COAL, OIL, AND GAS COORDINATION IN PENNSYLVANIA

• Jurisdiction: United States

Oil and Gas Agreements: Surface Use in the 21st Century (May 2017)
CHAPTER 6B
COAL, OIL, AND GAS COORDINATION IN PENNSYLVANIA
Kenneth S. Komoroski
Partner
Morgan, Lewis & Bockius LLP
Pittsburgh, PA

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KENNETH S. KOMOROSKI is a partner with Morgan, Lewis & Bockius LLP, in Pittsburgh. With more than 25 years of experience practicing energy and environmental law, Ken represents and advises oil and gas exploration and production, midstream and downstream companies on a variety of issues involving land use and zoning, permits, water usage, wastewater treatment, environmental concerns, royalties, lease terms, local ordinances, oil and gas regulations, and litigation. In the competitive, fast-changing energy arena, he's played a significant role in the growth of the Marcellus, Utica, and Upper Devonian shale industry and has represented the shale industry since 2004. Recently, Ken successfully represented an independent oil and gas operator against claims that hydraulic fracturing caused groundwater contamination. The case tried over the course of 20 hearing days before the Pennsylvania Environmental Hearing Board in the first trial of its kind before the EHB, which found in favor of the operator and against the landowner. Following an appeal, the Commonwealth Court upheld the EHB's ruling. Ken is active in organizations that include the Marcellus Shale Coalition, which he originally formed. Appointed by President George W. Bush in 2003, he served as chairman of the Ohio River Valley Water Sanitation Commission (ORSANCO). He also served as the commission's vice-chairman, secretary/treasurer, and chair of its pollution control standards committee during his ten-year tenure with ORSANCO. Ken brings on-the-ground industry experience to his practice, using his environmental engineering training and background while serving as a production foreman at a large chemical plant complex and as an environmental manager for a Fortune 100 company.

Pennsylvania's Geology and Resource Extraction History

Pennsylvania has a storied history when it comes to coal, oil, and natural gas development. The Drake Well, drilled in 1859 in northwestern Pennsylvania was the first commercial oil well in the United States.¹ In the decades that followed, in addition to its substantial oil production, Pennsylvania held the title as the nation's leading coal producer.² And more recently, as a result of advancements in technologies used to develop shale formations, including use of horizontal drilling and innovative hydraulic fracturing techniques, Pennsylvania has become the second highest producer of natural gas in the United States.³

Pennsylvania's substantial fossil fuel production rates owe to the natural abundance of these resources. As demonstrated in the maps in Figures 1 through 3, coal, oil, and natural gas resources cover large areas of the Commonwealth of Pennsylvania, with considerable overlap (this overlap is understandable/expected from a geologic perspective considering how the formations came to exist originally). Most coal development has taken place within several hundred feet of the surface (although coal seams actually run deeper). (See Figure 4) The depth of natural gas wells drilled into the Upper Devonian, Marcellus, and Utica shales, which vary depending on geographic location and formation, range from a few thousand feet to nearly 14,000 feet below the surface. (See Figure 5) And conventional oil and gas wells have been drilled into sandstones found 1,500 to 21,000 feet below the surface.⁴ With several stakeholders vying for these subsurface resources, coordination can be challenging.

Coordination

Coal, oil, and natural gas operators are of course interested in discrete geological strata. As the Acting Secretary of the Pennsylvania Department of Environmental Protection ("Department") recently pointed out, "natural gas extraction is increasingly intersecting with longwall mining, particularly in southwestern Pennsylvania."⁵ The increase in activity has increased the need for coordination.

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The main concerns resulting from the development of natural gas wells and coal mines are protection of human health, ensuring worker safety and protection of the value of assets. Drilling a wellbore through a mine could endanger miners. It also could hinder the ability to access parts of the coal seam, thereby reducing the mine's profitability. Production of oil and gas through mines also engenders additional worries. Any escape of natural gas, oil, or other flammable substance from the wellbore could cause a safety-related incident in the mine.

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As discussed in the sections that follow, the safety, property, and financial concerns of co-locational operations are addressed by law and can also be addressed by contractual agreement. For example, state statutes outline a process for operators to notify one another about their existing and anticipated operations, to work together to identify site locations that reduce waste without compromising safety, and to seek intervention in the event of an impasse. As a practical matter, owners and lessors/lessees of oil/gas and coal rights are aware of who is operating nearby and often find it in their best interest to reach agreement with predictable outcomes rather than take the risk of leaving the decision to others. This paper offers a roadmap through the legal landscape and an exploration of contractual arrangements relating to coordination between oil and gas operators and coal operators.

What Laws Apply?

Two Pennsylvania statutes are implicated by oil, coal, and natural gas development that is occurring in the same areas:

1. The Pennsylvania Oil and Gas Act ("Oil and Gas Act") (58 Pa. C.S. §§ 3201 et seq.; 58 P.S. §§ 601.101-601.605) - applicable to all oil and gas wells; and

2. The Pennsylvania Coal and Gas Resource Coordination Act ("Coordination Act") (58 P.S. §§ 501-518) - applicable to all oil and gas wells ⁶ that do not penetrate the Onondaga Horizon (or that penetrate the

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