Bar institute publishes treatise on state oil and gas law

BY BRENDAN GIBBONS
Times-Shamrock Writer

In 2008, Scranton attorney Stephen Saunders started his own firm to represent landowners swept up in the Marcellus Shale boom.

Six years later, the Marcellus is the largest-producing shale gas basin in the U.S., and Mr. Saunders is co-editor of a Pennsylvania Bar Institute book, “The Law of Oil & Gas in Pennsylvania,” that delves into the whirlwind of legal developments that swirl around this controversial industry.

The book’s set of authors and editors reflects its broad focus. Though Mr. Saunders represents landowners, his co-editor Joel Burcat of Harrisburg-based Saul Ewing LLP represents the industry.
Twenty-six other attorneys representing landowners, gas companies, local governments and environmental groups also contributed sections.

The book covers the industry’s history and technical background, along with titles and leasing and regulatory issues involving federal, state and local governments, plus the two major river basin compacts.

Pennsylvania’s oil and gas law begins in the mid-19th century following Edwin Drake’s oil well in Titusville, the first commercial oil well in the U.S.

Much has changed with the Marcellus. Mr. Saunders and Mr. Burcat spoke about some of the important legal developments since Range Resources drilled the first Marcellus well in 2006.

When landmen from out-of-state companies first poured into counties like Susquehanna, the standard lease they pushed across the table was called “producers 88,” Mr. Saunders said.

Developed in Texas and Oklahoma decades ago (Mr. Saunders thinks the 1960s), the lease contained few addendums to control gas company’s use of the property.

“A lot of people in 2007 didn’t even bother to get a lawyer,” he said. “They signed that standard producers 88 lease which had no addendums and minimum royalty and a fairly low up-front bonus payments.”
Later on, many landowners became more sophisticated and sought legal help when negotiating with gas companies, he said.

Regarding royalty payments, Mr. Saunders said one of the most important Marcellus-era cases was Kilmer vs. Elexco Land Services, a 2010 state Supreme Court decision that held that gas companies could deduct from landowners’ royalty payments certain costs of marketing gas.

Before the decision, hundreds of lawsuits in various courts suggested that a 12.5 percent royalty after deductions failed to meet the standard of the state’s Guaranteed Minimum Royalty Act, he said.

The decision “immediately eliminated hundreds of cases from the docket,” he said.

Another major decision dealt with titles to underground oil and gas estates. In its 2013 Butler vs. Charles Powers Estate decision, the Supreme Court affirmed that a deed for “minerals” does not include oil or gas unless the deed specifically says so.

Marcellus leasing led to quandaries such as whether a person who held the deed to a mineral estate was actually able to lease oil and gas, Mr. Saunders said.

“A lot of people were taking the position if it mentioned minerals, that must include anything under the ground,” he said. “And the court there said no.”

Mr. Burcat, the book’s other co-editor, spoke to the evolving role of state government in regulating the industry and protecting the environment.

In the 19th century, the General Assembly enacted its first handful of laws regulating the industry, he said. These focused on keeping oil from seeping onto the ground and making sure companies plugged old wells, he said.

Then, in 1937, the General Assembly passed the Clean Streams Law, which made it unlawful to discharge pollutants to waters of the Commonwealth, including groundwater. It was one of the most advanced environmental laws in the country at the time, he said.

In the 1960s, the legislature passed the Oil and Gas Conservation Law and the Coal and Gas Resource Coordination Act, he said.

“These were largely enacted to protect oil and gas rights and delineate between oil and gas rights and coal rights,” he said. “They were not necessarily to protect to the environment.”

The Oil and Gas Act of 1984 was an attempt to comprehensively regulate the industry, he said. That law dealt with the drilling process and handling waste, although bits and pieces of other laws and regulations already handled this.

In the full throes of the Marcellus boom, the legislature revisited these issues again with Act 13 of 2012.

“The General Assembly believed, and I agree with them, there was a need to revisit the law,” he said.
Parts of Act 13 overrode local zoning laws. Before it passed, some local governments were using zoning to stop gas development in certain parts of their territories, Mr. Burcat said.

Zoning fights weren’t rampant then, he said, but “it was happening enough that industry was concerned.”
But that portion of Act 13 didn’t survive a Supreme Court decision last December, Robinson Twp. vs. Commonwealth, which found parts of the act unconstitutional.

These are only a few of the topics the book covers. Its first edition published in September, said Elizabeth Ontko, a publications attorney for the Pennsylvania Bar Institute. She said they would try to publish new editions every 12 to 18 months.

“With the advent of Marcellus Shale, we wanted to get all the info on gas and oil practices in Pennsylvania in one treatise,” she said.

Those interested in ordering a copy can call 800-932-4637, she said. But it’s not cheap — one copy costs $259 plus shipping. It also includes a digital copy.