Oil & Gas Alert
March 26, 2009
Authors:
Kenneth S. Komoroski
kenneth.komoroski@klgates.com
+1.412.355.6556
Paul K. Stockman
paul.stockman@klgates.com
+1.412.355.8313
Heather L. Lamparter
heather.lamparter@klgates.com
+1.412.355.8253
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The Pennsylvania Environmental Hearing
Board Takes an Important Step in Resolving
Conflicts Between Coal Mining Operations
and Oil and Gas Operators:
The Board Rules that a Coal Owner or Operator Who Has not
Applied for a Mining Permit Cannot Object to an Oil or Gas
Operator s Application for a Drilling Permit
Because of the vast nature of the Commonwealth s coal resources, oil and gas
operators often face the prospect of drilling through coal strata. As a result, oil and
gas operators and coal mining operations may find themselves in conflict over their
respective rights. As interest in the natural gas-bearing Marcellus Shale formation
has increased, bringing with it a dramatic increase in drilling activity, these tensions
have come to the surface in recent months.
While Pennsylvania law already attempts to reconcile these competing interests, the
scope of each party s right to influence the others actions has not always been clear.
Recently, however, the Pennsylvania Environmental Hearing Board (the EHB ) has
taken a significant step in refining the respective rights of those owning coal interests
and those seeking to develop underlying oil and gas reserves. On March 9, 2009, the
EHB issued an adjudication in Foundation Coal Resources Corp. et al. v.
Pennsylvania Department of Environmental Protection and Penneco Oil Co., Inc.,
holding that a coal operator who had not yet applied for a mining permit did not have
the right to object to an application for a proposed oil and gas well. EHB Docket No.
2006-067-R (consolidated with 2006-068-R through 2006-070-R; 2006-190-R and
2007-184-R). 1
The Relevant Provisions of the Pennsylvania Oil and Gas Act:
The Pennsylvania Oil and Gas Act (the Act ) requires oil and gas operators
applying for well drilling permits to provide notice of the proposed well to coal
owners and operators when the well is within 1,000 linear feet of the outside of the
coal seam boundaries. 2 Act of December 19, 1984, P.L. 1140 § 202(b), as amended,
58 P.S. § 601.202(b). Section 202(b) of the Act gives owners or operators of coal
seams the right to object to the issuance of an oil or gas well drilling permit if the
owner or operator has an operating coal mine or has mining operations that are
already projected and platted but not yet being operated. 58 P.S. § 601.202(b).
Because the Act does not define the phrase already projected and platted but not yet
operating, or any of the phrase s component words, oil and gas operators were
uncertain as to when coal owners could intervene in or interfere with operators
permitting efforts. 3
Oil & Gas Alert
The Foundation Coal Case:
That is precisely the situation in which Penneco
found itself. After having leased mineral interests in
Greene County, Pennsylvania, Penneco applied for
oil and gas well drilling permits for seven wells.
Appellant Foundation Coal, the owner of overlying
coal reserves, filed objections with the Pennsylvania
Department of Environmental Protection (the
DEP ), pursuant to Section 202(b) of the Act.
Although Foundation Coal did not intend to begin
mining operations in the area of the wells until 2016,
had not yet applied for a coal mining permit, and did
not anticipate receiving a permit until 2010, 4
Foundation Coal nevertheless objected to Penneco s
seven well drilling permit applications. Foundation
Coal claimed it had a right to do so on the ground
that it had an already projected and platted but not
yet being operated coal mine.
In its objections, Foundation Coal suggested some
alternate well locations, and requested that numerous
conditions be included in Penneco s drilling permits
(conditions that Foundation Coal wished to compel
Penneco to satisfy at Penneco s own expense). 5
This was the first time DEP had ever received
objections from a coal owner or operator who was
not yet operating a coal mine or who had not yet
applied for a coal mine permit. Although DEP
initially determined that Foundation Coal s mining
plans were too speculative to allow it to object to
Penneco s proposed wells such that it was not
entitled to a conference under Section 202(b) of the
Act DEP nevertheless entertained Foundation
Coal s objections. 6 Ultimately DEP issued all seven
of Penneco s permits. DEP included two conditions
in the seven permits that were derived from
Foundation Coal s original proposed conditions
although DEP required Foundation Coal to bear the
resultant expenses, in the event that it elected to
avail itself of the benefit of the conditions.
Unsatisfied with DEP s decision, Foundation Coal
appealed to the EHB.
After a protracted proceeding extending over three
years, the EHB issued an opinion holding that [a]t a
minimum, a coal company would have to file a
technically complete permit application in order to
be able to object to a proposed well location under
Section 601.202(b) of the Act. 7 The EHB based its
conclusion, in part, on the fact that when a coal
mine is still in the planning stages, it is impossible
to determine the boundaries of the proposed coal
mine. The EHB stated that DEP cannot determine
whether a proposed oil or gas well will have an
impact on a coal mine when the mine is a moving
target. The opinion states that DEP must have a
detailed knowledge about the mine, which would
include information on the length, width, and
location of the panels, before it can properly decide
if a coal owner s objections to a proposed oil or gas
well are valid.
Because Foundation Coal had not yet conducted the
detailed engineering and geological investigations
required for the coal mining permitting process, the
EHB found that Foundation Coal did not qualify as
an owner for a projected and platted but not yet
operating coal mine.
The EHB also disposed of Foundation Coal s other
objections:
The EHB held that the DEP after having held
four informal conferences to consider
Foundation Coal s objections was not
required to hold two additional conferences, for
two additional wells, simply to consider the
identical objections that had been previously
raised and rejected.
The EHB concluded that the DEP acted
reasonably in the inclusion of permit conditions
in Penneco s permits. 8 Even so, the EHB
reiterated the rule that the DEP may not enact
regulations by imposing substantially identical
permit conditions in all permits.
Finally, the EHB held that the DEP acted within
its discretion by not including, verbatim,
Foundation Coal s proposed conditions.
In sum, the Foundation Coal adjudication provides
the first judicial interpretation of the meaning of
Section 202(b) of the Oil and Gas Act. This EHB
decision, which requires that a coal mine owner or
operator must begin the permitting process in order
to object to a proposed oil or gas drilling permit,
establishes a bright line test that will bring clarity
to the regulatory regime and properly define the
respective priorities of competing resource-holders.
March 26, 2009
2
Oil & Gas Alert
1
In the appeal, K&L Gates represented the Independent Oil &
Gas Association of Pennsylvania as an amicus curiae in
support of the permittee Penneco Oil Company, advocating
the statutory construction that the Board ultimately adopted.
2
Act of December 19, 1984, P.L. 1140 § 202(b), as amended,
58 P.S. § 601.202(b).
3
The Coal and Gas Resource Coordination Law (the
CGRCL ) also allows an operator of a coal mine to request a
conference to present its objections to a gas well s location.
Act of December 18, 1984, P.S. 1069 § 12, as amended, 58
P.S. § 512. The CGRCL, however, speaks more clearly, and
expressly limits a coal operator s right to object to those
operations with any operating coal mine or coal mine already
projected and permitted, but not yet being operated, or within
1,000 linear feet beyond such boundaries. 58 P.S. § 502.
4
Foundation Coal filed its Section 202(b) objections in the fall
of 2005, at least five years prior to the earliest anticipated date
for receiving a mining permit.
5
Foundation Coal intends to develop the coal reserves in
Greene County through longwall mining rather than traditional
room and pillar mining. Leaving pillars of coal in a longwall
mine to protect an oil and gas well is more problematic and
expensive than leaving coal pillars in traditional mining
operations.
6
The DEP instead convened a so-called 501 conference,
authorized under Section 501 of the Act, which allows any
person having a direct interest in the subject matter of this act
to request that a conference be held for the purpose of
discussing and endeavoring to resolve by mutual agreement
any matter arising under the provisions of this act.
7
Slip Op. at 3.
8
This issue was not unanimous Judge Labuskes,
concurring in the result, expressed the view that even the
modified conditions imposed by DEP were unreasonable and
unlawful.
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©2009 K&L Gates LLP. All Rights Reserved.
March 26, 2009
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