The Report also highlights key business opportunities emerging, including the long-awaited announcement by Shell Chemical on June 7, 2016 that it will construct an ethane cracker plant near Monaca, Pennsylvania, a positive development for the U.S. chemical industry and for downstream business opportunities resulting from shale development.
Joseph K. Reinhart, shareholder and co-chair of Babst Calland's Energy and Natural Resources Group, said, "This Report underscores the many dynamics at play for the oil and gas industry, including sustained low commodity pricing, increased operating costs driven by federal and state regulation, inadequate pipeline capacity, environmental and litigation challenges, and a growing number of bankruptcies and asset transactions that have taken place during the past year."
The 68-page Report contains six sections, each addressing key challenges for oil and gas producers and midstream operators.
- Business Issues: Front and Center in a Tough Commodity Price Environment, such as the increasing number of transactions and operational challenges, an update of developments in the law regarding ownership of mineral estates, and the validity and interpretation of oil and gas leases, the rights of creditors in bankruptcy proceedings and the opportunities and risks of acquiring assets from bankruptcy debtors. According to industry sources, 70 North American oil and gas exploration and production companies filed for bankruptcy protection since the beginning of 2015. The insolvency of some production companies is likely to present good opportunities for new players to enter the market. Also, the industry continues to confront workforce issues in the areas of employee health and safety, wage and hour regulation, and employee classification.
- Pipeline Safety Developments noted in this Report focus on the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration's (PHMSA) pipeline safety program. On April 8, 2016, PHMSA issued a long-awaited notice of proposed rulemaking asserting new safety and regulatory requirements for energy operators in response to congressional mandates. More than four years in the making and published against the backdrop of dramatic changes in the natural gas industry, the comment period for these proposed rules is scheduled to end in July. Early in 2016, Babst Calland opened an office in Washington, D.C. where its national pipeline safety practice is led by three Former PHMSA attorneys.
- State and Federal Governments Revise, Expand Environmental Regulatory Requirements including the Pennsylvania Environmental Quality Board's anticipated Chapter 78 and Chapter 78a regulations that remain the focal points of an increasingly stringent regulatory landscape for the oil and gas industry in Pennsylvania. Also, during the past year, significant changes have been made or proposed to federal and state environmental protection standards concerning air, water, and waste management that will affect significant aspects of production and midstream operations.
- Local Government Regulation continues to increase throughout the Appalachian Basin. Municipalities in Pennsylvania continued to take advantage of the Pennsylvania Supreme Court's invalidation of Act 13's statewide zoning limitations by enacting more expansive stringent local oil and gas development regulations in 2015. In West Virginia, industry prevailed in a significant federal court case ruling on June 10, 2016, that an ordinance enacted by the county commission preventing the disposal of oil and gas wastewater through underground injection, is preempted by state and federal law and therefore unenforceable. In Ohio, courts continued to restrain local government regulation of oil and gas production.
- Energy Litigation Developments are more important than ever given the unprecedented economic challenges facing the industry. While Pennsylvania and Ohio have seen a plateau in new suits being filed claiming nuisance and contamination from gas development activities, West Virginia has seen an increase in the number of nuisance suits filed against both upstream and midstream companies. Issues around lease interpretations, forced pooling, and pending royalty cases remain active in the Appalachian Basin. Pipeline construction projects present significant potential exposure in high-stakes construction disputes between project owners, contractors, and suppliers.
- Looking Forward – Our Perspective anticipates that cost control and operational efficiency are likely to remain critical to upstream success in the near term given significant gas reserves in the Appalachian Basin and a significant inventory of gas in storage across the U.S. Pipeline build-out is critical to the Appalachian Basin while downstream opportunities emerge in electricity generation, manufacturing and ethylene production, including the recent announcement of the development of the ethane cracker plant near Monaca, PA, with others under consideration in Ohio and West Virginia.
As market conditions evolve for the oil and gas industry in the Appalachia Basin and throughout the United States, Babst Calland's Energy and Natural Resources Group continues to stay abreast of the many current legal and regulatory challenges facing producers and midstream operators.
Note to Media: Attorney Joseph Reinhart, Co-Chair of Babst Calland's Natural Resources and Energy Group, and other attorneys in the Firm are available to comment on this report.
The Babst Calland Report is provided for informational purposes to our clients and friends, and is not intended to constitute legal advice.
To stay on top of these developments, periodic update articles, news and regulatory information can be found on babstcalland.com or at the Firm's Shale Energy Law Blog shaleenergylawblog.com. Subscribe to receive regular updates.
About Babst Calland
Babst Calland was founded in 1986 and has represented environmental, energy and corporate clients since its inception. The Firm has grown to more than 125 attorneys who concentrate on the current and emerging needs of clients. This team of attorneys possesses extensive experience in energy and natural resources, construction, employment and labor, environmental, land use, litigation, and business transactions and real estate law. Babst Calland was ranked as the Pittsburgh region's largest energy law firm by the Pittsburgh Business Times.
Headquartered in Pittsburgh, Pa., Babst Calland has offices in Charleston, W.Va., State College, Pa., Washington, D.C., Canton, Ohio, and Sewell, N.J. Babst Calland and its attorneys have been acknowledged by various organizations, including: U.S. News & World Report's "Best Law Firms," Best Lawyers®, and Chambers USA's: America's Leading Lawyers for Business. For more information, including attorney profiles, visit babstcalland.com.
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