February 2016 • Issue 70The monthly newsletter of the Pennsylvania Independent Oil & Gas Association

(Continues on page 3)

(Continues on page 22)

a permit program.• Revise the air pollutant emissions general permit for new

and modified gas com-pression and process-ing facilities (GP-5) sothat it covers anadditional type offacility ̶̶̶—natural gastransmission stations—and imposes morestringent BAT andLDAR requirements.

• Craft a regulationthat would establishstandards for controlling methane emis-sions from existing oil and gas sources.This “existing source” rule is necessi-tated by the U.S. Environmental Protection Agency’s develop-ment of control techniques guidelines (CTGs) for the oil and gasindustry, which are expected to be finalized in 2016. The depart-

The beat goes on: Wolf takesaim at reducing methaneemissions from oil and gas

Pennsylvania is currently a hotbed of regulatory initiativesfocused on the oil and gas industry. The EnvironmentalQuality Board, for example, decided on February 3 to

approve the Department of Environmental Protection’s final rule-making for oil and gas surface activities, which has been indevelopment since 2011. By midyear, the department plans tobegin work on a proposed rulemaking for subsurface activities(e.g., drilling, casing, cementing, operation and plugging). Andseverance tax proposals continue to proliferate in the GeneralAssembly.

Against this backdrop, on January 19 Governor Tom Wolf andDEP announced a strategy for reducing methane emissions fromthe industry. They say that the strategy is designed to curbmethane’s contributions to climate change “while supporting [thegovernor’s] commitment to ensuring responsible development,creating new jobs, and protecting public health and our environ-ment.”1 The strategy calls for the department to take four primaryactions:

• Issue an air pollutant emissions general permit (GP) forupstream oil and gas exploration, development and productionfacilities. This permit would establish best available technology(BAT), leak detection and repair (LDAR), recordkeeping, andmonitoring requirements for emissions sources at well pads. Itwould also replace the conditional exemption from air permittingrequirements—known as Exemption 38—that is currently avail-able for production activities in the Commonwealth. The deci-sion to require permit coverage at well sites is a reversal of thedepartment’s 2013 determination, made in the context of revamp-ing Exemption 38, that upstream emissions could be adequatelycontrolled without imposing the transaction costs associated with

Despite calls for changes, EQBapproves Chapter 78 rulemaking

Brushing aside calls for amendments and other concerns,the Environmental Quality Board (EQB) on February 3voted to approve the Department of Environmental

Protection’s controversial Chapter 78/78a rulemaking on oil andgas surface operations.

The EQB is a 20-member panel that formally promulgates allDEP regulations. EQB members include representatives of 11state agencies, five members of the Citizens Advisory Council

(one of which is PIOGA board memberBurt Waite of Moody and Associates),and four members of the Senate andHouse of Representatives. It is chairedby DEP Secretary John Quigley.

DEP officials explained that manycosts were estimated at zero becausethey are already existing obligationsunder law or otherwise. Containment isexpected to be the highest cost for con-ventional operators, but DEP plans toprovide training about separation from

More observations on methane . . . . . . . . . . . 3PIOGA Spring Meeting . . . . . . . . . . . . . . . . . . 4Water table training . . . . . . . . . . . . . . . . . . . . . 4When your customer files for Chapter 11 . . . . 6Weathering the storm of 2016 . . . . . . . . . . . . 7Inspecting & cleaning metacarpal gloves . . . 11PHMSA alert to storage facilities . . . . . . . . . 14EIA report on pipeline projects . . . . . . . . . . . 15Pipeline education. . . . . . . . . . . . . . . . . . . . . 162015-16 legislative session so far. . . . . . . . . 17DEP plans spill alert system. . . . . . . . . . . . . 19

Northern long-eared bat 4(d) rule. . . . . . . . . 19Impact fee reduced for 2015. . . . . . . . . . . . . 20New PIOGA members . . . . . . . . . . . . . . . . . 20Millis resigns from PIOGA board . . . . . . . . . 20Greg Maliken retires . . . . . . . . . . . . . . . . . . . 20Sportsmen comment on EPA board . . . . . . . 21Oil & Gas Trends. . . . . . . . . . . . . . . . . . . . . . 24October Spud Report . . . . . . . . . . . . . . . . . . 26Calendar of Events . . . . . . . . . . . . . . . . . . . . 27PIOGA contacts . . . . . . . . . . . . . . . . . . . . . . 27

Tad J.Macfarlan

Anthony R.Holtzman

Authors:

Page 2 The PIOGA Press

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February 2014 Page 3February 2016 Page 3

Methane reduction: Continued from page 1

ment’s rule will be due to EPA within two years after EPA issuesthe final CTGs.

• Establish best management practices, including LDAR pro-grams, for reducing fugitive methane emissions from oil and gasproduction, gathering, transmission, and distribution facilities,including pipelines.

These proposals are framed under Pennsylvania’s AirPollution Control Act2, which gives the department andEnvironmental Quality Board authority to regulate air pollutant

emissions from a wide variety of sources.3 The proposals would,in certain respects, be more stringent than proposed federalrequirements that cover the same topics. In particular, severalfeatures of the proposed GP and proposed revisions to GP-5would go beyond EPA’s proposed revisions to 40 C.F.R. Part 60,Subpart OOOO (Quad-O).

The proposed federal Quad-O revisions, published inSeptember 2015, would establish new source performance stan-dards for methane emissions from various types of new andmodified oil and gas sources. They would, for example, requiremonthly audio visual olfactory (AVO) inspections at a well site,but only for tank covers and closed vent systems. The depart-ment’s proposed GP, by contrast, would “require monthly AVOinspections on the entire well site operations.”4 As another exam-ple, the proposed Quad-O revisions would not impose anyrequirements for pigging operations. The department’s proposedGP and proposed revisions to GP-5, on the other hand, wouldrequire any pig launcher at a well site, midstream compressorstation or gas processing plant to be operated “without ventingmethane and hydrocarbons into the atmosphere.”5

The department characterizes its proposals as “best-in-classmeasures” that will significantly reduce methane emissions andfortify “Governor Wolf’s vision for an economically and environ-mentally sustainable future for Pennsylvania.”6 But some mem-bers of the oil and gas industry, pointing to anticipated compli-ance costs and the EPA’s pre-existing initiatives in this arena,will likely see things differently. The department plans to unveilmore details about its proposals in February, at the next meetingof the Pennsylvania Air Quality Technical Advisory Committee.That meeting will provide the first of many opportunities forinterested stakeholders to give input on the department’s propos-als as they work their way through Pennsylvania’s regulatoryprocess in the months and years ahead. ■

1 A Pennsylvania Framework of Actions for Methane Reductions from the Oil andGas Sector (Jan. 19, 2016) (Framework Document) at 2.2 See Framework Document at 5.3 See, e.g., 35 P.S. §§ 4003, 4004 and 4005.4 Framework Document, Appendix A at 2.5 Id. at 5, 8, and 11.6 Framework Document at 1 and 2.

More about methane reduction• API-PA said this about the Wolf administration’s plannedmethane rules proposals: “America is already leading theworld in reducing greenhouse gas emissions. Even as oil andnatural gas production has risen dramatically, methane emis-sions have fallen, thanks to industry leadership and invest-ment in new technologies. Methane is the primary componentof natural gas, and emissions will continue to fall as operatorsinnovate to capture and deliver more methane to heat homesand generate clean-burning electricity…. Onerous and unnec-essary new regulations could have a chilling effect on theAmerican energy renaissance, our economy, and our incredi-ble progress reducing greenhouse gas emissions.”

• The U.S. Environmental Protection Agency’s greenhouse gasinventory reported that methane emissions from hydraulicallyfractured natural gas wells are down 79 percent since 2005.Total methane emissions from natural gas systems are down11 percent since 2005.

• How significant is the methane “problem?” DEP SecretaryJohn Quigley concedes he doesn’t know, and he doesn’tbelieve his agency’s own statistics either. When the MarcellusShale Coalition pointed out that the industry already has cutemissions—citing DEP statistics showing methane emissionsdeclined by 13 percent in 2013 at the same time gas produc-tion increased (the 2014 data will be released in April)—aDEP spokesman dismissed the numbers, saying that with onlytwo years of data it’s hard to identify a trend and that becauseindustry self-reports the statistics probably are not reliable andlikely does not account for all leaks. In short, DEP doesn’ttrust its own numbers, but the administration plans to cutmethane emissions by 40 percent with its new strategy.

• The Department of Environmental Protection’s methanereduction strategy can be found at www.dep.pa.gov/Business/Air/Pages/Methane-Reduction-Strategy.aspx.

• The same week the Wolf administration announced itsmethane-reduction plans, the U.S. Department of the Interiorissued proposed updates to natural gas emissions regulationsfor operations on public and Native American lands. The rulewould require oil and gas producers to limit the rate of flaring,periodically inspect their operations for leaks and replace out-dated equipment that vents large quantities of gas into the air.The rule will be open for public comment for at least twomonths, with a final rule expected by the end of the year. Theproposed rule is consistent with the Obama administration’sgoal to cut methane emissions from the oil and gas sector by40-45 percent from 2012 levels by 2025, the department said.

Page 4 The PIOGA Press

New date, new venue, same valuableprogramming

We’re switching things up this year, moving our tradi-tional winter meeting to a slightly later spring date,consolidating the program to one day to make it easier

for more members to attend and relocating to an exciting newvenue.

What isn’t changing is the quality of the programming—wewill again be offering presentations important to how your com-pany does business, particularly in these difficult times. Asalways, there will also be opportunities for networking.

The Spring Meeting will take place at Rivers Casino onPittsburgh’s North Shore. Not only will this be a fun venue forour event, but it’s also convenient to where many of our mem-bers work. This will cut down on travel time and do away withthe need for many attendees to stay overnight.

The event had originally been announced for March 31.However, due to a booking error on the part of the casino,we have changed to Thursday, April 7. Please watch youremail or check the PIOGA Events section of our website forthe detailed agenda, registration and other information.

The program will kick off at 9:30 a.m. and last until 5p.m., followed by a reception and casino time. Here’s theanticipated lineup of presentations and speakers:• 2016 Pennsylvania Regulatory Update

Jean Mosites, Babst Calland • 2015 Legislative Actions that Impact the Oil & Gas

IndustryDick Gmerek, Gmerek Government Relations

• National Regulatory Update – Northern Long-Eared BatSamantha McDonald, Independent Petroleum Association ofAmerica

• Dept. of Labor – Penalties for Overtime WorkMartin J. Saunders, Steptoe & Johnson PLLC

• Lunch Keynote Address: Political Outlook in this ElectionYearCharlie Gerow, Quantum Communications

• Water Management – Options, Obstacles and IdeasBurt Waite, Moody & Associates

• Fighting for our Survival – PIOGA’s Litigation UpdateKevin Moody, PIOGA

• Panel Discussion: New Developments on Market GrowthModerator: Joyce Turkaly, PIOGA

• Education, Education and More EducationPipeline and Gas Market Development Public RelationsEfforts – Dan Garcia, Leech TishmanUpdate on PIOGA’s Educational Outreach Efforts – DanWeaver, PIOGAWe hope to see you there. Again, please visit the PIOGA

Events section at www.pioga.org for details and registration. Andmake plans today to attend! ■

PIOGATech: Water Table TrainingWhere is the water table? In Pennsylvania, this is some-

times a tough question to answer. The main problem is thatthere are a number of types of water tables, ranging from sea-sonal perched water tables or zones within the overburden andsoil, localized water tables associated with adjacent streamsand wetland complexes, and regional water tables.

PIOGA’s Environmental Committee is pleased to host atraining session on February 26 in conjunction with our part-ners Civil & Environmental Consultants, Moody & Associatesand B.F. Environmental Consultants that will address this mat-ter. The course is designed to provide a basic understanding ofthe factors that influence groundwater, an overview of the reg-ulations related to the water table for oil and gas operations,and a practical application of how to identify the water table.

The fee for the training, which includes lunch and a certifi-cate for professional development hours and continuing edu-cation units is $50 per person for PIOGA members and $75for nonmembers. The event takes place at the Civil & Environ -mental Consultant office at 333 Baldwin Road, Pittsburgh.

For details and registration, click on PIOGA Events from theNews/Events dropdown menu at www.pioga.org. Registrationdeadline is February 22.

February 2014 Page 5February 2016 Page 5

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Page 6 The PIOGA Press

By Daniel A. GarciaLeech Tishman

The year was 2008. We knew the oil and gas industry wasunpredictable, but the temptation to commit ourselves to itwas too strong to appreciate the dangers of a volatile com-

modity market. From our vantage point, the market was ours forthe taking. This was such a beautiful sight to behold as vendors,suppliers and professionals collaborated on projects and net-worked via clay shoots, golf tournaments and charity dinners.For many of us, this was our first experience with the oil and gasindustry and it was a great start to what could be a whole newcareer.

Then 2014 happened: Crude supplies were quickly outpacingdemand; emerging economies of Brazil, Russia, India and Chinabegan to show signs of slowing; and OPEC (read: the Saudis)had no interest in cutting production. A perfect storm for theprecipitous drop in commodity prices in 2015. But then again, Ido not have to remind you of what the last year has done to ourrespective businesses, vendors, suppliers and relationships.

The purpose of this essay is not to relive what we experiencedover the past year; rather, my goal here is to provide you with a“heads up” should you find yourself in receipt of a veryuncomfortable letter. Times may be tough, but survivability is byno means impossible.

“I worry my biggest customer might file Chapter 11. Whatdo I do?”

Your customer has not filed for bankruptcy, however youbelieve it may be headed in that direction. One strategy is toterminate a long-term contract in favor of a month-to-monthcontract with 20-day payment terms. For customers not willingto enter into a 20-day payment term, it would be advisable torequire a deposit prior to delivery of goods.

Under the Bankruptcy Code, you might not have anopportunity to terminate a long-term contract with a customeronce a bankruptcy petition has been filed. You are, however,entitled to the value of any goods delivered within the 20-dayperiod before the bankruptcy filing. Delivery of goods within 20days of a bankruptcy filing creates an “administrative” claim and

you are entitled to payment in full. Any goodsdelivered outside of this 20-day window willreceive the lowest payment priority.

You might also request that your customersign a “purchase money security interest,”giving you a security interest in all goods youplan to sell to the customer, as well as anyproceeds from the sale of those goods. TheUniform Commercial Code (UCC) definitionis quite broad and includes goods held forlease and work in progress.

For these and other strategies, you shouldmeet with your attorney to discuss the bestcourse of action.

“My biggest customer filed Chapter 11.Now what?”

This seems to be the common questionthese days, since many of you find out aboutyour client filing for Chapter 11 in a letter or,worse, via social media. Do not despair—you

have certain rights and responsibilities available. You shouldalways consult with an attorney prior to implementing any of thefollowing strategies:

Goods in transit. So long as the goods have not beendelivered to the customer, you should stop goods in transit.

Adequate assurance. You have a right under the UCC todemand adequate assurance regarding your customer’s ability topay for goods. Consult with your attorney about how to proceed.

Reclamation of goods. The Bankruptcy Code recognizes theright to reclaim goods sold on credit to an insolvent customer. Toaccomplish this, you will need to submit a letter to yourcustomer and its counsel within 45 days after the customer hasreceived the goods or within 20 days of the bankruptcy filing ifthe filing was within that same 45-day period. If this reclamationdemand is not timely, you will waive your rights to reclaim yourgoods. The UCC form letter states as follows:

To: [Name of Buyer]I hereby reclaim from you the following goods soldto you on credit and received by you on [date ofreceipt]: [description of goods]. I reclaim the goodsbecause of your insolvency.[Name of Seller]

20-Day administrative claim. You are entitled to thepayment for the full value of goods received by the customerwithin 20 days of a bankruptcy filing. Failure to file timely proofof this administrative claim will result in a waiver of this right.There will typically be a procedure order issued by the court onhow and where to file this claim.

Critical vendor. The debtor may consider your company a“critical vendor” and obtain the court’s authority to makepayment. Critical vendors are those certain vendors that arecritical to the debtor’s operation. Without these critical vendors, adebtor’s operations will cease and a reorganization will not bepossible.

Executory contract. An executory contract is a contractwhere each party owes the other party significant performanceand failure to perform will excuse the other party’s performance.In a Chapter 11, a debtor has the right to assume or rejectexecutory contracts. Should the debtor choose to assume the

Surviving the squall:

Your customer filed for Chapter 11.Now what?

February 2014 Page 7February 2016 Page 7

contract, the debtor must cure all defaults and provide adequateassurance that future obligations will be fulfilled. Be mindful ofthe assumption of an executory contract that is assigned alongwith the debtor’s efforts to sell its assets. Should your executorycontract be rejected, the rejection is treated much like a breach ofcontract and you are entitled to assert a claim for pre-petitiondamaged. Keep in mind that you will be required to perform inaccordance with your executory contract until the debtor assumesor rejects the contract.

Proof of claim. In most cases, you will likely be required tofile a proof of claim to preserve your right to a distribution.

Unsecured creditors committee. The U.S. trustee willappoint a committee of creditors holding unsecured claims. Thiscommittee will represent the interests of all unsecured creditors

and attempt to maximize recovery for all unsecured creditors innegotiations with the debtor, secured creditors, and other parties.Any expenses related to the administration of this committee willbe paid by the debtor’s estate.

Like every moment of adversity, having the right strategy andresources will make a big difference in how you survive thisunfortunate turn of events. A Chapter 11 petition by your largest,or in some cases only, client does not have to create adversarialrelationship. As a creditor, your company has both rights andresponsibilities which aid in the reorganization process. It ishighly recommended that you meet with your attorney to discusspotential strategies should your company find itself in thisposition. ■

How will exploration andproduction companiesweather the storm of 2016?

On December 31, 2014, when the price of West TexasIntermediate crude oil dropped 50 percent from summerprices that year to just under $55 per barrel, experts pre-

dicted there would be a flurry of industry restructurings; but noone could predict how hard the industry would be hit and whatthe downturn would entail. When prices dropped another 40 per-cent in 2015 we were reminded that the oil and gas explorationand production business operates in an unpredictable cycle, mak-ing planning difficult. While experts cannot agree when thiscycle will hit bottom and at what price, they appear to haveagreed that relief will likely not occur in 2016.

For those who survived the bust in the early 1980s and againin late 2008, by comparison 2016 looks grotesque. What is sogrotesque about this downturn is not just the number of compa-nies that will be hurt, but that efforts to recapitalize or restructureare being hindered by the obstacles created by two events. Thefirst obstacle is caused by the regulatory restrictions on reserve-based lending that will make the source of financing unavailableto many exploration and production companies. The secondobstacle was put in place by two recent decisions of the FederalDistrict Court for the Southern District of New York that make itmore difficult for issuers to structure nonconsensual out-of-courtrestructurings of public debt.

Constraints on reserve-based lendingExploration and production companies that traditionally relied

upon reserve-based revolving credit for their working capitalneeds and to fund exploration and drilling no longer have thosefacilities available to them. Regulators have begun to rate theseloans based upon the financial strength of the borrower ratherthan the creditworthiness of the loan itself. In turn, lenders havebeen forced to reevaluate the borrowing base on many energyloans based on current prices, even though the borrower mayhave sufficient cash flow to timely service the debt over the lifeof the loan without any regard to the fluctuation of crude oilprices. The lenders are trying to account for the billions of dol-

lars of credit extended to the explorationand production companies while fending offthe regulators who claim to be taking stepsto avoid an undetermined financial crisis inthe banking industry or Wall Street. Becausecrude oil prices have fallen so dramatically,borrowing base deficiencies under thesecredit facilities have risen to obscene levels,leaving borrowers with only one option: topay down the debt because all their collater-al has already been pledged to the lenders.These borrowers don’t have a cash warchest, so they are negotiating deals withtheir lenders to pay these deficiencies ininstallments over a relatively short peri-od of time. These borrowers have been trying to raise capital byselling properties or securing additional credit through junior lienor subordinated debt to circumvent events of default under thesefacilities.

Publicly held debt has historically been a good source ofliquidity for energy companies

To raise capital or liquidity, exploration and production com-panies have frequently issued long-term senior unsecured debtinstruments in public offerings. While this unsecured debt waseasily serviced by cash flows when crude prices were above $50per barrel, the reduction in revenue caused by falling crudeprices this calendar year has made it difficult to service the debt,precipitating a large number of bond payment defaults as well asnonpayment defaults and covenant breaches. The number of botheconomic and noneconomic breaches will likely increase withreevaluations of SEC reserves. Capital markets have, for themost part, been closed to the energy sector. Indenture trusteeshave strictly enforced the rights of the bondholders post defaultin part to mitigate risks, limit liability and avoid litigation in anotherwise turbulent environment.

In response, a number of energy companies have chosenbankruptcy to obtain a court-supervised debt restructuring.Others, in an effort to avoid bankruptcy or to restructure existingdebt to permit a new issuance of securities, have tried a varietyof balance sheet restructurings involving consent solicitationsand exchange offers or intercompany sales transactions. When

Trey A.Monsour

Author:

Page 8 The PIOGA Press

these have involved publically offered bonds, Section 316(b) ofthe Trust Indenture Act of 1939 has imposed requirementsdesigned to protect minority bondholders in out-of-court restruc-turings that impair certain of their core rights. Prior to 2015,established precedent generally interpreted the concept of corerights narrowly. However, two cases recently adopted a muchbroader interpretation of the scope of noteholders’ legal rightsthat are entitled to be protected under Section 316 of the TrustIndenture Act. These two decisions have upset settled interpreta-tions of Section 316 of the Trust Indenture Act and will material-ly impact the ability of issuers to restructure their debt and theirbalance sheets.

In 2015, two New York cases turned out-of-court publicly-held debt restructuring transactions upside down

The Marblegate Decision. The first decision came in theMarblegate Asset Management, LLC1 case. In this case, a for-

profit education company and its affiliated entities sought torestructure approximately $1.5 billion of debt out of courtbecause the company effectively could not file bankruptcy with-out rendering it ineligible for federal funding, which accountedfor 80 percent of its revenues. The company’s debt consisted ofapproximately $1.3 billion of secured debt in the form of arevolver and term loan debt. The balance of approximately $200million was in the form of unsecured notes issued by the sub-sidiary and guaranteed by the parent. This transaction qualifiedunder the Trust Indenture Act. The parent issued guarantees onboth the secured and unsecured debt. The parent’s guarantee ofthe unsecured debt could be released by either one of two events:(i) by majority of a vote taken by the unsecured noteholders, or(ii) by a corresponding release of a separate guarantee given bythe parent to the secured lenders. There was no value assigned tothe parent guarantee when the original indenture was issued.

A committee consisting of holders of approximately 80 per-cent of the secured debt and holders of approximately 80 percentof the unsecured notes negotiated an out-of-court restructuringwhereby the secured lenders received debt and equity providingfor an approximately 55 percent recovery and the unsecurednoteholders received equity equal to an approximately 33 percentrecovery. However, if 100 percent of the creditors did not con-sent to the negotiated agreement, the parent would proceed withan intercompany sale transaction that would release the parentguarantees; the secured lenders would foreclose on their collater-al, which was virtually all the assets; and the dissenting unse-cured noteholders would receive no distribution while the con-senting unsecured noteholders would receive the negotiated deal.

While the court denied an injunction proceeding brought bythe dissenting noteholders, in lengthy dicta, the court analyzedSection 316(b) of the Trust Indenture Act and concluded follow-ing a review of the text and drafting history that Section 316(b)should be read expansively to protect nonconsenting minoritybondholders from being forced to release claims outside of acourt-supervised debt restructuring.

The Caesars Decision. One month later in the CaesarsEntertainment Corp.2 case, the same court further reasoned itsposition. In Caesars, in the initial indentures, the parent issued$1.5 billion in unsecured notes. One-half was due in 2016; theremaining half was due in 2017. The parent issued unconditionalguarantees and was prohibited from divesting its assets. In 2014,additional indentures were issued that arguably released the par-ent guarantees but were supported by a majority of the notehold-ers.

In January 2015, Caesars’ wholly owned operating companyfiled chapter 11 in Chicago. The indenture trustee for the notesasserted that the bankruptcy triggered the parent guarantees anddemanded payment. The parent argued that the additional inden-tures issued in 2014, which were supported by a majority of thenoteholders, released the parent of the guarantee obligation.When voting on the additional indentures in 2014, the notehold-ers knew that releasing the guarantees did not create any impair-ment to them.

The indenture trustee filed suit in the Southern District ofNew York seeking a summary judgment that the release of theparent guarantees violated Section 316(b) of the Trust IndentureAct. The parent argued that the noteholders, when voting in favorof the additional indentures, knew that the guarantees were neverintended to provide value but were a device created to comply

February 2014 Page 9February 2016 Page 9

with SEC regulations. Looking at the indentures’ language, thecourt disagreed and concluded the parent guarantees were ameaningful provision of the original indentures.

The indenture trustee then argued that any impairment affectsa noteholder’s right to payment, reasoning that all impairmentsare violations of the Trust Indenture Act. The court disagreed,stating that if the indenture trustee were correct then courtswould have to interfere with ordinary business practices andwould then have to determine when impairment levels wereimpermissible. The court held that Section 316(b) bars an actionthat would impair a noteholder’s right to sue for payment and anoteholder’s substantive right to receive such payment. The courtalso concluded that there has to be a balance between corporateflexibility and protecting minority bondholders from beingforced to release their claims outside of a formal court debtrestructuring.

The takeawayMany lenders have large energy portfolios, and until now they

have been able to kick the can down the road, hoping the marketenvironment may correct itself. The landscape is clearer now, buthopeful relief in the way of crude oil price improvement likelywill not come in 2016. Regulators have substantially inhibitednew loans from these institutions. Coupled with that, the capitalmarkets are not as open to the energy sector as they were beforethe crude prices dropped. The only viable option remaining is torestructure. The dilemma is whether to do it in or out of court.Certainly bankruptcy is a viable restructuring option supervisedby a federal court with the power to bind any creditor or party ininterest.

For out-of-court restructurings, the district court in theSouthern District of New York has thrown a wrench in thepipeline. Despite the court’s reasoning in the Caesars case that itdid not want to interfere with a company’s ordinary businesspractices, the effect of the court’s rulings did just that. The courtinterpreted the Trust Indenture Act so broadly in these two casesthat minority bondholders can use the Trust Indenture Act notjust for its intended purpose, which is to shield them from harm,but as an offensive tool in a restructuring. Marblegate andCaesars give minority bondholders a saber to impose a right tounanimous consent of rights to matters that historically—and inthe terms of the indentures—required only a majority vote. Thesetwo cases color what was relatively established authority that theTrust Indenture Act only protects noteholders’ legal rights. Nowtheir practical right to payment of payment with interest underthe original issuance is arguably protected. What does this mean for out-of-court restructurings? It meansthe advisors need to be more creative when confronted withindentures qualifying under Section 316(b) of the Trust IndentureAct and be reminded that there is more than one method ofrestructuring out of court including those governed by state lawthat do not have the constraints imposed by Section 316(b) of theTrust Indenture Act. ■

1 Marblegate Asset Mgmt. v. Education Mgmt. Corp., 111 F. Supp. 3d 542(S.D.N.Y. June 23, 2015).2 MeehanCombs Global Credit Opportunities Funds, LP v. CaesarsEntertainment Corp., 2015 WL 9478240 (S.D.N.Y. December 29, 2015).

Page 10 The PIOGA Press

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February 2014 Page 11February 2016 Page 11

Safety Committee CornerSafety Committee CornerGetting a grip on safetyand savingsHow metacarpal glove inspection and cleaninghelps you lower incidents and costs

By Donny BeaverHalenHardy LLC

Many of you recall the “good old days.” It doesn’t seemso long ago when natural gas prices were $6 per mcf—and a decent pair of work gloves cost only about $5. At

high natural gas prices, most O&G companies considered low-cost work gloves to be a disposable item. If your gloves got wetor greasy, you simply tossed them in the trash and were issued anew pair. In some cases, you were issued three or four pairs. Itwas cheaper to hand out extra gloves than to make several tripsto the supply bin.

But, things have changed. First, operators and service compa-nies have become increasingly concerned about the high poten-tial for hand injuries in the oil patch such as:

• Cuts and abrasions • Fractures• Sprains • Dislocations• Bruising • BurnsIn addition to direct injuries to hands, fingers and wrists, most

companies have also experienced incidents resulting from slip-pery glove palms. These kinds of greasy-palm incidents include:

• Sledge hammers flying through the air.• Pipe wrenches and other tools dropped from heights to

unsuspecting workers below.• Elbow, shoulder and groin strains when gloves slip while

carrying or pushing loads.• Slip and fall injuries caused when a worker’s hands slip

from a grab bar.Such injuries are not uncommon. In fact, a 2014 International

Association of Drilling Contractors report shows that hand, fin-ger and wrist injuries account for 43 percent of all the incidentsin the oil and natural gas industry. And these types of injuries arenot inexpensive. A recent report by the Bureau of LaborStatistics points out that the average hand injury costs $7,500 peroccurrence.

Further, most workers don’t report what they consider to beinsignificant hand injuries. As a personal example, I was giving a

demonstration in a meeting with the safety team of a large con-tractor. Part of my demo included the use of very strong mag-nets. During lunch, I was holding one magnet in each hand onmy lap beneath the table at which we were seated. Suddenly, themagnetic force pulled them together and trapped the edge of myleft index finger between them. Although it hurt a bit, I did notlet on. I glanced under the table and noticed my finger wasbleeding profusely. I quickly wrapped the finger with a napkinand applied strong pressure. After about 10 minutes the bleedingstopped and I was able to slip out of the meeting without theincident being reported. I’ve often wondered how many timeseach day other incidents go unreported across our industry.

Myriad choicesIn response to ever-increasing concerns for worker safety,

glove suppliers offer a plethora of choices with gloves that com-bine one or more of the following features:

• Cut resistance • Anti-impact • Fleece lined • Waterproof• Super grip • Oil and grease resistant• High visibility • Reflective• Flexibility • Chemical resistance• Reinforced palms, finger tips and thumb cradleIn addition, work gloves should be comfortable and flexible to

ensure workers “want” to wear them to perform their varioustasks. However, the combination of form, function and fit canvary from job to job. For example, a wireline worker has a differ-ent set of needs than a frac pump mechanic.

While having an abundance of choices of glove styles andattributes appears to be a positive thing, it can be mind bogglingto narrow the selection down to a handful of specific styles foryour various crews. Also, this array of alternatives increases thecost to manufacture, warehouse and distribute a seemingly end-less array of gloves.

Speaking of costsToday’s high-performance gloves for the oil and gas industry

come at a price much greater than their predecessors from a fewyears back. A survey of the types of gloves specified by opera-tors, service companies, safety consultants and risk managers

Left: Cleaningthe greasy palmsof a glove with apurpose-builtglove wipe. Suchcleaning canextend the life ofa glove by 50percent. Right: Adispenser ofwipes conve-niently locatedin the shop.

Page 12 The PIOGA Press

reveals the costs range from about $10 for a basic impact-resist-ant glove to as high as $69 for the Cadillac version with all thebells and whistles.

We’ve analyzed scores of gloves commonly used in the O&Gindustry and have discovered a median price of $11-$17 forgood-quality gloves with high-impact metacarpal protection,level 4/5 cut resistance, superior gripping features and top-quali-ty manufacturing.

These glove prices are 200-300 percent, or more, higher thanjust a few years ago. So, the cost of gloves has gone up signifi-cantly while the price of natural gas and oil has dropped precipi-tously. And, there is no telling how long these low market pricesfor energy will persist (although many pundits warn that we allneed to adjust to a low price environment for the foreseeablefuture.)

At these prices, many contractors easily spend $1,000 to$5,000 per month on gloves (and even more). As we studied thedisposition of O&G work gloves in 2015, we discovered thatworkers were still tossing gloves in the trash (even though theycost $15 per pair). After conducting dozens of “dumpster-divingmissions,” we found that more than 75 percent of the discardedgloves were either wet or greasy, but otherwise in perfectly goodcondition. Needless to say, you can’t afford to throw away a $15pair of gloves just because they are wet or greasy. So what alter-natives do you have?

Glove cleaning improves safety and saves moneyBen Franklin said, “A penny saved is a penny earned.” This

statement applies now more than ever for our industry. A simpleway to increase the life of a safety glove in the field is to provideworkers with grease-cutting wet towels in convenient dispensers.Contractors report that cleaning greasy glove palms can increasethe effective in-the-field service time by 30-50 percent.

As a first step, greasy gloves can be cleaned “in the field.”Several manufacturers have formulated grease-removing wetwipes that are packed in convenient canisters. Glove wipesremove grease from the palms and fingers for a cleaner, safergrip. They can also extend the field service life of a pair ofgloves by 50 percent.

Additionally, progressive companies have discovered ways tosave significant amounts of money by laundering dirty gloves.On its face, it sounds fairly simple:

1. Collect wet and dirty work gloves. 2. Wash them. 3. Dry them. 4. Return them to service. However, a survey of the industry revealed it was not as easy

as it sounded. Many companies have tried cleaning gloves, butran into several roadblocks:

• Collecting dirty gloves from oilfield workers is not an easytask. And, no one wants to take charge of this menial function.

• Developing consistent protocols for collection and dispens-ing gloves seems cumbersome.

• Workers are resistant to “wearing somebody else’s gloves.”• Training workers on the importance and value of glove

cleaning adds “just one more task” to an already overloadedwork force.

• Many laundry service companies are not set up to clean oil-field gloves effectively.

• Self-laundering creates challenges that do not seem to yield

commensurate rewards.• Most safety suppliers have no vested interest in helping you

stretch the life of your gloves.• Inspecting and matching gloves can be a hassle. • Storing unmatched gloves for future pairings is a pain.Fortunately, glove cleaning and inspection services have been

developed in the Appalachian Basin. An effective program willinclude the following elements:

• Assess current annual glove spend.• Solicit proposals from glove cleaning services.• Set realistic goals of anticipated results and savings.• Announce glove recycling program.• Train workers on importance and value of program.• Assign accountability—detail-oriented person.• Turn in dirty pair(s) to get clean or new pair(s).• Create easy-to-return stations for dirty gloves.• Train workers to perform quick inspection on site.• Discard worn-out gloves.• Send off for cleaning and final inspection.• Require monthly reports from vendor to track progress and

savings.As a result of an effective service, the following conditions

should prevail:• Dirty gloves will be collected and serviced on a regular

basis.• Clean gloves will be sanitized, residue-free, fit comfortably

and delivered in matched pairs. • However, you should not expect 100 percent of visual stains

to be removed.• Monthly accountability reports will help track progress

against safety and financial goals.There are many safety glove manufacturers and suppliers in

the oil and gas industry. This article has been written with thebasic assumption that you are already working with a supplier toprotect your workers with the proper gloves for their specific jobtasks. A glove cleaning service can be coordinated with practi-cally any style and brand of gloves (with the exception of glovescontaining hazardous materials). ■

HalenHardy CEO Donny Beaver has used his passion for work-place safety and the environment to find creative solutions to thebiggest problems in residential, commercial and industrial set-tings since the 1970s. He can be reached by mobile phone or textat 814-571-9779 or dbeaver@halenhardy.com.

Gloves before and after laundering.

February 2016 Page 13

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Federal pipeline safety agencyissues advisory bulletin forunderground gas storage facilities

On February 5, the U.S. Department of Transportation’sPipeline and Hazardous Materials Safety Administration(PHMSA) published an advisory bulletin in the Federal

Register on the safety of underground gas facilities. 81 Fed. Reg.6334-6336. Citing several incidents at underground gas storagefacilities, including the ongoing natural gas leak at a facility inthe Porter Ranch area of Los Angeles, California, PHMSA’sadvisory bulletin recommends operators of these facilities takemeasures to ensure public safety and the protection of the envi-ronment. The advisory bulletin recommends, among other things,that operators:

• Develop and follow comprehensive procedures, mitigationmeasures, periodic assessments, and emergency plans for main-taining the safety and integrity of all underground gas storagewells and associated facilities.

• Voluntarily implement American Petroleum Institute (API)Recommended Practices (RP) 1170, “Design and Operation ofSolution-mined Salt Cavern Used for Natural Gas Storage, FirstEdition, July 2015”; API RP 1171, “Functional Integrity ofNatural Gas Storage in Depleted Hydrocarbon Reservoirs andAquifer Reservoirs, First Edition, September 2015”; and Inter -state Oil and Gas Compact Commission’s (IOGCC) “NaturalGas Storage in Salt Caverns—A Guide for State Regulators.”

• Review and update operations and maintenance plans and

procedures at least annually.• At a minimum, implement a list of 12

separate actions to address issues such aspressure verification, well monitoring, facil-ity inspections, functional testing, the instal-lation of subsurface safety valves, ensuringmechanical integrity, monitoring corrosion,identifying and remediating other threatsand hazards, responding to emergencies,and maintaining records for the life of thesefacilities.

While not establishing anybinding legal requirements forunderground gas storage facilityoperators, the advisory bulletinprovides insight into PHMSA’s thinking as it considers whetherto establish new regulations for these facilities.

PHMSA has long had the authority to establish federal safetystandards for underground gas storage facilities, but the agencyhas never used that authority for policy reasons. In a 1997 advi-sory bulletin, PHMSA’s predecessor, the Research and SpecialPrograms Administration (RSPA), announced it would not beconducting a rulemaking proceeding for underground storagefacilities. 62 Fed. Reg. 37008-37009. Having examined the needfor new regulations in response to a safety recommendation fromthe National Transportation Safety Board, the independent feder-al agency that investigates significant transportation-related acci-dents, RSPA explained that the IOGCC and API had developedguidelines that applied to all aspects of underground storage, andthat operators could ensure the safety of such facilities by volun-tarily complying with those guidelines. RSPA also explained thatthe agency had urged state authorities to adopt and apply thoseguidelines to facilities in order to make additional federal regula-tions unnecessary. Finally, RSPA encouraged operators of inter-state underground storage facilities to comply with IOGGC andAPI guidelines and appropriate state regulations.

In 2010, the U.S. District Court for the District of Kansasissued an important decision on the ability of the states to regu-late underground interstate gas storage facilities. ColoradoInterstate Gas Company v. Wright, 707 F.Supp.2d 1169 (D. Kan.2010). The case involved an interstate pipeline operator that chal-lenged the Kansas Corporation Commission’s authority to applystate statutes and regulations for the safety of underground natu-ral gas storage operations to an interstate storage facility. Thedistrict court found that the federal Pipeline Safety Act preempt-ed the commission from enforcing these provisions, even thoughPHMSA had not established any federal safety standards for theregulation of underground gas storage facilities. Indeed, the dis-trict court said that “[t]he decision of the Department ofTransportation to exempt certain pipelines from federal regula-tion does not necessarily mean that the state can step in andimpose its own regulations”; rather, it “‘may imply an authorita-tive federal determination that the area is best left unregulated,and in that event would have as much pre-emptive force as adecision to regulate.’” 707 F.Supp.2d at 1188 (quoting KinleyCorp. v. Iowa Utilities Bd., 999 F.2d 354, 359 (8th Cir. 1993)).

In August 2011, PHMSA responded to the district court’sdecision by asking for public comment on whether the agencyshould establish federal regulations for underground gas storagefacilities. 76 Fed. Reg. 53086- 53102. In November 2011, U.S.

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The U.S. Energy Information Administration (EIA) releaseda Today in Energy article on January 28(www.eia.gov/todayinenergy/detail.cfm?id=24732) that

looks at the new pipeline capacity that will move more naturalgas produced in the Northeast to natural gas consuming andexport markets elsewhere in the nation.

Over the past several years, the article notes, natural gas pro-duction in the Marcellus and Utica natural areas has grown sig-nificantly, with combined growth of 12 billion cubic feet per daysince 2011 accounting for 89 percent of total growth in U.S. nat-ural gas production.

In the past several months, several new pipeline projects havecome online to move natural gas either to nearby market areas inthe Mid-Atlantic area (New York, New Jersey and Pennsylvania)or to feed into existing infrastructure that delivers natural gas tomore distant regions, especially the Gulf Coast. Major projectsthat came online in late 2015 or early 2016 are:

• The Rockies Express Pipeline (REX) reversal project hadadded westbound capacity to flow natural gas to the Midwest in2014. In late 2015, Texas Eastern Transmission Company’s(Tetco) OPEN project added 550 million cubic feet per day(MMcf/d) of pipeline takeaway capacity out of Ohio.

• Columbia Gas Pipeline’s East Side Expansion, a 310MMcf/d project that flows natural gas produced in Pennsylvaniato Mid-Atlantic markets.

• Tennessee Gas Pipeline’s Broad Run Flexibility Project, a590 MMcf/d project originating in West Virginia that moves nat-ural gas to the Gulf Coast states.

• Tetco’s Uniontown-to-Gas City project flows up to 425MMcf/d of natural gas produced in the Marcellus region to

Senators Pat Roberts (R-KS) and Jerry Moran (R-KS) also intro-duced legislation allowing state agencies to directly regulate thesafety of interstate underground gas storage facilities, an initia-tive they continued to press over the next few years.

In October 2015, the Southern California Gas Company dis-covered a leak at an injection well in the Aliso Canyon under-ground gas storage facility in Porter Ranch, Los Angeles. Theleak has resulted in great public scrutiny of the safety of under-ground gas storage facilities and prompted renewed calls forPHMSA to establish federal safety standards for these facilities.

In December 2015, with the Aliso Canyon leak still underway,the U.S. Senate Committee on Commerce, Science andTransportation proposed legislation that would require PHMSAto issue rules for underground gas storage within two years. TheSenate proposal has not been enacted, and it is not clear how theprovision would impact PHMSA’s recent advisory bulletin on thesafety of underground gas storage facilities. In any case, theadvisory bulletin provides an indication of how the agency mayapproach the issue going forward. ■

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Pipeline educationOn February 2, PIOGA held a workshopentitled “So There’s a Pipeline Coming toYour Community” at the Penn TownshipMunicipal Building in WestmorelandCounty. There were 33 people in atten-dance, primarily local government andeconomic-development officials. Theworkshop kicked off with Dan Weaver,PIOGA’s director of public outreach, giv-ing a quick update on the state of theindustry. He was followed by Dan Garcia,chair of PIOGA’s Public Relations, sub-committee, who covered pipeline pres-sures and classifications. Special guestKaren Gentile, community assistance &technical services manager for the U.S.Department of Transportation’s Pipeline& Hazardous Materials SafetyAdministration (pictured at lower right),gave an agency overview and coveredpipeline safety from the federal govern-ment’s aspect. Next up was AmyHopkins from Morris Knowles &Associates, who talked about rights ofway and the rights of the property owner.Closing out the workshop was KenMagyar from Superior Appalachian cov-ering the role of the midstream company.We would like to extend a special thank-you to Amy and Morris Knowles for pro-viding lunch for the group.

February 2014 Page 17February 2016 Page 17

2015-16 legislative session: Halftime review

While there has been no lack of legislation potentiallyimpacting the oil and gas industry before thePennsylvania General Assembly, the current two-year

session has been dominated so far by the still ongoing budgetwarfare between freshman Governor Tom Wolf and theRepublican leadership of the House and Senate. Little else hasbeen accomplished—which, depending on the issue, can be seenas a good or bad thing. As the second half of the 2015-16 legisla-tive session begins, this is a good time to take a look at how leg-islation has fared that would impact the industry.

Severance tax. Governor Wolf campaigned on a promise toimpose a severance tax on natural gas production, pitching thetax as a way of bolstering public education. PIOGA and ourallies strenuously opposed this industry-killing tax, whichbecame a prominent part of Wolf’s proposed fiscal year 2015-16budget.

Two versions of a budget have cleared the GeneralAssembly—one vetoed in its entirety at the beginning of Julyand one on which the governor used his line-item veto inJanuary. The first budget package contained no severance tax.For the second spending plan, the legislature has yet to pass theportion detailing how revenue is to be raised. PIOGA and otherseverance tax opponents continue to work to ensure a productiontax remains out of the revenue plan.

In addition, at least 15 other bills have been introduced thissession providing for a severance tax. None has advanced beyondbeing assigned to a committee.

Property rights. Several bills have been introduced in theHouse and Senate addressing landowner-rights issues rangingfrom amending the Dormant Oil and Gas Act to make it easierfor surface owners to claim mineral rights to changing the Oiland Gas Lease Act to bar the deduction of post-production costsfrom royalty payments.

Of the proposals that fall under the heading of property rights,two have advanced. Senate Bill 147 allows royalty owners toinspect producer records to verify proper payment. All informa-tion provided by the producer is deemed confidential and cannotbe disclosed to another party. In addition, the bill requires thatproceeds from production of oil and gas be paid within 60 daysof production. SB 147 passed the Senate unanimously in January2015 and has remained in the House Environmental Resourcesand Energy Committee since.

Additionally, House Bill 621, received unanimous approval bythe House last May. The bill creates standards for blanket assign-ments of oil and gas leases by county officials. HB 621 allows acounty recorder of deeds to refuse documents that assign morethan 50 oil and gas leases; requires the lessor’s name to beindexed so that property owners can more easily track who ownstheir mineral rights; and allows counties that have not adopted auniform parcel identifier to charge a fee of $6 for each lease thatmust be indexed. The bill is before the Senate EnvironmentalResources and Energy Committee.

Industry development and support. A bill aimed atstrengthening the conventional oil and gas industry receivedunanimous Senate approval in February, but like other legislationmentioned above, has not moved since. SB 279 creates thePennsylvania Grade Crude Development Council, which would:

• Examine and make recommendations on existing regulations

that impact the conventional oil and gas industry.• Explore the development of a regulatory scheme that pro-

vides for environmental oversight and enforcement specificallyapplicable to the conventional industry.

• Promote the long-term viability of the conventional industry.• Assist with and comment on new Department of

Environmental Protection policies impacting conventional pro-ducers.

• Review and comment on all proposed DEP technical regula-tions under the Oil & Gas Act.

• Facilitate cooperation and communication in support of theconventional industry among government agencies and the aca-demic and research community.

• Make recommendations on the promotion and developmentof the conventional industry in Pennsylvania.

• Develop a plan to increase the production of PennsylvaniaGrade crude oil in an environmentally responsible way to moreadequately supply the refineries that depend on Penn Gradecrude.

• Develop a working group with DEP to explore and developan environmentally responsible and economically viable methodof managing produced water.

SB 279 is before the House Environmental Resources andEnergy Committee. At about the same time this legislation wasbeing considered, DEP created the Conventional Oil and GasAdvisory Committee, which performs some of the functions pro-vided for in SB 279.

Also of importance to the traditional industry is an attempt to

Page 18 The PIOGA Press

force DEP to start from scratch with the portion of its Chapter 78rulemaking aimed at conventional oil and gas operations.Language enacted last year directed DEP to divide its Chapter 78rulemakings into separate conventional and unconventional regu-lations. However, many argue that the department did little morethan a word-processing exercise in splitting the rules rather thanlooking at whether the proposed provisions were actually appro-priate to the conventional industry and determining what theimpact of the new requirements would be.

SB 1011 would force DEP to halt the current Chapter 78 rule-making as it applies to conventional operations and begin again,with a new rulemaking and new regulatory analysis, the portionthat determines the cost of complying with the regulations. Thisdirective was included in the portion of the vetoed FY 2015-16budget known as the fiscal code. The fiscal code has not yet beensent to the governor as part of the outstanding pieces of thebudget. PIOGA is working hard to ensure the Chapter 78 lan-guage remains in this legislation.

No action has been taken on several other pieces of legislationencouraging industry development or expansion of natural gasuse, including House Speaker Mike Turzai’s HB 1731, whichwould foster greater natural gas use by creating Keystone EnergyEnhancement Zones (December PIOGA Press, page 1).

Environment and health. A wide variety of proposals havebeen introduced to “solve” various perceived problems related tounconventional gas development. Among these are bills requiringdisclosure of chemicals involved in drilling activities, directingthe Department of Health to collect data on health matters asso-ciated with unconventional gas activities and creating proceduresfor investigating water contamination complaints. None of this

legislation has moved.The only oil and gas related piece of legislation to make it

into law this session has been SB 875, which encourages the oiland gas industry to use mine water by removing some of the lia-bility associated with this water source. Signed into law onOctober 8, the legislation provides that an oil and gas producer isnot liable for the ongoing abatement of mine water when acquir-ing treated water for its own operations. The new law does notlimit an operator’s liability for spills or unlawful releases oftreated mine water or relieve the user from other obligationsunder state law.

Pipeline safety. As would be expected, pipelines are an areaof interest for lawmakers, who have offered proposals like SB557, which imposes an impact fee on new pipeline construction,and SB 803, providing for county tax assessments on pipelinefacilities. The bills have seen no action.

PIOGA has anticipated action on legislation brought backfrom the previous session that would end the exemption of gath-ering lines from mandatory participation in the PA One CallSystem. As with many other legislative issues, the focus on thebudget has set aside consideration of this measure as well as leg-islation extending Pennsylvania Public Utility Commission safe-ty jurisdiction to Class 1 unconventional gathering lines locatedin rural areas.

PIOGA’s Legislative Committee is actively monitoring theseand other proposals and helping coordinate the association’sresponse to the vast array of legislation under consideration. ■

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DEP planning spill alert system

The Department of Environmental Protection is working ona system that will deliver email alerts of well site spills toanyone who signs up to receive such notices.

The Pittsburgh Post-Gazette reported January 19 that DEP’sfinal oil and gas surface operations rulemaking requires operatorsto report spills and leaks electronically within two hours of dis-covery. DEP will include the reports into a spills database thatwill be linked to a public spill reporting and tracking systemavailable online.

The planned system, which DEP says will be similar to itseNOTICE system, is described in the Spill Response section ofthe regulatory analysis form that is part of the Chapter 78/78arulemaking. The reporting requirement applies to both conven-tional and unconventional operators.

Spills of any substance that can pollute the environment thatexceed five gallons and are not completely contained within sec-ondary containment must be reported to DEP. Spills greater than42 gallons must be cleaned up in accordance with the LandRecycling and Environmental Remediation Standards Act (Act2).

“Many commenters were concerned that the public and othergovernment agencies were not made aware of all spills andreleases that occur at both conventional and unconventional wellsites,” the department wrote regarding comments made to theproposed regulations.

Scott Perry, DEP’s deputy secretary for oil and gas, told thePost-Gazette that spills are the second most common environ-mental impact that DEP has seen from oil and gas development,after erosion and sediment control issues. ■

Industry lauds conservation measuresfor northern long-eared bat

PIOGA joins the Independent Petroleum Association ofAmerica (IPAA) in hailing a final conservation rule for thenorthern long-eared bat issued last month by the U.S. Fish

and Wildlife Service.The rule recognizesthat oil and gas activi-ties do not threaten thebat’s population andshould not be subject toincidental take prohibi-tions. IPAA, PIOGAand other industrygroups urged the Fishand Wildlife Service not to list the northern long-eared bat asendangered.

“We welcome the Fish and Wildlife Service’s approach in thisfinal conservation plan for the northern long-eared bat,” said DanNaatz, IPAA senior vice president of government relations andpolitical affairs. “From early on, the service recognized that afungal disease known as white nose-syndrome is the primarythreat to the population of the bat—not human activity or devel-opment. We appreciate the service’s consideration of these sci-

ence-based facts and of the potential economic impacts of a ruleon communities—impacts that go far beyond the oil and naturalgas industry.”

On January 14, the U.S. Fish and Wildlife Service publishedits final 4(d) rule on the northern long-eared bat in the FederalRegister. The final rule exempts oil and gas activities from inci-dental take prohibitions in the same way that forest managementactivities were exempted. A 4(d) rule is one of many tools pro-vided by the Endangered Species Act (ESA) to allow for flexibil-ity in the act’s implementation and tailors regulations to thosethat make the most sense for protecting and managing at-riskspecies.

The U.S. Fish and Wildlife Service in January 2015 publisheda proposed 4(d) rule for the northern long-eared bat, which islisted as a threatened species under the ESA, and opened a pub-lic comment period on the proposal. IPAA and PIOGA joinedwith other groups to specifically request that all oil and gasdevelopment activities be allowed the same incidental take stipu-lations afforded to forest management. Oil and gas activitieshave approximately 150 times less impact on bat habitat than theforest management activities that the Fish and Wildlife Servicehas already exempted.

The real threat to the northern long-eared bat is the pandemicfungal disease white-nose syndrome—not human activity—andan ESA listing offers no tangible benefits to the bat’s populationor the prevention of this deadly disease.

For more information and to read the final rule, visitwww.fws.gov/Midwest/endangered/mammals/nleb. ■

Page 20 The PIOGA Press

PUC reduces impact feeassessments for 2015

Operators of Pennsylvania’s unconventional gas wells willpay less per well in impact fees for 2015 due to lowernatural gas prices last year. Impact fee assessments under

Act 13 of 2012 are keyed in part to the NYMEX Henry Hubaverage annual price of natural gas, which for 2015 was $2.664per Mcf. At that average price, the assessments revert to a lowerfee schedule that had been in effect the previous two years.

It has been argued that the Henry Hub price is not a realisticindex in the Marcellus region, where prices at local hubs are sig-nificantly lower—something that was not as readily apparentwhen Act 13 was being negotiated in the legislature during 2011.

Act 13 also directs the Pennsylvania Public Utility Comm -ission to adjust the fee to reflect upward changes in the Con -sumer Price Index (CPI) for the region, but only if the number ofunconventional wells spud increases over the previous year. Be -cause only 785 wells were spud in 2015, compared to 1,372 in2014, the CPI adjustment was not applied.

The 2015 and 2014 impact fee schedules are shown below.The 2015 assessments were published in the January 30

Pennsylvania Bulletin. Payments by producers are due April 1.Additional information can be found at www.puc.state.pa.us/fil-ing_resources/issues_laws_regulations/act_13_impact_fee_.aspx.

2015 impact fee 2014 impact feeYear of Operation Horizontal Vertical Horizontal VerticalFirst $45,300 $9,100 $50,300 $10,100Second $35,200 $7,000 $40,200 $8,000Third $30,200 $6,000 $30,200 $6,000Fourth $15,100 $3,000 $20,100 $4,000Fifth $15,100 $3,000

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Transitions:Millis resigns from board

We regretfully announce the resignation of Steve Millisfrom the PIOGA Board of Directors. Millis, who ispresident of North East-based Vineyard Oil & Gas

Company, has served for a total of approximately 20 years onPIOGA’s board and that of our predecessor organization, thePennsylvania Oil & Gas Association.

We thank Steve for his long service to the industry.

Happy retirement, Greg

PIOGA sends best wishes to GregMaliken of National Fuel Gas Supply forbeing an invaluable member of our Pipelineand Gas Market Development Committee(formerly Transportation and Marketing) aswell as many other initiatives of PIOGA.

We all appreciate the time he dedicatedto lending his expertise to help our industryaccomplish growth here in Pennsylvania. Most specifically, Gregwas an integral part of gas and electric coordination and reliabili-ty issues, helping the committee understand the role of pipelinecapacity planning, rate/service offerings and infrastructure need-ed for gas fired generation.

Greg retired February 1, after 30 years of service from his jobas a facility planning engineer at National Fuel Gas Supply,where he worked on transmission system expansion planning andutilization. ■

February 2016 Page 21

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Unified Sportsmen of Pennsylvania’sMarcellus Team supports Engelder’s scien-tific assessment of fracking, The Truth andLies about Hydraulic FracturingBy Dr. Charles Bolgiano, Bill Miller, Stephen Mohrand Dr. Dennis Wydra

The USP Marcellus Team Supports Professor TerryEngelder’s current assessment of shale drilling inPennsylvania in his October 2014 commentary, The Truth

and Lies about Hydraulic Fracturing. Terry is a geosciences pro-fessor at Penn State and is often called Pennsylvania’s Father ofMarcellus Shale and is a national expert on Marcellus develop-ment. He and his colleague Dr. Gary Lash, a geosciences profes-sor at the State University of New York at Fredonia, have coau-thored important publications of their Marcellus Shale discovery.

Dr. Engelder describes the rewards and the risks, the long his-tory of burning faucets from natural methane migration longbefore any wells were drilled, six major mistakes by the shaleindustries, and purposeful disinformation by the anti-frackingcrowd. Professor Engelder’s scientific assessment of past frack-ing practices and a new path forward offers leaseholders andtheir neighbors a sign of relief from the unfounded complaints ofthe anti-fracking activists. Out of 7,000 wells drilled by the fallof 2014, only 30 wells caused methane migration, none causedfrac chemicals to migrate to groundwater and no subsurface con-tamination was detected with the remaining 6,970 wells.

There is a current attempt by the Environmental ProtectionAgency’s Science Advisory Board to scare the wits out of countyand city folk everywhere in our nation with their biased responseto the EPA water study with the pending document, Assessmentof the Potential Impacts of Hydraulic Fracturing for Oil and Gason Drinking Water Resources. We do not believe this is a fairassessment of fracking across the nation, especially since thereport is heavy-weighted to focus on Marcellus Shale frackingdangers when it is NOT justified. We believe this current study isneither fair nor balanced in presenting a current assessment offracking in North America.

Our USP Marcellus Team strongly endorses the scientificassessment by Terry Engelder and NOT by the U.S.

Environmental Protection Agency Science Advisory Board’sHydraulic Fracturing Research Advisory Panel’s DRAFTAssessment of the Potential Impacts of Hydraulic Fracturing forOil and Gas on Drinking Water Resources.

Dr. Engelder has taken industry to task for committing sixmistakes:

1. Failure to establish baseline water chemistry before drillingcampaigns.

2. Casing cementing errors.3. Use of air-drilling for the vertical legs of Marcellus gas

wells.4. Lobbying DC to keep the frac chemical recipes secret.5. Use of deep injection wells which caused minor earth-

quakes in Ohio and Texas.6. Use of open pits to store flowback water.You also need to read how the fractivists used false media

techniques and tricks to deceive the public that fracking is a verybad thing.

Read Professor Engelder’s The Truth and Lies aboutHydraulic Fracturing at www3.geosc.psu.edu/~jte2/references/link169.pdf. ■

mwilliams@newprospect.comCell: (814) 449-8822

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Office: (724) 742-1122Fax: (724) 742-4703

NEW PROSPECT COMPANY120 MARGUERITE DRIVE, SUITE 201 • CRANBERRY TOWNSHIP, PA 16066

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Commentary

➤ Read what Energy In Depth has to say about the EPAScience Advisory Board’s recommendations:energyindepth.org/national/epa-advisors-contradict-themselves-on-landmark-fracking-study

Page 22 The PIOGA Press

EQB vote: Continued from page 1

highest water table for pits to help mitigate costs. Impoundmentclosure and vandal-proofing tanks are anticipated to be the high-est costs for unconventional operators.

Three legislators offered 15 proposed amendments intended toadd clarity or consistence, but all were voted down by the EQBas Quigley urged the board accept the rules as presented.

“These updated rules are long overdue and it’s time to getthem across the finish line for the protection of public health, forindustry certainty, and for the protection of our state’s environ-ment,” Quigley said.

The legislators saw it differently.“You’re being asked to ignore your statutory duty, to break

the law about how regulations are written and adopted,”Representative John Maher, chairman of the HouseEnvironmental Resources and Energy Committee, said as heurged the board to reject the rules after unsuccessfully trying toamend them.

Senator Gene Yaw, chair of the Senate EnvironmentalResources and Energy Committee, said DEP had not made thecase that there was a compelling interest for the changes. “Someof these, they’re regulations looking for a problem,” he said.

Both Maher’s and Yaw’s committees, along with theIndependent Regulatory Review Commission will review thefinal version of the regulations, which have been under develop-ment since 2011.

DEP’s advisory groups reiterated to the EQB either outrightopposition to the rule in its final form or the need for furthermodifications. In late December, the Conventional Oil and Gas

Advisory Committee recommended against the board approvingthem, while the Oil and Gas Technical Advisory Board asked formore guidance and for a reconsideration of some changes beforeboard action (January PIOGA Press, page 1). DEP indicated atthe EQB meeting that the department disagrees with its advisoryboards, but that engagement is evident in the final rule.

A motion to for separate votes on the Chapter 78 (convention-al) and 78a (unconventional) versions of the regulations failed,and in the end the EQB voted 15-4 to send the rulemaking on tothe IRRC.

PIOGA reactionPIOGA President & Executive Director Lou D’Amico com-

mented on the EQB action: “The four-year process of develop-ing these regulations has been an exercise in deception, misinfor-mation and disregard of the law by the Department ofEnvironmental Protection that escalated under Governor Wolf.DEP has offered no legitimate explanation for applying the pro-visions of Act 13 intended for the unconventional industry toconventional oil and gas producers.

“The Wolf administration’s blatant disregard of the law andlack of transparency was shown by the Governor’s not-publicly-announced dismissal of all the long-serving members of the Oiland Gas Technical Advisory Board about a month into his term.It was demonstrated again today by the EQB’s refusal to voteseparately on the conventional and unconventional rulemakingsas unquestionably required by Act 126 of 2014, and by theEQB’s rejection of amendments to correct technical deficienciesin the regulations, even after DEP admitted it intends to imple-ment some regulations differently from what the provisions actu-ally state.

“Like the Wolf administration’s persistent calls for a sever-ance tax on an industry in a free fall from low commodity prices,these regulations will accomplish three things: send more hard-working people to the rolls of the unemployed, stifle energy pro-duction in Pennsylvania and reduce the amount of taxes paid tothe Department of Revenue.” ■

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February 2016 Page 23

Page 24 The PIOGA Press

$20

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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: Emkey Energy LLC, emkeyenergy.com

Oil & Gas Trends

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February 2014 Page 25February 2016 Page 25

Natural Gas Futures Closing PricesAs of February 8

Month PriceMarch 2016 $2.121April 2.169May 2.229June 2.297July 2.335August 2.365September 2.386October 2.398November 2.492December 2.695January 2017 2.184February 2.806

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Page 26 The PIOGA Press

Branch John D 2 1/5/16 123-47908 Warren Warren City1/15/16 123-47917 Warren Warren City

Cabot Oil & Gas Corp 3 1/3/16 115-22068* Susquehanna Lathrop Twp1/3/16 115-22092* Susquehanna Lathrop Twp1/3/16 115-22067* Susquehanna Lathrop Twp

Chesapeake Appalachia LLC 1 1/6/16 131-20521* Wyoming Mehoopany TwpChief Oil & Gas LLC 2 1/28/16 113-20337* Sullivan Elkland Twp

1/28/16 113-20338* Sullivan Elkland TwpEQT Production Co 3 1/26/16 125-27818* Washington Carroll Twp

1/26/16 125-27819* Washington Carroll Twp1/26/16 125-27820* Washington Carroll Twp

Range Resources Appalachia 9 1/4/16 125-27547* Washington Blaine Twp1/4/16 125-27604* Washington Blaine Twp1/4/16 125-27605* Washington Blaine Twp1/4/16 125-27606* Washington Blaine Twp1/28/16 125-27613* Washington Chartiers Twp1/28/16 125-27478* Washington Chartiers Twp1/30/16 125-27614* Washington Chartiers Twp1/30/16 125-27616* Washington Chartiers Twp1/31/16 125-27615* Washington Chartiers Twp

Rice Drilling B LLC 11 1/4/16 059-26794* Greene Aleppo Twp1/4/16 059-26795* Greene Aleppo Twp1/27/16 125-27859* Washington N Bethlehem Twp1/27/16 125-27860* Washington N Bethlehem Twp1/27/16 125-27861* Washington N Bethlehem Twp1/27/16 125-27862* Washington N Bethlehem Twp

1/12/16 125-27785* Washington Somerset Twp1/12/16 125-27781* Washington Somerset Twp1/12/16 125-27782* Washington Somerset Twp1/12/16 125-27783* Washington Somerset Twp1/12/16 125-27784* Washington Somerset Twp

Snyder Bros Inc 4 1/20/16 005-31244* Armstrong East Franklin Twp1/20/16 005-31245* Armstrong East Franklin Twp1/20/16 005-31246* Armstrong East Franklin Twp1/20/16 005-31243* Armstrong East Franklin Twp

Stateside Energy Group LLC 7 1/5/16 083-56785 McKean Lafayette Twp1/11/16 083-56786 McKean Lafayette Twp1/13/16 083-56787 McKean Lafayette Twp1/18/16 083-56789 McKean Lafayette Twp1/21/16 083-56790 McKean Lafayette Twp1/26/16 083-56788 McKean Lafayette Twp1/29/16 083-56791 McKean Lafayette Twp

SWN Production Co LLC 1 1/27/16 117-21831* Tioga Liberty TwpTalisman Energy USA Inc 4 1/28/16 115-22146* Susquehanna Apolacon Twp

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Spud Report:January

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.dep.pa.gov/Business/Energy/OilandGasPrograms/OilandGasMgmt/Pages.

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.

January totalsTotal wells 47Unconventional 38Conventional 9Gas 38Oil 9Combination oil/gas 0

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

CONSOL Energy)Sam Fragale (Vice Chairman), Freedom Energy Resources 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.Carl Carlson, Range Resources - Appalachia, LLCMike Cochran, Energy Corporation of AmericaDon A. Connor, Open Flow EnergyTed Cranmer, TBC ConsultingJack Crook, Atlas Resource Partners, LPMichael Donovan, Seneca Resources CorporationRobert Esch, American Refining Group, Inc.Michael Hillebrand, Huntley & Huntley, Inc.Jim Hoover, Phoenix Energy Productions, Inc. Ron McGlade, Tenaska Resources, LLCJim McKinney, EnerVest Operating, LLCGregory Muse, PennEnergy Resources, LLC Stephen Rupert, Texas Keystone, Inc.Jake Stilley, Patriot Exploration CorporationWilliam Stoner, Universal Well Services, Inc.Burt A. Waite, Moody and Associates, Inc.Thomas Yarnick, XTO Energy

Committee ChairsEnvironmental Committee

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

Legislative CommitteeBen Wallace, Penneco Oil CompanyKevin Gormly, Vorys, Sater, Seymour and Pease LLP (ViceChairman)

Pipeline & Gas Market Development CommitteeBob Eckle, Appalachian Producer Services, LLCRon McGlade, Tenaska Resources, LLC (Assistant Chairman)

Health & Safety CommitteePat Carfagna, CONSOL Energy

Meetings CommitteeLou D’Amico, PIOGA

Tax CommitteeDonald B. Nestor, Arnett Carbis Toothman, LLP

Communications CommitteeTerry Jacobs, Penneco Oil Company, Inc.

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 Services and

Finance Matt Benson (matt@pioga.org), Director of Internal Communications

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

DevelopmentDan Weaver (dan@pioga.org), Public Outreach DirectorDanielle Boston (danielle@pioga.org), Director of AdministrationTracy 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)167 Wolf Farm Road, Kane, PA 16735

Phone/fax 814-778-2291© 2015, Pennsylvania Independent Oil & Gas Association

February 2014 Page 27February 2016 Page 27

PIOGA EventsInfo: www.pioga.org/events

PIOGA Spring Meeting April 7, Rivers Casino, Pittsburgh

Summer Golf Outing & PicnicJune 6, Wanango Golf Club, Reno

Pig Roast, Equipment Show and Technical ConferenceJuly 21-22, Seven Springs Mountain Resort Champion

Divot Diggers Golf OutingAugust 25, Tam O’Shanter Golf Club, Hermitage

Industry EventsIPAA Congressional Call-Up

February 29-March 2, Washington, DCInfo: www.ipaa.org/meetings-events

OOGA Winter MeetingMarch 16-18, Columbus, OHInfo: www.ooga.org/events

WVONGA Spring MeetingMay 16-18, Stonewall Resort, Roanoke, WVInfo: www.wvonga.com

IPAA Midyear MeetingJune 27-29, Colorado Springs, COInfo: www.ipaa.org/meetings-events

IOGANY Summer MeetingJuly 13-14, Peek’n Peak Resort, Findley Lake, NYInfo: www.iogany.org/events.php

KOGA 80th Annual MeetingJuly 19-21, Northern Kentucky Convention Center, Covington

Info: koga.memberclicks.net/upcoming-events

IPAA Annual Meeting

November 9-11, The Cloister, Sea Island, GA

Info: www.ipaa.org/meetings-events

Calendar of Events

➤ More events: www.pioga.org

Dan Palmer - Crude Relationship Manager PA / NY

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