Despite Drilling Downturn, PA Natural Gas Production Grows

On August 1, 2016, The Pennsylvania Department of Environmental Protection (DEP) released its 2015 Oil and Gas Annual Report (Report).[1]  In additional to natural gas production details, the Report provides information on natural gas data trends in Pennsylvania and details on DEP inspections.  2015 was a difficult year for the natural gas industry as it faced record inventory levels, declining prices, and decreases in newly drilled wells.[2]  DEP confirms Pennsylvania was not immune to the national downturn in natural gas drilling with only 1,070 newly drilled wells in 2015 – more than a 50% decrease from the 2,163 new wells drilled in 2014.[3]

However, as the natural gas industry struggles to cope with a downturn in drilling, Pennsylvania maintains its position as the second-largest natural gas producer in the United States.[4]  Pennsylvania was responsible for 4.6 trillion cubic feet of natural gas production in 2015 – a 13% increase from the 4.05 trillion cubic feet of natural gas produced in 2014.[5]  While Marcellus Shale is still the main source of production, the Utica and Point Pleasant shales also contributed to Pennsylvania’s 2015 natural gas output.[6]

In addition to providing details on natural gas drilling and production, the Report highlights DEP’s regulatory compliance activities in 2015.  While the number of well inspections increased in 2015, it wasn’t all bad news for the natural gas industry with DEP reporting a decrease in the number of violations associated with both unconventional and conventional wells.[7]  Even more good news for natural gas producers is that DEP’s collection of fines and penalties related to noncompliance was down to a little over $3.41 million in 2015 – a substantial decrease from the approximate $7.14 million in fines and penalties assessed in 2014.[8]

DEP concluded its annual report with a forecast of DEP initiatives for 2016.  These initiatives include: implementing a methane reduction strategy through gas leak detection and repair measures; revising regulations for subsurface activities associated with oil and gas exploration and development; evaluating the existing oil and gas fee structure; and developing an electronic reporting mechanism for well operators.[9]  These state DEP initiatives come on the heels of the newly enacted federal initiatives of the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA).  For more details on PHMSA’s new regulations, see our “PIPES Act Update” and stay tuned to our blog for more up-to-date information as DEP begins implementation of its 2016 initiatives.


[1] Pennsylvania Department of Environmental Protection, 2015 Oil and Gas Annual Reportavailable at http://www.elibrary.dep.state.pa.us/dsweb/Get/Document-113887/8000-RE-DEP4621.pdf  (2016).

[2] U.S. Energy Information Administration, Average annual gas spot price in 2015 was at lowest level since 1999available at http://www.eia.gov/todayinenergy/detail.cfm?id=24412 (January 5, 2016).

[3] 2015 Oil and Gas Annual Report, at p. 13.

[4] Id. at p. 5.

[5] Id. at p. 6.

[6] Id. at p. 8.

[7] Id. at p. 19.

[8] Id. at p. 21.

[9] Id. at pp. 29-31.

Pennsylvania Supreme Court Held Key Provisions of Act 13 Unconstitutional under the Environmental Rights Amendment (ERA)

The Pennsylvania Supreme Court held key provisions of Act 13 unconstitutional under the Environmental Rights Amendment (ERA) of the Pennsylvania Constitution in a plurality opinion on December 19, 2013.  Act 13 was designed to streamline regulation of the oil and gas industry by setting statewide zoning standards and administrative review procedures, which posed significant financial ramifications for non-compliant municipalities.  The Court specifically held that the provisions mandating municipal zoning standards, such as permitting industrial oil and gas operations as a use of right in every zoning district throughout the state, are unconstitutional. These provisions were overturned because the legislature has abrogated constitutionally proscribed municipal duties to protect the rights guaranteed by the ERA.  The Court also held that provisions of the act imposing a waiver process for mandatory setback from waterways, administered by DEP, also violated the ERA.

The ERA guarantees the people, including future generations, the fundamental right to clean air, pure water, and the preservation of natural resources.  The ERA designates the Commonwealth (which includes municipalities) as the trustee of these resources, to conserve and maintain for the benefit of the people.  This plurality opinion is the first time the Court has addressed how the Commonwealth’s fiduciary duty as a trustee of the environment limits the power of the legislature, in particular its police power to regulate for the general welfare and economic prosperity.

The plurality decided the legislature, while promoting an industry that will admittedly benefit the state’s economy, failed its fiduciary duty because the Act 13 regime does not adequately fulfill its obligations under the ERA “to prevent degredation, diminution, and depletion of our public natural resources.”  This policy decision is based on the finding that “a new regulatory regime permitting industrial uses as a matter of right in every type of pre-existing zoning district is incapable of conserving or maintaining the constitutionally-protected aspects of the public environment and of a certain quality of life. In Pennsylvania, terrain and natural conditions frequently differ throughout a municipality, and from municipality to municipality. As a result, the impact on the quality, quantity, and well-being of our natural resources cannot reasonably be assessed on the basis of a statewide average. Protection of environmental values, in this respect, is a quintessential local issue that must be tailored to local conditions.”  The plurality instructed that to comply with the ERA, the legislature “must exercise its police powers to foster sustainable development in a manner that respects the reserved rights of the people to a clean, healthy, and esthetically-pleasing environment.”

The court also remanded the issues of whether Act 13 is specialized legislation in violation of Art. III Sec. 32 of the Pennsylvania Constitution, and whether Act 13 permits a “taking” by private corporations in violation of the eminent domain doctrine, for reconsideration by the Commonwealth Court.

The full opinion can be found here:

http://www.pacourts.us/assets/opinions/Supreme/out/J-127A-D-2012oajc.pdf?cb=1