wetmore Twp11/3/14 121-45671 Venango Cranberry Twp

Kylander Oil Inc 1 11/5/14 123-47632 Warren Glade TwpLendrum Energy LLC 3 11/6/14 121-45727 Venango Pinegrove Twp

11/17/14 121-45739 Venango Pinegrove Twp11/25/14 121-45740 Venango Pinegrove Twp

Minard Run Oil Co 2 11/11/14 083-56616 McKean Bradford Twp11/19/14 083-56617 McKean Bradford Twp

MSL Oil & Gas Corp 1 11/28/14 083-56482 McKean Hamilton TwpNorthwestern Well Svc Inc 1 11/6/14 053-30526 Forest Jenks TwpOz Gas Ltd 1 11/3/14 123-46904 Warren Triumph TwpRange Resources Appalachia 19 11/8/14 027-21709* Centre Snow Shoe Twp

11/11/14 081-21547* Lycoming Lewis Twp11/25/14 125-27298* Washington Canton Twp11/25/14 125-27311* Washington Canton Twp11/25/14 125-27186* Washington Canton Twp11/25/14 125-27440* Washington Canton Twp11/26/14 125-27486* Washington Independnce Twp11/26/14 125-27488* Washington Independnce Twp11/26/14 125-27487* Washington Independnce Twp11/26/14 125-27489* Washington Independnce Twp11/14/14 125-27314* Washington Mt Pleasant Twp11/14/14 125-27315* Washington Mt Pleasant Twp11/14/14 125-27316* Washington Mt Pleasant Twp11/14/14 125-27144* Washington Mt Pleasant Twp11/14/14 125-27145* Washington Mt Pleasant Twp11/1/14 125-27441* Washington Robinson Twp11/1/14 125-27369* Washington Robinson Twp11/1/14 125-27370* Washington Robinson Twp11/14/14 125-27518* Washington Robinson Twp

Rice Drilling B LLC 6 11/26/14 059-26661* Greene Aleppo Twp11/14/14 125-27463* Washington W Pike Run Twp11/14/14 125-27464* Washington W Pike Run Twp11/14/14 125-27465* Washington W Pike Run Twp11/14/14 125-27466* Washington W Pike Run Twp11/27/14 125-27462* Washington W Pike Run Twp

Samson Exploration LLC 2 11/6/14 023-20186* Cameron Shippen Twp

11/6/14 023-20185* Cameron Shippen TwpSeneca Resources Corp 7 11/14/14 023-20189* Cameron Shippen Twp

11/14/14 023-20193* Cameron Shippen Twp11/14/14 023-20192* Cameron Shippen Twp11/16/14 023-20190* Cameron Shippen Twp11/16/14 023-20191* Cameron Shippen Twp11/19/14 023-20188* Cameron Shippen Twp11/23/14 023-20194* Cameron Shippen Twp

Southwestern Energy Prod Co 9 11/10/14 015-22798* Bradford Herrick Twp11/10/14 015-22799* Bradford Herrick Twp11/12/14 015-22787* Bradford Herrick Twp11/17/14 115-21838* Susquehanna Great Bend Twp11/5/14 115-21835* Susquehanna Jackson Twp11/20/14 115-21912* Susquehanna New Milford Twp11/24/14 115-21901* Susquehanna New Milford Twp11/24/14 115-21900* Susquehanna New Milford Twp11/24/14 115-21899* Susquehanna New Milford Twp

Sylvan Energy LLC 6 11/3/14 121-45584 Venango Allegheny Twp11/4/14 121-45570 Venango Allegheny Twp11/6/14 121-45586 Venango Allegheny Twp11/7/14 121-45560 Venango Allegheny Twp11/12/14 121-45564 Venango Allegheny Twp11/17/14 121-45563 Venango Allegheny Twp

Talisman Energy USA Inc 10 11/3/14 015-23116* Bradford Columbia Twp11/5/14 015-23104* Bradford Columbia Twp11/7/14 015-21497* Bradford Columbia Twp11/7/14 015-21498* Bradford Columbia Twp11/8/14 015-21499* Bradford Columbia Twp11/8/14 015-21500* Bradford Columbia Twp11/11/14 015-21192* Bradford Orwell Twp11/11/14 015-21193* Bradford Orwell Twp11/12/14 015-21194* Bradford Orwell Twp11/12/14 015-21195* Bradford Orwell Twp

Trimont Energy LLC 6 11/11/14 121-45462 Venango Allegheny Twp11/13/14 121-45463 Venango Allegheny Twp11/17/14 121-45479 Venango Allegheny Twp11/21/14 121-45785 Venango Allegheny Twp11/6/14 121-45582 Venango Cranberry Twp11/20/14 121-45578 Venango Cranberry Twp

Xite Energy Inc 1 11/20/14 121-45648 Venango Cornplanter Twp11/24/14 019-22358* Butler Clearfield Twp

OPERATOR WELLS SPUD API # COUNTY MUNICIPALITY OPERATOR WELLS SPUD API # COUNTY MUNICIPALITY

Page 24 The PIOGA Press

Safety Committee CornerSafety Committee CornerWinter driving safety

Pennsylvania is an interesting place in the winter, particular-ly for those in the oil and gas business. We are subject tofast-changing weather conditions and plenty of ice and

snow. We often work in remote locations accessed by marginalroads across challenging terrain, and we frequently have to travelon high-volume, high-speed expressways.

Emphasizing safe winter-driving practices can pay big divi-dends, particularly since road accidents are the leading cause ofdeath among oil and gas extraction industry workers. A study bythe National Institute for Occupational Safety and Health foundthe oil and gas industry’s motor vehicle fatality rate was exceed-ed only by the transportation and warehousing employment sec-tor.

Pickup trucks accounted for 51.5 percent of oil and gas indus-try driving deaths, while tractor trailers and other large truckswere involved in 26.7 percent of deaths; miscellaneous trucks,12.4 percent; and automobiles 5.9 percent. The most frequenttypes of accidents were:

—single vehicle overturning or jackknifing, 38.6 percent;—head-on collision, 20.8 percent;—single vehicle striking an object on the side of the road,

17.3 percent;—collision in intersection, 8.9 percent; and—collision while moving in the same direction, 7.9 percent.Among the causes cited in accident summaries were driver

error, 13.9 percent; speed, 9.4 percent; losing control after over-correcting, 9.9 percent; losing control on a curve, 8.4 percent;weather conditions, 9.9 percent; and falling asleep, 6.9 percent.In only 11.9 percent of the deaths were the victims known tohave been wearing a seatbelt.

Winter tipsMuch of the following information comes from the National

Highway Traffic Safety Administration and the OccupationalSafety and Health Administration. In some instances we havetweaked the advice slightly to apply to those driving companyvehicles.

Know your vehicle. Every vehicle handles differently; this isparticularly true when driving on wet, icy or snowy roads. Taketime now to learn how to best handle your car or truck underless-than-ideal conditions.

• Before moving, clean snow, ice or dirt from the windows,headlights and tail lights, and, if equipped, any sensors and thebackup camera.

• Practice cold weather driving when your area gets snow—but not on a main road. Until you’ve sharpened your winterweather driving skills and know how your vehicle handles insnowy conditions, it’s best to practice in an empty parking lot infull daylight.

• Know what your brakes will do when you have to stopquickly—stomp on antilock brakes, pump on non-antilockbrakes.

• When renting a car or driving a pool vehicle you shouldbecome familiar with the vehicle before driving it off the lot.Know the location of the hazard lights in case of emergency, andtake a minute to review the owner’s manual so that you’re pre-pared for any of the various driving situations that may arise.

Maintain your vehicle: Check the battery, tire tread andwindshield wipers; keep your windows clear; put no-freeze fluidin the washer reservoir; and check your engine antifreeze.

Plan your travel and route. Keep yourself and others safe byplanning ahead before you venture out into bad weather.

• Check the weather, road conditions and traffic. Plan to leaveearly if necessary.

• Don’t rush! Allow plenty of time to get to your destinationsafely.

• Familiarize yourself with directions and maps before yougo, even if you use a GPS, and let others know your route andanticipated arrival time.

Stock your vehicle. Carry items in your vehicle to handlecommon winter driving-related tasks, such as cleaning off yourwindshield, as well as any supplies you might need in an emer-gency. Keep the following on hand:

• Snow shovel, broom and ice scraper.• Abrasive material such as sand or kitty litter, in case your

vehicle gets stuck in the snow.• Jumper cables, flashlight, and warning devices such as flares

and emergency markers. Trucks should carry tire chains. • Blankets for protection from the cold.• A cell phone with charger, water, food and any necessary

medicine (for longer trips or when driving in lightly populatedareas).

Stopped or stalled? Stay in your vehicle, don’t overexert, putbright markers on antenna or windows and shine the dome light.If you run your engine, clear the exhaust pipe of any snow andrun it just enough to stay warm.

Practice safe driving:• Wear your seat belt and insist that any passengers do too.• If you start to slide, steer into the skid.• Watch for black ice, a thin layer of transparent ice that forms

when the temperature is close to freezing. Black ice may makethe road look slightly wet and is difficult to spot. Look for icebuildup on your windshield; this is a clue that conditions arefavorable for black ice to develop. Shaded areas, bridges andoverpasses all freeze sooner than other sections of the road.

• Slow down and increase distances between vehicles. Keep in

February 2014 Page 25December 2014 Page 25

mind that stopping distances are longer snow and even farther onwater-covered ice and ice. Having all-wheel-drive or four-wheel-drive doesn’t exempt you from the laws of physics.

• Watch for warning signs such as vehicles that have spun outon the shoulder or median. Also watch for spray coming off thewheels of other vehicles; when the spray stops, the road surfacemay have begun to freeze.

• Keep your eyes open for pedestrians walking in the road.• Remember that drugs and alcohol never mix with driving.• Avoid fatigue—get plenty of rest before a trip, stop at least

every three hours and rotate drivers if possible.

Advice for truck drivers• Talk to people. Make sure your radio is on and talk to the

drivers around you about road and weather conditions.• Treat your diesel. Diesel fuel gels when very cold, and an

engine with gelled fuel won’t run. If you are facing winterweather conditions stock up ahead of time on anti-gel additiveand add it to your tanks just before fueling so that it properlymixes.

• Watch your footing. Wear shoes or boots with good trac-tion; snow, ice and cold can make even the simplest task outsidethe cab treacherous. Maintain three points of contact when exit-ing or entering the cab in case the steps or ground below are slip-pery.

• There is no load worth your life. If you experienceextreme driving conditions, try to fi nd a safe spot to wait it out.If you can’t fi nd a spot in a truck stop, park on a ramp or any-where that is safe and out of the way. Try not to park heading upan incline; you may get stuck. ■

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Page 26 The PIOGA Press

Additional risk: Does yourcompany have additionalinsured coverage for claimsby contractors’ employees?

One of the biggest risks oil and gas companies face is ablowout or other catastrophic event that causes seriousinjury or death. In the aftermath of such an event, com-

panies often find themselves facing lawsuits by injured workerswho are employed by contractors. Such workers are typicallybarred from suing their own employers by Pennsylvania’s work-ers’ compensation statute, which may lead them to file lawsuitsagainst other parties. Many companies assume they are protectedfrom such liability by insurance provisions in their contract withthe injured worker’s employer, but insurance companies maydeny coverage under these circumstances by relying on adecades-old Pennsylvania Supreme Court decision. More recentPennsylvania court decisions, however, favor insureds, and thePennsylvania Supreme Court recently agreed to revisit the issue,so oil and gas companies operating in Pennsylvania should staytuned.

Many oil and gas companies use master service agreementsthat include reciprocal or “knock for knock” indemnity provi-

sions under which each party agrees toindemnify the other for liability arising outof bodily injury to their own employees.These agreements also typically requireeach party to name the other as an “addi-tional insured” under their respective gener-al liability insurance policies. Together,these provisions allocate risk between theparties and provide insurance for that allo-cation of risk. If an employee of either partyis injured on the job and sues the otherparty, his or her employer’s insurancepolicy should provide coverage to theother party as an “additional insured”(provided the insurance policy at issueincludes an appropriate additional insured endorsement).

Insurance companies, however, may deny coverage underthese circumstances by relying on what is often called an“employer’s liability” exclusion. Most general liability policiescontain some form of this exclusion, which precludes coveragefor bodily injury to an employee of the insured. This exclusionmakes sense if it is interpreted to preclude coverage for claimsmade by employees against their employers, but insurers some-times argue that it also applies to claims made by employees ofthe named insured (usually the party that purchased the policy)against a party that is an “additional insured” under the policy.Insurers make this argument despite the fact that most policiescontain a “separation of insureds” provision, which provides thatthe policy applies separately to each insured against whom aclaim is made or suit is brought.

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In making this argument, insurers typically rely on a decades-old Pennsylvania Supreme Court decision that, if applied asthose insurers suggest, would dramatically limit the insurancecoverage available to oil and gas companies in the wake of a cat-astrophic event. In Pennsylvania Manufacturers’ AssociationInsurance Company v. Aetna Casualty and Surety InsuranceCompany, 426 Pa. 453, 233 A.2d 548 (Pa. 1967) (PMA), thePennsylvania Supreme Court held that an employer’s liabilityexclusion barred coverage for a claim brought by an employee ofthe company that purchased the policy against a company thatwas insured under an “omnibus” clause in the policy. TheSupreme Court reached this decision despite the existence of a“Severability of Interests” provision that was similar (though notidentical) to the “separation of insureds” provisions used in manypolicies today. More recent Pennsylvania court decisions havedistinguished PMA, but some federal courts have mistakenlyconcluded that PMA controls.

The Pennsylvania Supreme Court recently agreed to revisitthis issue when it agreed to hear an appeal of the PennsylvaniaSuperior Court’s decision in Mutual Benefit Insurance Companyv. Politopoulos, 75 A.3d 528 (Pa. Super. Ct. 2013). In that case, arestaurant employee who was injured on the job sued the ownerof the property where the injury occurred. The property ownersought coverage as an additional insured under the restaurant’sinsurance policy, but the insurance company denied coverage byrelying on the employer’s liability exclusion in the policy. Thetrial court reluctantly held that PMA controlled. The SuperiorCourt distinguished PMA and reversed the trial court’s decision.The Pennsylvania Supreme Court agreed to hear the appeal todecide whether the Superior Court properly ruled that PMA did

not control. The court heard oral arguments on October 7, but ithas not yet issued a decision.

Oil and gas companies operating in Pennsylvania shouldwatch for a decision by the Pennsylvania Supreme Court on thisissue. In the meantime, those companies should be aware of theissue, ensure that their contracts (and their contractors’ insurancepolicies) clearly provide for additional insured coverage and con-sult with coverage counsel when questions or claims arise. ■

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Update: State legislative leaders

As an update to last issue’s review of the general election,here is additional information about who will be the toplegislative leaders for the 2015-16 session of the General

Assembly.In the Senate, Jake Corman of Centre County replaces sever-

ance tax supporter Dominic Pileggi from southeast Pennsylvaniaas the majority leader. The change was prompted by unrestamong some senators that Pileggi’s agenda was not conservativeenough. Joe Scarnati of Jefferson County remains president protempore of the Senate.

On the House side, Mike Turzai of Allegheny County will bethe new speaker, replacing Sam Smith of Jefferson County, whodid not seek reelection. Like Smith, Turzai is a supporter of ourindustry. The second-ranking Republican in the House will beDave Reed of Indiana County, serving as majority leader. ■

Page 28 The PIOGA Press

The U.S. Energy Information Administration (EIA) releasedits 2013 U.S. Crude Oil and Natural Gas Proved Reservesreport on December 4. Here are a few interesting findings

from the report:• U.S. crude oil proved reserves increased for the fifth year in

a row in 2013, a net addition of 3.1 billion barrels of proved oilreserves (a 9-percent increase).

• U.S. natural gas proved reserves increased 10 percent in2013 and raised the U.S. total to a new record level of 354 tril-lion cubic feet.

• Pennsylvania and West Virginia accounted for 70 percent ofthe increase in natural gas proved reserves.

• Pennsylvania had the largest increase in proved natural gasreserves (13.5 Tcf), the result of extensions to fields in the

EIA releases update to oil and gas reserves

February 2014 Page 29December 2014 Page 29

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By Joe MassaroEnergy In Depth

The Marcellus Shale recently celebrated its 10-yearanniversary of the first successful horizontal well devel-oped in the formation. This is as good a time as any to

look back at the successes this industry has had in the Marcellusregion and ask if the formation has lived up to the predictions setforth in a report released five years ago by the PennsylvaniaState University titled, “The Economic Impacts of thePennsylvania Marcellus Shale Natural Gas Play: An Update.”

After reading back through the report it’s clear that not onlydid the Marcellus Shale meet all the predictions in the report, it

exceeded many of them. This just goes to show how prolific theresources and opportunities are in the Appalachian region.

Below are a few estimates that were given for the MarcellusShale when the report was released on May 24, 2010.

Estimate one: “The Marcellus resource base is large and could support sig-

nificant levels of drilling in the future. This study estimates adramatic expansion of Marcellus gas production from slightlyover 327 million cubic feet per day during 2009 to over 13 bil-lion cubic feet per day by 2020. If this occurs, employmentwould expand by 200,000 jobs and annual gains in state and

Marcellus Shale play. • Total discoveries of natural gas reserves were highest in

Pennsylvania at 15.8 Tcf, driven principally by shale gas devel-opments.

• In Pennsylvania, 1.1 Tcf of additional natural gas productionboosted the state’s output by 47 percent, the nation’s largestincrease. Pennsylvania became the nation’s second-largest gasproducer in 2013.

• Pennsylvania, which had the second-largest volume of shalegas proved reserves, experienced greater growth of its shale gasproved reserves than Texas.

• The Marcellus remained the largest shale gas play, andadded the most new shale gas reserves (22.1 Tcf) in 2013through extensions in Pennsylvania and West Virginia.

The full report can be downloaded at www.eia.gov/natural-gas/crudeoilreserves/pdf/uscrudeoil.pdf. ■

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Page 30 The PIOGA Press

local taxes revenues would exceed $1 billion.” As of November 2014, the U.S. Energy Information Agency

puts Marcellus Shale production at a staggering 16 billion cubicfeet of natural gas per day. We produce more gas today than thisreport predicted the region would in the next six years. This canbe attributed to better efficiencies and innovation on behalf of theindustry.

Estimate two:“At 3,500 wells by 2020, drilling density would remain quite

low compared to other shale gas plays. If these projections areborne out, the Pennsylvania Marcellus could have a profoundeffect on the U.S. natural gas market.”

Operators in Pennsylvania beat estimates here as well.According to the Pennsylvania Department of EnvironmentalProtection, since the release of the report through today there are5,938 active Marcellus Shale wells producing in theCommonwealth. Again, this exceeds predictions of where thisindustry would be in 2020, five years earlier than expected.

Estimate three:“During 2015, the Marcellus gas industry could be generating

more than $14 billion in value added, $1.4 billion in state andlocal tax revenues, and increasing state employment by 160,000.In 2020, the impacts grow even larger with over $18 billion invalue added, over $1.8 billion in state and local tax revenue, anda workforce 200,000 larger.”

According to a recent study by the American PetroleumInstitute, the natural gas industry here in Pennsylvania is con-tributing an astounding $34.7 billion to the state economy, whichmakes up 5.8 percent of the state’s total economic activity.Another recent report by PriceWaterhouseCoopers found that the

oil and natural gas industry in Pennsylvania supports 339,000jobs, making it 4.7 percent of the state’s total employment. Itdoesn’t stop there: according to the Associated Press the naturalgas industry has paid more than $2 billion in state taxes since2007.

The report accurately predicted the impact of shale develop-ment on local manufacturing jobs, cheaper energy and loweringgreenhouse gases and other emissions, stating:

“If the Marcellus is developed to the extent envisioned in thisreport, the abundance of reliable, low cost natural gas couldattract gas intensive manufacturing industries to expand capacityin Pennsylvania.”

Thanks to low cost natural gas being produced domestically,this country is seeing something it hasn’t seen in decades: re-shoring. More companies are moving their operations back to theUnited States to take advantage of our cheap energy. Accordingto one estimate, this increased investment will create more than500,000 new jobs all across the country. President Obama recent-ly spoke about our growing manufacturing here the U.S. stating,“Our manufacturing sector that used to be losing jobs, just hem-orrhaging jobs, is now adding jobs for the first time since the1990s.”

Finally, the report also accurately addressed the reduction ofair emissions that would come from increased supplies of naturalgas:

“Abundant gas supplies also could reduce the cost of achiev-ing reductions in greenhouse gas emissions as well as emissionsof NOx, SO2, and other pollutants. Thus, the additional naturalgas produced from the Marcellus would propel Pennsylvania’seconomy forward while reducing greenhouse gas emissions.”

Due to increased domestic production, Pennsylvania has beenable to transition to cleaner-burning natural gas. According to areport by researchers at the National Oceanic and AtmosphericAdministration, thanks to increased natural gas over the lastdecade, there have been “Significant reductions in the emissionsof CO2, NOx and SO2.”

It’s interesting to note that this Penn State study didn’t comewithout scrutiny from those opposed to shale development, suchas Food and Water Watch and Responsible Drilling Alliance,who criticized its findings. Now, five years later, not only didthese researchers correctly predict that development would bebeneficial to Pennsylvania, they actually fell short in their esti-mates of just how vast economic benefits of shale developmentwould be. With that track record, it’s safe to say the future ofshale will only be brighter in the years to come. ■

December 2014 Page 31

Fueling energy education

The Mobile Energy Education Training Unit (MEET-U)spreads awareness of energy creation, development andutilization through a partnership with the Friends of Drake

Well, Inc. and Drake Well Museum by educating school childrenand the public on the historic and modern uses of energy in thehope they will improve the future of energy consumption. TheMEET-U trailer and its staff and volunteers have been a frequentpresence at PIOGA events. As the letter below explains, MEET-U can use your help in continuing its essential work.

The MEET-U program is propelled forward by thegenerosity of our sponsors and donors. Since 2009,Universal Well Service has helped offset our fuel costby providing us with up to $500 per month. Due to thepopularity of the MEET-U program, this summer ourfuel bills approached $1,000 per month. Any helpkeeping the MEET-U trailer on the road and educat-ing the public on energy would be greatly appreciat-ed. Thank you.

Sincerely,Ben CavanaughMEET-U Program ManagerFriends of Drake Well Museum

Contact Ben at 814-827-2797 or meetunit@gmail.com. ■

Upcoming recruiting events

The Spring 2015 Western PA Collegiate Job & InternshipFair, sponsored by WestPACS, a consortium of 45 colleges inwestern Pennsylvania, will be held at the MonroevilleConvention Center on March 11. Oil and gas companies andaffiliated companies that support oil and gas companies will beable to speak with candidates, distribute recruitment literatureand conduct brief interviews.

Some of the member institutions offer geology and petroleumengineering. In addition, most consortia members offer environ-mental science and chemistry majors. Employers may find infor-mation at www.westpacs.org.

The Math Science Information Technology Career Daywill be held February 20 at the IUP Monroeville Graduate and

Professional Center. This event differs from a traditional job fairin that employers can pre-screen candidates in advance of theinterviews. In addition, there is no fee associated with this event.

Targeted majors from the 32 western Pennsylvania consortiumof colleges and universities participating in this event include:biochemistry, biology, bioinformatics, chemical biology, chem-istry, computer science, environmental science, geology, geo-science, information technology, mathematics, micro-biology,molecular biology and physics. Registration and additional infor-mation can be found at www.msitconsortium.org.

The W.A.N.T. Job & Career Expo will be held at theRamada Greensburg Hotel and Conference Center the afternoonof February 25. The event brings together students, job seekersand employers from the region. Over 65 employers and 300-600job seekers are expected. Employers will represent a wide rangeof employment opportunities for job seekers with a high schooldiploma, certificate or a college degree. Information is availableat www.wantexpo.org. ■

PIOGA Member News

Arnett Foster Toothman, Carbis Walker merge

Arnett Foster Toothman PLLC has announced a mergerwith Pennsylvania-based firm Carbis Walker LLP. Thenew firm, Arnett Carbis Toothman LLP, will likely be

one of the top 100 largest accounting firms in the United States. Arnett Carbis Toothman Pennsylvania offices will include

locations in New Castle, Pittsburgh and Meadville, complement-ing West Virginia offices in Charleston, Bridgeport, Buckhannon,Morgantown, and Lewisburg, as well as Columbus, Ohio.

The two firms share similar historical timelines. Arnett FosterToothman traces its roots to 1950 and employs 160 people.Carbis Walker was formed in 1946 and employs 105 people.

Management teams of both firms will remain intact and willcontinue their management and leadership roles with the newfirm. No staff cutbacks or layoffs are anticipated. Subsidiary andaffiliated companies of both firms will for now continue with“business as usual.”

The merger is Arnett Foster Toothman’s second growth initia-tive in 28 months. In July 2012, Arnett & Foster PLLC mergedwith West Virginia firm Toothman Rice LLP. ■

Page 32 The PIOGA Press

Roundtable: Continued from page 1

promoting the conventional industry. Therewas considerable dialogue between thepanel and members in the audience.

An industry doing its job too wellWhile most industries evolve slowly,

the shale revolution has forced the energybusiness to change at light speed, Eckleexplained. “Our industry basically devel-oped over the last five years,” he observed.

Marcellus and Utica natural gas produc-tion now exceeds 17 billion cubic feet perday, accounting for 40 percent of domesticshale-gas production. In response, a mas-sive effort is under way to build the infra-structure necessary to get this gas to mar-ket, and a number of pipelines that former-ly brought gas to the Northeast are turningaround and moving gas from our regionwest and south.

Must of the day’s discussion focused on pricing. As everyproducer knows all too well, the current oversupply of gas hascaused prices to remain at almost intolerably low levels. Thepanelists discussed basis differential—the difference between thebenchmark Henry Hub/NYMEX spot price and the correspon-ding price for natural gas delivered to a specified location. Sincethe fall of 2011, gas prices in the Northeast have been lower thangas from the Gulf, and this negative basis has persisted. The pan-

elists advised that producers remain in close contact with theirmarketer so they are up to date on basis changes. Additionally,producers will have to become increasingly aware of the marketpoint where their gas enters the pipeline system, since this cangreatly affect basis.

Eckle explained that it will not be until 2017 when plannedpipeline capacity expansions—approximately 20 Bcf/d—startbringing some relief in the form of price stabilization.Unfortunately for conventional producers, the pipeline projectsare aimed at large shale producers; small producers are not ableto commit to the volumes, the length of the contract terms orprovide gas at high enough pressures.

Other developments that could help basis return to morefavorable levels in the Appalachian Basin include a greater needfor storage, gas-fired electric power generation (PJM, theregion’s electric grid operator, estimates an additional 6-7 Bcfwill be needed by 2020 to replace coal-fired facilities) and lique-fied natural gas exports (expected to surpass 2 Tcf by 2020 andincrease to 3.5 Tcf by 2029). Increased industrial natural gasusage and LNG for use as a fuel, particularly in high-horsepowerapplications, also are expected to be important sources ofdemand.

Of those, Eckle noted, power generation “probably is going tobe our saving grace.” PIOGA has been working diligently withPJM on gas-electric coordination issues as the two industriesbecome increasingly dependent on one another.

What’s a producer to do?Conventional producers were advised to find their niche in the

new gas market, and the best “safe haven” may be the local dis-tribution company (LDC). Typically, the LDCs have acceptedlocal gas as the backbone of their system supply. This is expect-ed to continue, because many utilities will be unable to handleshale-gas volumes and pressures. And while local supplies maynot be able to command the traditional premium pricing fromLDCs, this market will continue to be a good value. Anotherbonus in supplying LDCs is that producers do not have to dealwith firm transportation costs.

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February 2014 Page 33December 2014 Page 33

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Other suggestions aired during the session included:• Work together. “You’re going to have to work together,”

Eckle asserted. “You’re not going to survive singly.” Producerswere encouraged to pool gas, pool acreage (both deep and shal-low) and purchase firm transportation on interstate pipelines as ablock.

• Maximize existing assets. Consider selling your Marcellusrights, including aggregating with other producers to put togetherlarger blocks of acreage. Hedge your basis. Make sure you havea good handle on your cost structure. Convert your companyvehicles to run on the natural gas you produce.

• Keep asking, where is Upper Devonian gas needed? Inaddition to LDCs, look to things like providing gas as a trans-portation fuel for nearby businesses and fueling facilities.

•Diversify within the energy business. Consider providingservices such as hauling water or frac sand, building well loca-tions and transporting equipment.

• Secure your own burner tips. Look for local businesses,institutions and industries that can use your gas.

• Take advantage of new technologies. For example, hori-zontal drilling in conventional formations.

Government outlookD’Amico provided an update on regulatory and legislative

matters. At the top of the list is what might occur underGovernor-elect Tom Wolf.

The new governor will require more revenue to accomplishhis policy goals. He has advocated a 5-percent severance tax aswell as other tax increases. Fortunately, the GOP strengthened itshold on both chambers of the General Assembly in the election,

and the Senate leadership in particular has taken what D’Amicodescribed as a “giant step to the right.” PIOGA has been fightinga severance tax since the Rendell administration and will be con-tinuing that fight for the foreseeable future.

On the regulatory front, there is no reason to expect an easingof regulations on the industry, just as they have not eased underthe Corbett administration. It is unlikely that the Department ofEnvironmental Protection will start over again on revising itsChapter 78 regulations in light of legislation passed along withthe current budget directing the agency to split the rules into con-ventional and unconventional operations. A greater worry,D’Amico indicated, is that the headway PIOGA has made latelywith DEP will be lost in the change of administrations.

In a related matter, Jeff Walentosky of Moody and Associates,chair of the Well Construction Subcommittee of PIOGA’sEnvironmental Committee, provided an overview of changesDEP has made to its mechanical integrity assessment reportingform. The draft of the most recent version—dubbed Form C—ismuch closer to what PIOGA had originally proposed to DEP andis a great improvement over the prior versions, particularly forsmall operators. Producers who choose to use Form C must mon-itor their wells only once per year rather than quarterly.Walentosky advised operators to look at the different reportingforms and chose the version that best meets their needs.

Kevin Moody, PIOGA vice president and general counsel,detailed several legal issues of importance. He explained theassociation is participating in a challenge of a “community billof rights” ordinance in Grant Township, Indiana County, enactedin response to a proposed wastewater disposal well. These localordinances continue to proliferate despite three CommonwealthCourt decisions striking them down. The current challenge isoccurring in federal court.

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PIOGA’s Lou D’Amico discusses the legislative and regulatorychallenges facing the industry.

December 2014 Page 35

Another legal fight potentially impacting all producers is acase before the Pennsylvania Supreme Court that will determinethe issue of whether a leaseholder is entitled to an equitableextension of the primary term of a lease when the lessor unsuc-cessfully challenges the lease. PIOGA is participating in thatcase, Harrison v. Cabot Oil & Gas Corporation, as a friend ofthe court.

PIOGA’s roleAs the only organization representing conventional and

unconventional producers alike, PIOGA is in a unique posi-tion when it comes to championing Pennsylvania’s oil andgas industry. D’Amico praised the work of the association’scommittees—especially, the Environmental Committee,Pipeline and Gas Market Development Committee, and thenewly formed Legislative Committee.

PIOGA also is concentrating on developing new andexpanded markets for natural gas, something that makes theorganization unique among state oil and gas trade associa-tions nationwide. Joyce Turkaly was brought on board asdirector of natural gas market development specifically toaddress this critical area.

Of benefit to conventional operators, PIOGA is negotiat-ing extension of the producer agreement with Equitable andPeoples. A producer meeting will be called to explain theagreement when finalized. One feature of the agreement is aProject Review Committee (PRC) that meets to discuss sys-tem improvements, maintenance and other operationalissues. Speakers at the roundtable emphasized that the PRCis an excellent resource for producers who are experiencing

problems accessing the LDC system.As the saying goes, there is strength in numbers. PIOGA

exists to make the most of those numbers on behalf of the indus-try it serves.

The slide presentation from the program is available atwww.pioga.org/wp-content/uploads/2014/11/Appalachian-Conventional-Producer-Seminar-Presentation.pdf. ■

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Page 36 The PIOGA Press

Natural Gas Futures Closing PricesAs of November 6

Month PriceDecember 4.429January 2015 4.500February 4.422March 4.302April 3.830May 3.795June 3.804July 3.816August 3.829September 3.826October 3.878November 3.949

SourcesAmerican Refining Group: www.amref.com/Crude-Prices-New.aspxErgon Oil Purchasing: www.ergon.com/prices.phpGas futures: http://quotes.ino.com/exchanges/?r=NYMEX_NGBaker Hughes rig count: http://gis.bakerhughesdirect.com/ReportsNYMEX strip chart courtesy of Direct Energy Business, 304-464-1176

Oil & Gas Trends

Pennsylvania Rig Count

Pittsburgh 412.497.6000

hdrinc.com

Bridging the gap between idea + achievement

February 2014 Page 37December 2014 Page 37

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

$7.00

$7.5012

/9/0

9

2/9/

10

4/8/

10

6/4/

10

8/2/

10

9/28

/10

11/2

3/10

1/21

/11

3/21

/11

5/17

/11

7/14

/11

9/9/

11

11/4

/11

1/4/

12

3/2/

12

4/30

/12

6/26

/12

8/22

/12

10/1

8/12

12/1

7/12

2/14

/13

4/16

/13

6/12

/13

8/8/

13

10/4

/13

12/3

/13

1/31

/14

3/31

/14

5/28

/14

7/24

/14

9/19

/14

11/1

4/14

NYMEX Natural Gas Futures Contract 12 Month Forward Strip Average Prices Through 11/20/14

Purchasers of Penn Grade & Utica Crude Oil

77 N. Kendall Ave.Bradford, PA 16701

814-368-1200

www.amref.com

Dan PalmerCrude Relationship Mgr PA / NY

814-368-1263dpalmer@amref.com

ISO 9001:2008 Certified

Supplying Quality Lubricants Refined UsingPenn Grade Crude Oil

R.L. Laughlin & Co., Inc.“Providing Gas Measurement Services Since 1970”

t Site Automation t Electronic Chart Integration

t Meter Sales t Meter Installations

t Gas Analysis t Calibrations & Repairs

SERVING YOU IN 2 LOCATIONS:

125 State Rt. 43 5012 Washington St., W.

Hartville, OH 44632 Charleston, WV 25313

330-587-1230 304-776-7740

Page 38 The PIOGA Press

Steel City Safety (SCS), located in New Stanton, wasfounded in 2003 with the vision to assist companies to “injurefewer workers.” Since its start, SCS has grown in size and vol-ume, largely due to the oil and gas industry. Currently SCSprovides safety services to over 100 clients in multiple states,but is an established local presence with its headquarters insouthwestern Pennsylvania. SCS has construction and generalindustry divisions that provide a comprehensive list of safetyservices, including but not limited to:

• Full- or part-time safety management • OSHA 10- and 30-hour Outreach Training• SafeLand USA Basic Orientation• CPR and first aid training (nationally recognized)• Aerial lift and powered industrial truck (forklift) training• Qualified “rigger and signalperson” training• OSHA required safety training: Gas Hazards, Confined

Space Entry, Lockout/Tagout, Fall Protection, • Machine

Guarding, Hazard Communication (GHS), Scaffolding,Bloodborne Pathogens,

• Trenching/Excavations and more.• Developing mandatory written programs• OSHA compliance assistance• Industrial hygiene monitoring (air sampling and sound

surveys)• Incident investigations • Safety compliance inspections• Pennsylvania Certified Safety Committee Assistance

(worker’s compensation insurance discount opportunity)SCS takes pride in delivering quality safety services

through leadership, advisement and technical competency. SCSprofessionals take a hands-on approach so that client safetyprograms are visible to employees. The staff consists of quali-fied safety professionals who include consultants with theGraduate Safety Professional (GSP), Construction Health andSafety Technician (CHST) and/or Certified Safety Professional(CSP) certifications.

For more information or for any inquiries, call us at 724-635-0050 or visit www.steelcitysafety.com. Or contact CraigCampbell, CHST, President at 724-757-2286; Eric Nelson,MS, CSP, Senior Partner, 724-433-9556; or Chad Schilling,CSP, General Partner, 724-261-0518.

PIOGA Member Profile

ONE CALL

HANDLES IT ALL.

TENORM Issues? Problem

of experience handling

environmentally sensitive materials

• Technical Field Support • Industrial Packaging • Truck, Rail, Barge Logistics • Compliant Disposal Options

mhfservices.com � Rick Zink, Director, Energy Services � 724.312.1756 � tf 877.452.9300

20 Years

Serving the Oil & Gas Industry for over 90 years.

MRC CORPORATE OFFICE

Austintown, OH 330-799-1100 Bradford, PA 814-368-8145 Buckhannon, WV 304-472-3565 Carrollton, OH 330-627-0259 Columbus, OH 614-475-4033 Corbin, KY 606-523-9640 Horseheads, NY 607-739-8575 Hurricane, WV 304-562-5724 Indiana, PA 724-349-6823 Williamsport, PA 570-748-5276 Norton, VA 276-679-6452 Wooster, OH 330-264-0077

PIOGA Board of DirectorsGary Slagel (Chairman), Steptoe & Johnson PLLC (representing

CONSOL Energy)Sam Fragale (Vice Chairman), SEF Consulting, LLCFrank J. Ross (2nd Vice Chairman), T&F Exploration, LPJames Kriebel (Treasurer), Kriebel CompaniesCraig Mayer (Secretary), Pennsylvania General Energy Co., LLCTerrence S. Jacobs (Past President), Penneco Oil Company, Inc.Thomas M. Bartos, ABARTA EnergyStanley J. Berdell, BLX, Inc.Rob Boulware, Seneca Resources CorporationCarl Carlson, Range Resources - Appalachia, LLCMike Cochran, Energy Corporation of AmericaDon A. Connor, Open Flow EnergyTed Cranmer, TBC ConsultingJack Crook, Atlas Resource Partners, LPRobert Esch, American Refining Group, Inc.Michael Hillebrand, Huntley & Huntley, Inc.Jim Hoover, Phoenix Energy Productions, Inc. Ron McGlade, Tenaska Resources, LLCJim McKinney, EnerVest Operating, LLCSteve Millis, Vineyard Oil & Gas CompanyGregory Muse, PennEnergy Resources, LLCJoy Ruff, Dawood Engineering, Inc.Stephen Rupert, Texas Keystone, Inc.Jake Stilley, Patriot Exploration CorporationBurt A. Waite, Moody and Associates, Inc.Roger B. Willis, Universal Well Services, Inc.Thomas Yarnick, XTO Energy

Committee ChairsEnvironmental Committee

Paul Hart, Fluid Recovery Services, LLCKen Fleeman, ABARTA Energy

Legislative CommitteeBen Wallace, Penneco Oil CompanyHolly Christie, Steptoe and Johnson, PLLC

Pipeline & Gas Market Development CommitteeBob Eckle, Appalachian Producer Services, LLCGas-Electric Subcommittee: Sandy Spencer, Appellation Pre-Fab

Health & Safety CommitteePat Carfagna, CONSOL Energy

Meetings CommitteeLou D’Amico, PIOGA

Tax CommitteeDonald B. Nestor, Arnett Foster Toothman, PLLC

Communications CommitteeTerry Jacobs, Penneco Oil Company, Inc.

Membership CommitteeVacant

StaffLou D'Amico (lou@pioga.org), President & Executive DirectorKevin Moody (kevin@pioga.org), Vice President & General Counsel Debbie Oyler (debbie@pioga.org), Director of Member ServicesMatt Benson (matt@pioga.org), Director of Internal Communications

(also newsletter advertising & editorial)Joyce Turkaly (joyce@pioga.org), Director of Natural Gas Market

DevelopmentDan Weaver (dan@pioga.org), Public Outreach DirectorDanielle Boston (danielle@pioga.org), Director of AdministrationChris Lisle (chris@pioga.org), Manager of Finance Tracy Zink (tracy@pioga.org), Administrative Assistant

Pennsylvania Independent Oil & Gas Association115 VIP Drive, Suite 210 • Wexford, PA 15090-7906724-933-7306 • fax 724-933-7310 • www.pioga.org

Northern Tier Office (Matt Benson)Mail: P.O. Box L, Mount Jewett, PA 16740-0554

Physical address: 167 Wolf Farm Road, Kane, PA 16735Phone/fax 814-778-2291

© 2014, Pennsylvania Independent Oil & Gas Association

February 2014 Page 39December 2014 Page 39

PIOGA EventsPIOGA Winter Meeting

February 24-25, Seven Springs Mountain Resort, ChampionInfo: www.pioga.org/events/category/pioga-events

PIOGA Summer Picnic & Golf OutingJune 1 , Wanango Golf Club, RenoInfo: www.pioga.org/events/category/pioga-events

PIOGA Pig Roast, Equipment Show & SeminarJuly 28-29, Seven Springs Mountain Resort, ChampionInfo: www.pioga.org/events/category/pioga-events

18th Annual Divot Diggers Golf OutingAugust 26, Tam O’Shanter of Pennsylvania, HermitageInfo: www.pioga.org/events/category/pioga-events

Eastern Oil & Gas Conference and Trade ShowOctober 27-28, Monroeville Convention Center, MonroevilleInfo: www.pioga.org/events/category/pioga-events

Industry EventsOOGA Winter Meeting

March 11-13, Hilton Columbus at Easton, OHInfo: ooga.org/events

IOGANY Summer MeetingJuly 8-9, Peek'n Peak Resort & Conference Center,Findley Lake, NYInfo: www.iogany.org/events.php

Calendar of Events

New PIOGA members — welcome!

BridgeWorks, LLC1403 Second Avenue, Beaver, PA 15009412-721-3952Professional Firm

EXCO Resources (PA), LLC260 Executive Drive, Suite 100, Cranberry Township, PA 16066724-720-2642www.excoresources.comProducer

McCall Scanlon & Tice, LLC11931 State Route 85, Suite G, Kittanning, PA 16201724-543-1135www.mstcpas.comProfessional Firm

WadeTrim420 Duquesne Boulevard, Suite 1350, Pittsburgh, PA 15222412-454-5556www.wadetrim.comProfessional Firm

➤ More events: www.pioga.org

Support the companies that support yourassociation with their advertising

115 VIP Drive, Suite 210Wexford, PA 15090-7906

Address Service Requested

Specialized Desanders USA Inc.Multiphase Desanding Services

(412) 535-3396 --- Turning sand separators on their side --- www.desanders.com

Engineered to be part of the solution to meet the EPA’s new emissions standards