February 2014 • Issue 46

The

PIOGA pressThe monthly newsletter of the Pennsylvania Independent Oil & Gas Association

(Continues on page 4)

(Continues on page 6)

®

The time is now to file your comments!

Chapter 78 rulemaking comment deadline extended

The public comment period for proposed changes toDepartment of Environmental Protection oil and gas regu-lations has been extended by a 30 days to March 14.

PIOGA is urging members to take advantage of this extra time tosubmit comments detailing how the proposed rules would impacttheir operations.

As detailed in the January PIOGA Press, DEP’s proposalamends 25 Pa. Code Chapter 78, Subchapter C. The new ruleswould change the existing requirements governing surface activi-ties associated with oil and gas well development and establishnew requirements for permitting, wastewater processing and stor-age, and well site containment, among others. The changes willaffect both conventional and unconventional operations.

In announcing the extended comment period, including twomore public hearings on February 10 and 12, DEP cited theoverwhelming amount of interest in these regulations.

“One of the clear messages we’ve been getting through thishearing and comment process, from both industry and environ-mental groups, is that we should hold additional hearings andextend the comment period,” DEP Secretary Chris Abruzzo saidin a news release. “Public participation is a key component whencrafting these regulations, and we are happy to accommodate thisextended period.

“Nine public hearings and a total of 90 days for public com-ment is unprecedented; we are committed to understanding theconcerns of all Pennsylvanians on this important state regula-tion,” Abruzzo added.

Making your voice heardPIOGA’s Environmental Committee is taking the lead in

developing a comprehensive set of formal comments on behalf ofthe association and its members. At the same time, however, it is

essential for individual PIOGA members—along with theiremployees, family members, royalty owners and other industrysupporters—to submit comments as well.

Comments may be submitted by March 14 by mail, email oronline. To learn how to make submissions and find the proposed

Corbett budget proposal includes$75 million from new leasing

Governor TomCorbett’s $29.4-billion spending

plan for the 2014-2015fiscal year includes a pro-posal to generate $75 mil-lion from new natural gasleasing in state forests andparks. To do this, the gov-ernor would rescind athree-year-old moratoriumon additional leasing ofstate forest lands and putin place an executive order allowing leases where surfaceimpacts can be avoided by drilling from adjacent private lands.

The Department of Conservation and Natural Resources(DCNR) has approximately 385,000 of a total of 2.2 millionacres of state forest lands under lease for gas development. Since2008, 215 shale gas wells have been drilled under DCNR’s leas-

es, generating about $80 million in roy-alties and $413 million in bonus pay-ments.

Shortly before leaving office,Governor Ed Rendell issued an execu-tive order prohibiting any new leasing.Corbett plans to modify that moratori-um by allowing leasing in state forestsand parks provided there is no surfacedisturbance. This reportedly would bethe first initiative to allow leasing inparks, where the state owns only 20

PIOGA’s redesigned website . . . . . . . . . . . . . 4Governor touts natural gas . . . . . . . . . . . . . . . 6Legislative update . . . . . . . . . . . . . . . . . . . . . . 92014 tax seminar well-attended . . . . . . . . . . 10Impact fees increase for 2013 payments . . . 11EQB OKs final permit fee increase. . . . . . . . 12New Allegheny County notification rules . . . 12DEP online compliance assistance tools . . . 15Burch named director of operations . . . . . . . 15Joint venture agreements . . . . . . . . . . . . . . . 16State energy plan highlights shale . . . . . . . . 20Natural gas in State of the Union . . . . . . . . . 21

January Spud Report . . . . . . . . . . . . . . . . . . 22PIOGA at the outdoor show . . . . . . . . . . . . . 26Taking a look at LNG fueling. . . . . . . . . . . . . 28CNG stations in the works . . . . . . . . . . . . . . 29Flat rate royalty leases . . . . . . . . . . . . . . . . . 31How factoring helps get it done . . . . . . . . . . 33Member news . . . . . . . . . . . . . . . . . . . . . . . . 352013 permitting and drilling recap . . . . . . . . 36Oil & Gas Stats . . . . . . . . . . . . . . . . . . . . . . . 40Calendar of Events . . . . . . . . . . . . . . . . . . . . 42New PIOGA members . . . . . . . . . . . . . . . . . 43Contact us. . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Page 2 The PIOGA Press

It’s time to try

MAXIMATOR ®

s time to tryService is our

# 1 Priority!

Stocking location in

Fairview PA

Maxpro Technologies814-474-9191

fraciron

www.MaxProTech.com

Hydrostatic Testing

Engineering, Procurement & Construction Services ForNatural Gas Production FacilitiesComplete EPC services for:

LLC

American Energy Independence

itiestttieit

Contact: Matt Vavro - mattvavro@vavcollc.comor Mark Hadley - markhadley@vavcollc.com 724‐285‐6684

February 2014 Page 3

RLA Premier Conference Center28 Meeting RoomsFull Service - One Price

Expectations Exceeded

• Customized Meeting Packages• Retreat-like Setting• Ergonomic Furniture Design• State-of-the-art Technology• Executive Style Food Service

For inquiries or a personal tour, call

724.741.1024events@theRLA.org

Regional Learning Alliance at Cranberry Woods 850 Cranberry Woods Drive Cranberry Township, PA 16066

www.theRLA.org

Page 4 The PIOGA Press

Comment deadline extended: Continued from page 1

regulations, go to www.dep.state.pa.us and click the “ProposedOil and Gas Regulations” button.

Additionally, PIOGA has created a comprehensive Chapter 78rulemaking information and action page in the Member sectionof our website, www.pioga.org. The page includes advice oncrafting comments detailing the impacts of the proposed rules onmember company operations, including sample letters for com-panies and individuals.

As PIOGA Environmental Committee co-chairmen Paul Hartand Ken Fleeman emphasized in an open letter to members inlast month’s PIOGA Press, “We cannot emphasize stronglyenough the impact these regulations will have on our industry,and it is essential that all of us take advantage of the opportunityto shape the outcome of the rulemaking.”

They continued: “Our goal is to help guide the Department ofEnvironmental Protection in developing a set of rules that protecthuman health and the environment but at the same time do notexceed the agency’s statutory authority or impose unreasonableburdens on our industry. We would like thank all PIOGA mem-bers for your past and present support regarding these veryimportant issues.”

Please take the time to make your voice heard now. ■

PIOGA debuts redesigned website

If you’ve surfed your way over to www.pioga.org lately, yousurely have noticed a very different look to PIOGA’s website.We are just wrapping up a major redesign of the site with the

help of member company Asayo Creative.We wanted to freshen the look and make the site better organ-

ized and easier to navigate. We also planned to add a few newfeatures to what has always been a useful, information-packedresource. We hope you’ll agree that we’ve met our goals.

One feature important to us is that the site looks and worksthe same regardless of whether you visit via your computer, iPador smartphone. Increasingly, people are browsing the web ondevices other than traditional computers, and we wanted to makesure our website remains attractive and functional no matter howusers access it.

Here’s a quick tour of some of the features our refurbishedwebsite:

News. While not a “news” site per se, we frequently add newsitems highlighting association events and activities, industrytrends, and governmental actions that affect our industry, amongother things. We encourage you to visit often to see what’s new.

Events. This popular section features PIOGA meetings andevents, as well as non-PIOGA conferences, training opportunitiesand other programs aimed at Pennsylvania’s oil and gas industry.Organizers may submit listings at no charge, provided the eventoccurs in Pennsylvania and is directly related to the industry. Theredesigned website allows more information—including Googlemaps, photos and logos—to be included with event listings.

Service Directory. Like the Events section, the ServiceDirectory is consistently among the five most-visited pages ofour website. It lists all PIOGA Service Provider and ProfessionalFirm members, broken down into business categories. It’s ahandy place to look for products and services needed by compa-nies working in our industry, and is a valuable member benefit.Members are encouraged to check their listing and use the onlinesubmission form to make updates to the business categories andcompany description.

Members. Accessible from a link at the very top of the home-page, the Members section includes a variety of resources justfor PIOGA members, from updates to the membership roster tomeeting presentations to calls for action on government agencyrulemakings. As part of the redesign, we have begun including adetailed list of legislation we are following in Harrisburg, typi-cally updated on a weekly basis. A password is required toaccess posts in the Members section; if you don’t have the pass-

word on file, email matt@pioga.org.Careers. Are you aware that companies can post job openings

and that jobseekers can post their resumes—all at no charge—inthe Careers section of the website? We hope you will take advan-tage of these services when you need to fill positions. The sec-tion also includes information about the variety of career paths

February 2014 Page 5

available in the industry.Education. We recognize that our website is visited by a wide

range of people—from those curious or concerned about oil andgas development in Pennsylvania to seasoned industry profes-sionals. The Education section is aimed more at the general pub-lic, offering a broad overview of how oil and gas are producedand the industry that provide those essential products. As part ofthe redesign, we added an eye-opening list of the many permits,plans and reporting required of oil and gas operators here inPennsylvania.

Natural Gas Market Development. This section of the web-site is an offshoot of work being done by PIOGA’s Pipeline andNatural Gas Market Development Committee (formerlyTransportation & Marketing Committee) to promote increaseduse of Pennsylvania-produced natural gas. A work-in-progressthat will be more fully developed, the web section looks at natu-ral gas used as a transportation fuel, commercial and industrialapplications, and electric generation.

Newsletters. The PIOGA Press continues to be available tovisitors of the site. The last 12 issues can be downloaded asAdobe Acrobat (pdf) files, and the most recent edition is avail-able to read in “electronic magazine” format. A couple of usefulfeatures of either electronic version are the ability to click onweb links in ads and articles and to search for words or phrasesin the document.

Pennsylvania Success Stories. PIOGA wants to share thestories of individual Pennsylvanians and companies that have

benefitted from natural gas development in Pennsylvania. If youwould like to be included, please use the submission form.

Social Media. Click on the icons to follow PIOGA onFacebook, Twitter and other social media services.

More resources. If that’s not enough, you can find a page ofindustry-related web links, commodity prices, a form for request-ing a speaker for a meeting or other event, staff and Board ofDirectors rosters, information about PIOGA’s committees, a listof member benefits and much more.

Pay a visit today! ■

Page 6 The PIOGA Press

Leasing: Continued from page 1

percent of the mineral rights under atotal of 200,000 acres.

Under the governor’s plan, $75million in lease bonus paymentswould be generated in the first yearand would go to the general fund. Infollowing years, the royalties wouldbe dedicated to state park and forestinfrastructure or acquiring privatelyheld land within state park and for-est boundaries.

In a budget brief issued by thegovernor’s office, the proposalcalled for allowing “non-impactdrilling,” defined as “limited drillingactivity on Commonwealth-ownedland, where drilling can occur with-out the need for additional surfaceimpacts.”

“I think it’s very encouraging.It’s highly justified,” PIOGAPresident and Executive DirectorLou D’Amico told the PittsburghTribune-Review. “We haven’t doneanything since Rendell left office.It’s a good thing and, frankly, wayoverdue.” ■

Governor touts natural gas in budget addressHere’s what Governor Tom Corbett had to say about the wide-ranging impacts of natural

gas development during his February 4 budget address:

In the space of a few years, our state has also become the nation’s second-largestproducer of natural gas. Shale gas offers our country a chance at energy inde-pendence and greater economic security—and it’s part of the all-of-the-abovestrategy we’ve put in place. Our state is energy-rich, and we need to harness allour resources—coal, wind, solar, nuclear, hydro and gas.

We are very fortunate, and we can be very proud, that the shale-gas revolution ishappening right here in Pennsylvania. Go to Williamsport, and you won’t doubt thedifference that this industry is making for our state. Talk to our local businesses—the dry cleaner and the diner owner—who are remaking Main Street. Talk to thefolks at Allison Crane, NuWeld and Albert’s Spray Solutions. These companies areseizing this opportunity, hiring local citizens for jobs, and helping to maximize ourenergy resources—responsibly.

Shale gas has made that region one of the top ten fastest-growing local economiesin the country. It’s lifting up entire communities, creating and supporting many thou-sands of jobs well beyond gas production. The revival extends to manufacturing, asleading companies put Pennsylvania back on the map for investment and growth.

And it’s reducing home energy costs, right now, for Pennsylvanians.

Big things are in motion, and shale gas is the power behind it all. It’s great forPennsylvania, and even greater for the United States.

And we were smart enough to welcome that industry, and all those jobs, by work-ing together with local governments, industry and environmental organizations…tocraft a responsible impact fee that, by April will have generated more than $600million in less than three years to benefit every single community in this common-wealth. It’s very simple: Energy equals jobs.

And I thank you for working with me to grow this industry for the people ofPennsylvania, and to deliver energy to the rest of the world.

February 2014 Page 7

Page 8 The PIOGA Press

Pre-Drilling Water Supply Inventory and Sampling

Post-Drilling Complaint Resolution and Investigations

Gas Well Permitting for Conventional and

Unconventional Plays

Development of High Capacity Groundwater Supply Wells

Soil & Groundwater Contamination Investigations

Assistance with Water Sourcing

Water Management Plan Preparation

SPCC/Control & Disposal Plans

Pre-Drilling Water Supply Inventory and Sampling

Post-Drilling Complaint Resolution and Investigations

Gas Well Permitting for Conventional and

Unconventional Plays

Development of High Capacity Groundwater Supply Wells

Soil & Groundwater Contamination Investigations

Assistance with Water Sourcing

Water Management Plan Preparation

SPCC/Control & Disposal Plans

Disposal Well Permitting

Erosion & Sedimentation Control Planning

Fresh Water Determination Studies

Soil and Groundwater Remediation

Stray Gas Migration Investigations

Hydrogeologic Studies

Expert Witness Testimony

Wetland Delineation and Aquatic Surveys

Disposal Well Permitting

Erosion & Sedimentation Control Planning

Fresh Water Determination Studies

Soil and Groundwater Remediation

Stray Gas Migration Investigations

Hydrogeologic Studies

Expert Witness Testimony

Wetland Delineation and Aquatic Surveys

Oil and Natural Gas Development ServicesOil and Natural Gas

Development Services

Meadville PAHouston PAWaverly NY

Visit us online at: www.moody-s.com

Groundwater & Environmental Professionals Since 1891Groundwater & Environmental Professionals Since 1891

February 2014 Page 9

Erosion & Sedimentation Controls Stream Crossing &

Encroachment Permitting Wetland Identi� cation &

Delineation Subsurface & Historical

Investigations Geotechnical Support Water Supply PNDI Evaluations

Wastewater Management Compliance Audits SPCC Plan Preparation NPDES Permitting &

Monitoring Slope Stability & Land

Development Release (Seep/Spill)

Assessments & Remediation Closures at Release Sites

Innovative Solutions and Outstanding Support

22 S. Linden StreetDuquesne, PA 15110

412.469.9331www.kuresources.com

Legislation in the state House of Representatives transfer-ring oversight of the One Call Law and a Senate billencouraging oil and gas operators to use acid mine

drainage water for hydraulic fracturing each won committeeapproval in their respective chambers on January 13. WhilePIOGA supports the Senate bill, the PA One Call measure in theHouse includes a provision strongly opposed by the association.

The Senate Appropriations Committee voted 16-9 in favor ofSenate Bill 411, which encourages operators to use acid minedrainage water for hydraulic fracturing. The bill amends thestate’s Environmental Good Samaritan Act to give oil and gasoperators the same civil liability protections as property ownersand groups that clean up abandoned mine lands and abate acidmine drainage pollution.

SB 411 next goes up for a vote before the full Senate. Thesame legislation was moving through the General Assemblybefore the end of the last session derailed it.

The bill is clearly a win-win, providing operators with anothersource of water for well stimulation while at the same time help-ing alleviate the impacts of acid mine drainage, which impairs anestimated 5,000 miles of Pennsylvania streams and rivers.Additionally, a recent Duke University study found that blendingacid mine waters with hydraulic fracturing wastewater could be“an effective management practice” to remediate radioactivitylevels and use acid mine drainage water.

Oddly enough, some environmental groups oppose the legisla-tion. A representative of the Delaware River Network claimedthe SB 411 “incentivizes taking polluted water and moving it to

unpolluted watersheds without requiring anything be done toclean it up.”

The House Consumer Affairs Committee, meanwhile, unani-mously approved House Bill 1607 when it came up for a votelast month. The legislation transfers enforcement of the One CallLaw from the Department of Labor and Industry to thePennsylvania Public Utility Commission—a change that PIOGAsupports.

Unfortunately, the bill as proposed also would end an exemp-tion of oil and gas gathering lines from mandatory participationin the PA One Call program (December 2013 PIOGA Press,page 15). From the time the bill was introduced, PIOGA hasurged lawmakers to continue the exemption at least for conven-tional operators.

PIOGA continues to work with other groups representing theconventional oil and natural gas industry in opposing HB 1607.In late January, PIOGA, the Pennsylvania Independent PetroleumProducers and the Pennsylvania Grade Crude Oil Coalition sent amemo to members of the House of Representatives to informthem of the conventional industry’s concern with this legislation,which attempts to address in a costly and inefficient manner apublic safety problem that does not exist.

We will be providing additional, detailed information support-ing our position to retain the status quo and to respond to mis-statements by supporters of this legislation, primarily thePennsylvania Public Utility Commission and the PA One CallSystem. ■

Legislative update: One Call, acid mine water bills win committee approval

Page 10 The PIOGA Press

On January 21, over 45 people attended the annual oil andgas tax and accounting seminar sponsored by PIOGA’sTax Committee and member company Arnett Foster

Toothman, PLLC.Participants received a full review of all areas of federal and

Pennsylvania income tax, Pennsylvania and West Virginia pro-duction taxes, oil and gas accounting, revenue distribution, duediligence audits, joint operating agreement and other contractmanagement, and general record keeping in the oil and naturalgas industry. Throughout the seminar, there was always a specialemphasis on ways companies can save money and reduce theirtax obligations. A key part of the day focused on how to reduceincome and estate tax burdens concerning the sale and transfer ofoil and gas leases.

PIOGA’s Tax Committee chair, Don Nestor from ArnettFoster Toothman, was the lead presenter of the seminar and wasjoined by Charlene Tenney, Bill Phillips, Ryan Nestor, KevinHighlander and Marlin Witt.

Participants left equipped with all the information resourcesthat included easy access to data such as industry definitions,accounting disclosures, income tax elections, production tax fil-ing updates, and other useful industry information. Accountantsand attorneys also received continuing education credits forattending the seminar.

PIOGA extends a sincere thank-you to the team from ArnettFoster Toothman for all their efforts in organizing this annual oiland gas tax and accounting seminar and providing this valuableeducational event to PIOGA members and guests. ■

Don Nestor from Arnett Foster Toothman, PLLC presents on oiland gas tax and accounting topics during the seminar.

3300 Conshohocken State Road, Suite 405, West Conshohocken, PA 19428

Adrianne Vigueras

Vice President Energy Division

avigueras@ecbm.com

888-313-3226 ext. 1335

Side by Side Side by Side Side by Side

With YouWith YouWith You

Into the FutureInto the FutureInto the Future

Insurance Brokers & Consultants

Digging Out Potential SavingsDigging Out Potential SavingsDigging Out Potential Savings

PIOGA’s 2014 oil and gas tax and accounting seminar prepares companies

February 2014 Page 11

Impact fee levels increasefor 2013 calendar year

The Pennsylvania Public Utility Commission has releasedthe impact fee amounts unconventional well operatorsmust pay for the 2013 calendar year. Based on an average

price of natural gas of $3.562 per Mcf in 2013, impact fees areadjusted upward from 2012 levels. A horizontal well spud in2013 will pay a first-year fee of $50,000, while unconventionalvertical wells pay $10,000.

The 2012 amounts were $45,000 for a first-year horizontalwell and $9,000 for an unconventional vertical well. The averageprice of gas in 2012 was $2.78.

Act 13 of 2012 directs the PUC to adjust the impact fees eachyear based on the average price of gas and the consumer priceindex. The information appears in the February 1 PennsylvaniaBulletin.

2013 impact fee scheduleYear spud Horizontal Vertical – producing 2013 $50,000 $10,0002012 $40,000 $8,000Prior to 2012 $30,000 $6000

The PUC notice indicated that 1,205 unconventional wellswere spud in 2013, compared to 1,347 the previous year.Because the number of wells drilled last year was less than the2012 total, there was no consumer price index adjustment to thefees.

Impact fee payments are due to the PUC on April 1 each year.More information is available at www.puc.state.pa.us/filing_resources/issues_laws_regulations/act_13_impact_fee_.aspx. ■

Page 12 The PIOGA Press

Members of the Environmental Quality Board (EQB) onJanuary 21 approved a final rulemaking package thatwould increase the fees for unconventional natural gas

well permits to support the Department of EnvironmentalProtection’s oil and gas management program.

Under the proposal, the fee structure for unconventional natu-ral gas wells wouldchange from a slidingschedule based on wellbore length to a fixed feeof $5,000 for non-verticalunconventional wells and$4,200 for vertical uncon-ventional wells.

Permit applicants forconventional wells willsee no impact from therulemaking.

DEP requested the feeincrease as necessary tosupport current oil and gasprogram activities and tofund additional positionsfor such activities as per-mitting, inspections,enforcement and informa-tion technology.

At PIOGA’s request,

Allegheny County implementsnotification requirements

New air-quality regulations are now effective in AlleghenyCounty, requiring that operators of unconventional wellsprovide the Allegheny County Health Department with

notice prior to four stages of development. The notificationrequirements, under consideration for about two years, wereapproved by the county council on December 27 and becameeffective January 7.

Operators must notify the department in writing no less than24 hours before beginning:

—initial well site construction;—drilling;—hydraulic fracturing; and—flaring or venting during completion. There is an exemption

for emergency situations where immediate flaring is necessaryfor the safety of the site.

Also required are reporting of breakdowns of air-pollutioncontrol equipment, process equipment or anything else that has“a substantial likelihood of causing the emission of air contami-nants in violation of [the county air pollution regulations], or ofcausing the emission into the open air of potentially toxic or haz-ardous materials.” In such cases, notification must come withintwo hours of the breakdown.

The health department indicated it would be contacting opera-tors of unconventional wells in the county to notify them of thenew reporting requirements. The department’s air quality staffintends to set up emissions monitoring equipment each time anotification is received.

Allegheny is one of two counties in the state that monitors,regulates and enforces its own air quality. ■

Superior Environmental and Geotechnical Services at a Manageable Price

PA Office 412.722.1970

Amy Veltri, P.E., BCEE Jim Daley, PMP

WV Office 304.201.5180

John Nottingham, P.E.

�Environmental Compliance �Environmental Permits & Audits �Environmental Site Assessments �Environmental Sampling �Geotechnical Engineering �Subsurface Investigations & Drilling �Foundation & Earthwork Design �Construction Monitoring

www.NGEconsulting.com

NGE is a certified Woman-Owned Small Business

the EQB agreed to clarify the definition of a conventional well sothat secondary and tertiary recovery wells and disposal wellswould be considered conventional (December 2013 PIOGAPress, page 7).

The rulemaking will become effective on approval by theIndependent Regulatory Review Commission, House and SenateEnvironmental Resources and Energy committees, and theAttorney General’s Office, followed by publication in thePennsylvania Bulletin this spring. ■

EQB adopts final regulation to increase unconventional well permit fees

February 2014 Page 13

DIRECTIONAL SURVEY PLUS

Page 14 The PIOGA Press

February 2014 Page 15

New DEP online complianceassistance tools

The Department of Environmental Protection recentlyadded two oil and gas compliance assistance tools to itswebsite.

First, DEP has posted a new series of online video trainingtutorials to provide further guidance on how to properly com-plete quarterly well inspections required under the MechanicalIntegrity Assessment (MIA) program. MIA is a regulatory-basedprocess used to inspect, assess and record quarterly well integritydata for operating oil and gas wells.

The tutorials are located on DEP’s website atwww.portal.state.pa.us/portal/server.pt/community/industry_resources/20301/Mechanical_Integrity_Assessment/1608460.

All visitors to the site are encouraged to view the “WellTraining Intro” tutorial. Then, they can choose a tutorial that cor-responds to a specific well construction design. The tutorialswalk users through the process of filling out the appropriateforms for their specific well type and explain in detail how to fillout the appropriate Excel spreadsheets.

DEP is continuing to add new tutorials, so users should checkthe site regularly for updates.

Also available at the webpage above is a revised version of itsForm B used in determining the mechanical integrity of wells.The update is dated 1/28/14.

Secondly, DEP recently prepared and posted a frequentlyasked questions (FAQ) fact sheet about GP‐5 and ExemptionCategory No. 38. GP-5 is a general plan approval and/or general

Burch named director ofDEP oil and gas operations

Kelly Burch, currently director of the Department ofEnvironmental Protection northwest regional office, is mov-ing to the newly created post of Executive Director for Oiland Gas Operations. In this role, he will lead the implementa-tion of oil and gas programs in DEP’s regional offices, and inparticular will serve as a point of contact for members withconventional well drilling issues.

“His years of experience and familiarity with conventionalwell development will be a valuable asset to both DEP’sOffice of Oil and Gas Management as well as to the conven-tional well drilling industry,” DEP Deputy Secretary ScottPerry told us in making the announcement.

Burch can be contacted at keburch@pa.gov.

Services and products include:

Regional Locations:

Pittsburgh, (

Greensburg

Wheeling

Erie

Williamsport,

Providing Solutions for the Marcellus/Utica Shale

operating permit for midstream natural gas gathering, compres-sion and/or processing facilities that are minor air contaminationfacilities. Exemption Category No. 38 of the Air Quality PermitExemption List applies to sources located at a well pad.

The FAQ provides a clear explanation of the applicability andrequirements of the general permit and answers questions oftenposed by applicants. The FAQ can be found atwww.dep.state.pa.us/dep/deputate/airwaste/aq/permits/gp/FAQ_GP-5_and_Exemption_38_Final_122713.pdf. ■

Page 16 The PIOGA Press

Leader in Pit Liners, Frac Tank Liners & Pads

Stock readily availableFrac Tank Liners

• Large prefabricated one-piece liners • Durable, economic, and proven • No on-site seaming required • Superior resistance to brine, frac fluids, and chemicals

Other Products • Frac Tank Pads • Well Pad Liners • Pit Liners • Secondary Containment

ONE-DAY SHIPPING TO MARCELLUS AND UTICA

OH PANew distribution center in

Weirton, WVWV

LayfieldGroup.com/OilandGas

Call Layfield 304.975.2507

MARCELLUS / UTICA SHALE FORMATIONS

Operating without a jointventure or joint operatingagreement? Your leaseholdinterest could be at risk

For financial, operational or business purposes, two or moreoperators may concurrently own oil and gas leaseholdinterests to the same property. Concurrent ownership of the

leasehold can occur when: (1) multiple co-tenants in the oil andgas estate each execute leases to different lessees; or (2) one les-see holds all leasehold interest, and subsequently assigns a par-tial interest to a third party. Operators often enter into joint ven-ture (JV) or joint operating agreements (JOA) to coordinate theirrights and obligations regarding development of the acreage.

In the absence of such an agreement, operators risk maintain-ing compliance with the lease and may result in termination ofthe lease. This article discusses the risks of unilateral develop-ment of oil and gas in Pennsylvania by less than all leaseholdinterest holders in the absence of a JV or JOA.

We begin our analysis by determining whether an operatormay develop the oil and gas when its lease covers only a partialinterest in the oil and gas estate. In McIntosh v. Ropp, thePennsylvania Supreme Court adopted the majority rule that oneco-tenant may develop or lease his interest in the oil and gaswithout the consent from all other co-tenants.1 Due to the “fuga-cious nature of oil and gas,” the court reasoned that it is “pecu-liarly necessary that co-tenants should not be unduly restricted in

the enjoyment” ofthe oil and gas.2

This rule allows aco-tenant to enjoyhis interest in the oiland gas and to pre-vent any loss fromdrainage in the eventthe other co-tenantsare unwilling to exe-cute an oil and gaslease. Accordingly,an operator may produce oil andgas despite leasing only a partialinterest in the oil and gas estate.Unlike the states that follow theminority rule, such as West Virginia,3 the operator will not beliable for an action of trespass or waste in Pennsylvania. Thisconcept is particularly important in situations where differentlessees are operating under separate leases from multiple co-ten-ants covering the same land.

Issues regarding different lessees operating underseparate leases from multiple co-tenants

In the absence of a JV or JOA, when co-tenants grant separateleases to different lessees, the lessees may encounter scenarioswhich could affect the validity of their lease. One such scenariois how an inactive or non-operator’s lease will be affected by thedrilling, production or payment of rentals by an operating lessee.In other words, does the payment of rentals or the production of

Christopher J.Hall

Authors:

Matthew L.Lambach

February 2014 Page 17

oil and gas by one lessee keep in force the lease of the other?Pennsylvania courts have yet to address this issue. The answerlikely turns on the language of the lease at issue.

The Supreme Court of Oklahoma addressed this question andfound the language of the lease at issue to be critical. In Earp v.Mid-Continent Petroleum Corp., et al., the Supreme Court ofOklahoma held the production by one lessee did not hold thelease of the other lessee.4 The court strictly interpreted thehabendum clause of the lease at issue. The habendum clause stat-ed that the lease shall remain in force as long as oil and gas isproduced “by the lessee” (emphasis added).5 The court reasonedthat the habendum clause was drafted so that the term of thelease would be extended by production by the lessee’s effortsonly. The court distinguished its interpretation of the habendumclause from its interpretation of the delay rental clause, statingthat the delay rental clause as written, allowed the non-operator’slease to remain in effect during the primary term by the opera-tor’s payments under its lease, because the clause was silent as towho shall drill a well or make a rental payment.6 In the absenceof the phrase “by the lessee” within the habendum clause, thecourt likely would have held that the lease of the non-operatinglessee was held beyond the primary term by the production fromthe other lessee.

Earp demonstrates the importance of critical drafting in leasesand how simple phrases like “by the lessee only” can substantial-ly affect the non-operating lessee’s rights and obligations. If thelessees in Earp entered into a JV or JOA, the parties may havedesignated one operator to make the rental payments or producethe oil and gas on behalf of all the parties. Instead, the courtlooked to the language of the non-operating lessee’s lease to

determine whether it complied with the terms of its lease.Although the foregoing has not been addressed in Pennsylvania,it should be noted that Pennsylvania courts will construe leasesin favor of the lessor and against the lessee, in determining theparties’ intent.7

Another scenario which two lessees could encounter, involveswhether a release or breach by one lessee affects the lease of theother. Under the above analysis, the remaining lease will notautomatically terminate because Pennsylvania follows the major-ity rule which allows co-tenants to execute separate leases and tounilaterally develop the oil and gas. If the lessees entered into aJV or JOA, the remaining lessee may be provided some recourseor protection to minimize the risk of adverse claims arising outof the other lessee’s failure to maintain its lease.

Issues regarding multiple leasehold owners undera single lease

Concurrent ownership of the leasehold also results when onelessee holds all leasehold interest, and subsequently assigns apartial interest to a third party. In the absence of a JV or JOA,actions by one lessee may result in the termination of the leaseas to all lessees.

One such example regards a breach or release of the lease byone lessee, and whether the lease terminates as to the remaininglessee. The result hinges on whether the obligation is divisible orindivisible. Obligations set forth in a lease are generally indivisi-ble. This includes the habendum clause, the rental payments androyalty payments. If one lessee fails to comply with an indivisi-ble obligation, the lease will terminate as to all lessees. Forexample, if one lessee pays its pro rata share of the delay rental

Page 18 The PIOGA Press

and one lessee fails to pay its share, the lease can terminatebecause a partial payment may not satisfy the rental paymentobligation. An exception might be where a lease contains a pughclause, whereby one lessee’s breach as to certain depths, forma-tions or acreage might not result in the termination of theremaining leasehold. Additionally, other jurisdictions have gener-ally considered implied covenants to be divisible.8 Thesecovenants include the implied duty to reasonably develop, theimplied duty to explore and the implied duty to protect againstdrainage. Generally, when a lessee breaches such covenants, thecourts may cancel the lease as to the undeveloped acreage or for-mations, whereas the developed acreage or formation remainssubject to the lease.

Another risk of concurrent leasehold ownership, involves thepossibility of being subject to a washout transaction. A washouttransaction is the elimination of an overriding royalty interest orworking interest by the surrender of a lease and a subsequentacquisition of a leasehold covering the same acreage, free ofsuch interest.9 Generally, unless expressly provided, the assignorowes no fiduciary duty to the assignee of a leasehold interest. Ifthe lessees do not execute a JV or JOA, the assignee must lookto the language of the assignment for protection against washouttransactions. The assignee may require that the assignment con-tain terms which directly or indirectly limit the use of a washout

transaction. This may include the right-of-first-refusal to acquirethe lease if the assignor decides to release or surrender the lease,so long as the lease remains in force and effect. WhilePennsylvania courts have not addressed this issue, the validity ofwashout transactions are being litigated in other oil and gasstates, including Texas.10

Concurrent ownership of the leasehold estate allows operators toshare the risks and expenses of oil and gas development. Whenconcurrent leasehold owners operate unilaterally in the absenceof a JV or JOA, their leasehold interest may be subject to addi-tional risks. It is imperative to be familiar with the language inleases or acquisition instruments, including assignments, whichwill determine the parties’ rights and obligations if the leaseholdis unilaterally developed. A thorough JV or JOA can help avoidthe risks involved in unilateral development of leasehold inter-ests. ■

1 McIntosh v. Ropp, 233 Pa. 497 (1912).2 Id. at 514.3 See Williamson v. Jones, 27 S.E. 411 (W. Va. 1897). See also Law v. Heck OilCo., 145 S.E. 601 (W. Va. 1928).4 Earp v. Mid-Continent Petroleum Corp., et al., 167 Okla. 86 (1933).5 Id. at 95.6 Id.7 Burgan v. South Penn Oil Co., 243 Pa. 128 (1913).8 See 8-D Williams & Meyers, Oil and Gas Law Scope (2012), for a discussionof applicable case law. 9 2 Williams & Meyers, § 402.2 (2012).10 See Stroud Production, L.L.C. v. Hosford, 405 S.W.3d 794 (Tex. App. 2013).

ernstseed.comsales@ernstseed.com800-873-3321814-336-5191 (fax)

ResponsibleReclamationAn opportunity to restore diversity

Support the companies that support yourassociation with their advertising

February 2014 Page 19

Page 20 The PIOGA Press

By Joe MassaroEnergy In Depth

Pennsylvania Governor Tom Corbett recently released hisstate energy plan, focusing heavily on continued shaledevelopment in the Keystone State. Because of

Pennsylvania’s abundant natural resources, Governor Corbettcalled for an “all of the above and below” approach to energy,harnessing the power of traditional fuels and new technologies.The plan focuses on energy as a means toward continuedemployment growth in the Commonwealth, using the apt slogan,“Energy Equals Jobs.”

According to the details of the plan, Pennsylvania ranks as:• The second largest energy field in the world• The fourth largest state in the nation in terms of total energy

production (3,858 BTU)• The second largest natural gas producer among all 50 statesThe state energy plan also notes that the Keystone State “went

from importing 75% of its natural gas just five years ago to nowbeing a net exporter of natural gas for the first time in 100years.” This is clearly due to the development of shale resources,as the plan highlights:

“The exploration and production of natural gas fromunconventional shale formations, such as the Marcellusand Utica, is nothing short of a game-changer. Advancesin horizontal drilling and hydraulic fracturing tech-niques have enabled the safe extraction of natural gasfrom shale reserves once thought untouchable.”

Development of abundant and affordable natural gas fromshale formations like the Marcellus has led to a more secureenergy future for the entire country— even more so here inPennsylvania. More natural gas production has created a lessvolatile energy market, leading to more affordable energy billsfor Pennsylvania consumers. As the report notes:

“The abundant electric generation resource has loweredwholesale electricity prices over 40% in just the pastfive years. This decrease has saved the averagePennsylvania household nearly $1,000 a year and con-siderably lowered energy costs for commercial andindustrial customers” (emphasis added).

The state energy plan also touts the positive environmentalimpacts that shale development has brought to Pennsylvania.Indeed, consuming domestically produced natural gas has led toimproved air quality and helps lower greenhouse gas emissions.

Shale development has also fueled a manufacturing revolutionhere in the United States. Wet gas—ethane, butane, propane andpentane—developed in the southwestern part of the state is usedas a feedstock for plastics and other chemical manufacturers,which means low-cost natural gas means lower costs for manu-facturers. As we all know, an increase in manufacturing opera-tions also provides significantly more job opportunities for hard-working Americans.

Here are some more highlights from the state energy plan:• “Over 240,000 Pennsylvanians work in core and ancillary

jobs associated with the oil & gas industry, with core wages sub-stantially higher ($84,388) than a statewide average of $48,824.”

Pennsylvania State Energy Plan backs shale development

FLEXIBILITYto offer proven, complete

from and to

from and to .

HOUSTON | NEW ORLEANS | COVINGTON | BATON ROUGE | LAFAYETTETULSA | DENVER | PITTSBURGH | BOGOTA

.

February 2014 Page 21

• “By 2020, shale gas development will contribute nearly $14billion in economic activity to Pennsylvania and generate $5.6billion in federal, state and local taxes.”

• “Total industry investment by exploration and productioncompanies is projected at $13.5 billion in 2013.”

• “Shale gas development could help grow Pennsylvaniaemployment by 570,000 jobs or more by 2020.”

• “The total contribution to Pennsylvania’s economy from

shale gas development is projected to increase nearly six-fold toover 442 billion annually, from 2010 to 2035.”

As support for shale development continues to grow acrossthe Keystone State, so too will the economic opportunities thataccompany responsible production. Thanks to shale, high-payingjobs and lower energy costs have become a reality for those liv-ing in Pennsylvania. And thanks in a large part to increased natu-ral gas use, over 500 million tons of emissions have beenremoved from the Commonwealth’s air.

As the state energy plan describes, developing natural gasfrom the Marcellus Shale is a win not only for our economy, butalso for our environment. ■

State of the UnionWhat the president said about natural gas

You probably heardnatural gasdescribed as “a

big winner” in PresidentObama’s January 28 Stateof the Union address. Ifyou missed the president’sannual speech to Congress, here’s what he said about our indus-try and what we produce:

Today, no area holds more promise than our invest-ments in American energy. After years of talking aboutit, we’re finally poised to control our own energy future.We produce more oil at home than we have in 15 years.We have doubled the distance our cars will go on a gal-lon of gas, and the amount of renewable energy we gen-erate from sources like wind and solar—with tens ofthousands of good American jobs to show for it. Weproduce more natural gas than ever before—and nearlyeveryone’s energy bill is lower because of it. And overthe last four years, our emissions of the dangerous car-bon pollution that threatens our planet have actuallyfallen....

Now, in the meantime, the natural gas boom has ledto cleaner power and greater energy independence. Weneed to encourage that. And that’s why my administra-tion will keep cutting red tape and speeding up new oiland gas permits. That’s got to be part of an all-of-the-above plan. But I also want to work with this Congress

➤ Find it online: energy.newpa.com/wp-content/uploads/2014/01/PA-State-Energy-Plan-Web.pdf

to encourage the research and technology that helps nat-ural gas burn even cleaner and protects our air and ourwater.

In fact, much of our new-found energy is drawnfrom lands and waters that we, the public, own together.So tonight, I propose we use some of our oil and gasrevenues to fund an Energy Security Trust that willdrive new research and technology to shift our cars andtrucks off oil for good. If a nonpartisan coalition ofCEOs and retired generals and admirals can get behindthis idea, then so can we. Let’s take their advice andfree our families and businesses from the painful spikesin gas prices we’ve put up with for far too long. ■

Page 22 The PIOGA Press

Anadarko E&P Onshore LLC 3 1/13/14 081-21320* Lycoming Lewis Twp1/14/14 081-21321* Lycoming Lewis Twp1/15/14 081-21322* Lycoming Lewis Twp

Cabot Oil & Gas Corp 13 1/29/14 115-21482* Susquehanna Bridgewater Twp1/29/14 115-21533* Susquehanna Brooklyn Twp1/29/14 115-21534* Susquehanna Brooklyn Twp1/29/14 115-21535* Susquehanna Brooklyn Twp1/29/14 115-21536* Susquehanna Brooklyn Twp1/29/14 115-21537* Susquehanna Brooklyn Twp1/29/14 115-21538* Susquehanna Brooklyn Twp1/29/14 115-21539* Susquehanna Brooklyn Twp1/29/14 115-21540* Susquehanna Brooklyn Twp1/17/14 115-21471* Susquehanna Jessup Twp1/2/14 115-21463* Susquehanna Lathrop Twp1/2/14 115-21464* Susquehanna Lathrop Twp1/2/14 115-21465* Susquehanna Lathrop Twp

Catalyst Energy Inc 8 1/10/14 083-56292 McKean Lafayette Twp1/14/14 083-56293 McKean Lafayette Twp1/24/14 083-56201 McKean Wetmore Twp1/20/14 121-45407 Venango Cranberry Twp1/22/14 121-45406 Venango Cranberry Twp1/31/14 121-45408 Venango Cranberry Twp1/3/14 121-45504 Venango Rockland Twp1/8/14 121-45506 Venango Rockland Twp

Chautauqua Energy Inc 1 1/15/14 123-47472 Warren Brokenstraw TwpChesapeake Appalachia LLC 18 1/4/14 015-22418* Bradford Terry Twp

1/31/14 015-22843* Bradford Terry Twp1/7/14 113-20193* Sullivan Cherry Twp1/20/14 115-21626* Susquehanna Auburn Twp1/20/14 115-21622* Susquehanna Auburn Twp1/20/14 115-21627* Susquehanna Auburn Twp1/20/14 115-21625* Susquehanna Auburn Twp1/20/14 115-21624* Susquehanna Auburn Twp

1/22/14 115-21601* Susquehanna Auburn Twp1/22/14 115-21603* Susquehanna Auburn Twp1/22/14 115-21600* Susquehanna Auburn Twp1/22/14 115-21602* Susquehanna Auburn Twp1/8/14 131-20340* Wyoming Meshoppen Twp1/8/14 131-20341* Wyoming Meshoppen Twp1/8/14 131-20376* Wyoming Meshoppen Twp1/11/14 131-20379* Wyoming Windham Twp1/11/14 131-20381 Wyoming Windham Twp1/13/14 131-20378* Wyoming Windham Twp1/13/14 131-20380* Wyoming Windham Twp

Chevron Appalachia LLC 10 1/3/14 051-24589* Fayette Redstone Twp1/4/14 051-24588* Fayette Redstone Twp1/5/14 051-24590* Fayette Redstone Twp1/6/14 051-24591* Fayette Redstone Twp1/9/14 051-24571* Fayette Redstone Twp1/10/14 051-24572* Fayette Redstone Twp1/13/14 051-24573* Fayette Redstone Twp1/14/14 051-24574* Fayette Redstone Twp1/15/14 051-24556* Fayette Redstone Twp1/16/14 051-24575* Fayette Redstone Twp

Chief Oil & Gas LLC 9 1/22/14 015-22780* Bradford Monroe Twp1/22/14 015-22781* Bradford Monroe Twp1/30/14 131-20365* Wyoming Lemon Twp1/30/14 131-20366* Wyoming Lemon Twp1/30/14 131-20367* Wyoming Lemon Twp1/30/14 131-20368* Wyoming Lemon Twp1/4/14 131-20306* Wyoming Nicholson Twp1/5/14 131-20346* Wyoming Nicholson Twp1/6/14 131-20347* Wyoming Nicholson Twp

Willard M Cline 1 1/7/14 083-56345 McKean Lafayette TwpCNX Gas Co LLC 3 1/29/14 059-26331* Greene Center Twp

1/29/14 059-26332* Greene Center Twp

Spud Report:January

The data show below comes from the Department ofEnvironmental Protection. A variety of interactive reports are

OPERATOR WELLS SPUD API # COUNTY MUNICIPALITY OPERATOR WELLS SPUD API # COUNTY MUNICIPALITY

available at www.portal.state.pa.us/portal/server.pt/community/oil_and_gas_reports/20297.

The table is sorted by operator and lists the total wells report-ed as drilled last month. Spud is the date drilling began at a wellsite. The API number is the drilling permit number issued to thewell operator. An asterisk (*) after the API number indicates anunconventional well.

February 2014 Page 23

• FOCUSED ON IMPROVED TECHNOLOGIES

• DEDICATED TO AN EXPERIENCED WORKFORCE

• PLEDGED TO ENVIRONMENTAL RESPONSIBILITY

• LEADING THE INDUSTRY IN CNG EQUIPMENT

• COMMITTED TO SAFETY AND TRAINING

The Cementing Professionals

O-Tex Pumping provides unrivaled primary and secondary cementing and specialty pumping services to America’s Energy Industry. In doing so, we strive to promote all qualities that are uniquely American. From new technologies to an experienced work force, we are proud to be “Running on America’s Fuel”.

INVESTING IN ENERGY INDEPENDENCE

724.256.9280

To learn more about our commitment to energy independence, visit our website today! www.otexpumping.com

Page 24 The PIOGA Press

February 2014 Page 25

1/29/14 059-26214* Greene Center TwpCougar Energy Inc 1 1/2/14 053-30405 Forest Harmony TwpD&M Energy LLC 5 1/11/14 121-45448 Venango Allegheny Twp

1/20/14 121-45461 Venango Allegheny Twp1/6/14 083-56195 McKean Hamilton Twp1/17/14 083-56194 McKean Hamilton Twp1/31/14 083-56218 McKean Hamilton Twp

Devonian Resources Inc 2 1/13/14 053-30559 Forest Harmony Twp1/20/14 053-30563 Forest Harmony Twp

EQT Production Co 22 1/10/14 003-22269* Allegheny Forward Twp1/10/14 003-22270* Allegheny Forward Twp1/10/14 003-22271* Allegheny Forward Twp1/10/14 003-22272* Allegheny Forward Twp1/10/14 003-22273* Allegheny Forward Twp1/10/14 003-22274* Allegheny Forward Twp1/10/14 003-22275* Allegheny Forward Twp1/9/14 005-31140* Armstrong Plumcreek Twp1/15/14 059-26350* Greene Morgan Twp1/15/14 059-26351* Greene Morgan Twp1/22/14 065-27038* Jefferson Washington Twp1/22/14 065-27040* Jefferson Washington Twp1/22/14 065-27042* Jefferson Washington Twp1/8/14 125-27025* Washington Amwell Twp1/8/14 125-27026* Washington Amwell Twp1/8/14 125-27137* Washington Amwell Twp1/8/14 125-27138* Washington Amwell Twp1/8/14 125-27139* Washington Amwell Twp1/17/14 125-27252* Washington Fallowfield Twp1/25/14 125-27242* Washington Union Twp1/25/14 125-27243* Washington Union Twp1/25/14 125-27244* Washington Union Twp

Gas & Oil Mgmt Assoc Inc 2 1/17/14 123-47322 Warren Brokenstraw Twp1/27/14 123-47323 Warren Brokenstraw Twp

Horizontal Exploration LLC 2 1/9/14 083-56074 McKean Lafayette Twp1/14/14 083-56071 McKean Lafayette Twp

Howard Drilling Inc 1 1/6/14 083-56021 McKean Wetmore TwpInflection Energy LLC 5 1/9/14 081-21352* Lycoming Eldred Twp

1/9/14 081-21346* Lycoming Eldred Twp1/22/14 081-21402* Lycoming Fairfield Twp1/27/14 081-21345* Lycoming Fairfield Twp1/28/14 081-21394* Lycoming Fairfield Twp

Maple Run Resources LLC 1 1/10/14 123-47484 Warren Farmington TwpMDS Energy Dev LLC 2 1/11/14 005-31152* Armstrong North Buffalo Twp

1/22/14 005-31156* Armstrong South Buffalo TwpMinard Run Oil Co 4 1/6/14 083-56324 McKean Hamilton Twp

1/17/14 083-56325 McKean Hamilton Twp1/23/14 083-56327 McKean Hamilton Twp1/30/14 083-56328 McKean Hamilton Twp

MSL Oil & Gas Corp 3 1/9/14 083-56127 McKean Lafayette Twp1/16/14 083-56130 McKean Lafayette Twp1/27/14 083-56126 McKean Lafayette Twp

Northwestern Well Svc Inc 1 1/1/14 121-45263 Venango Cornplanter TwpOld Glory Energy LLC 1 1/20/14 031-25636 Clarion Perry TwpOtter Exploration Inc 4 1/6/14 123-47433 Warren Pleasant Twp

1/13/14 123-47430 Warren Pleasant Twp1/16/14 123-47431 Warren Pleasant Twp1/30/14 123-47218 Warren Pleasant Twp

Penneco Oil Co Inc 1 1/6/14 059-26218 Greene Aleppo TwpPennenergy Resources LLC 4 1/21/14 019-22117* Butler Winfield Twp

1/21/14 019-22116* Butler Winfield Twp1/22/14 019-22115* Butler Winfield Twp1/23/14 019-22114* Butler Winfield Twp

Petro Erie Inc 1 1/17/14 121-45435 Venango Sugarcreek BoroRange Resources Appalachia 14 1/7/14 125-27196* Washington Amwell Twp

1/7/14 125-27197* Washington Amwell Twp1/7/14 125-27198* Washington Amwell Twp

1/7/14 125-27146* Washington Amwell Twp1/7/14 125-27148* Washington Amwell Twp1/21/14 125-27150* Washington Amwell Twp1/28/14 125-27223* Washington Buffalo Twp1/28/14 125-27225* Washington Buffalo Twp1/28/14 125-27222* Washington Buffalo Twp1/17/14 125-27213* Washington Jefferson Twp1/17/14 125-27212* Washington Jefferson Twp1/17/14 125-26947* Washington Jefferson Twp1/17/14 125-26948* Washington Jefferson Twp1/17/14 125-26949* Washington Jefferson Twp

Rice Drilling B LLC 8 1/4/14 125-27241* Washington N Bethlehem Twp1/4/14 125-27235* Washington N Bethlehem Twp1/5/14 125-27240* Washington N Bethlehem Twp1/5/14 125-27236* Washington N Bethlehem Twp1/6/14 125-27239* Washington N Bethlehem Twp1/6/14 125-27237* Washington N Bethlehem Twp1/6/14 125-27238* Washington N Bethlehem Twp1/13/14 125-27229* Washington Somerset Twp

Roilwell Inc 2 1/9/14 121-45426 Venango Rockland Twp1/20/14 121-45486 Venango Rockland Twp

Seneca Resources Corp 2 1/6/14 065-27043* Jefferson Warsaw Twp1/14/14 081-21406* Lycoming Lewis Twp

Southwestern Energy Prod Co 4 1/27/14 015-22518* Bradford Herrick Twp1/4/14 015-22736* Bradford Stevens Twp1/21/14 015-22737* Bradford Stevens Twp1/10/14 131-20363* Wyoming Tunkhannock Twp

Stateside Energy Group LLC 1 1/6/14 083-56190 McKean Lafayette TwpTalisman Energy USA Inc 2 1/2/14 115-21477* Susquehanna Choconut Twp

1/2/14 115-21478* Susquehanna Choconut TwpTitusville Oil & Gas Assoc Inc 1 1/31/14 053-30390 Forest Harmony TwpUS Energy Exploration Corp 1 1/13/14 019-22160 Butler Concord TwpVantage Energy Appalachia II 1 1/22/14 059-26349* Greene Jackson TwpVista Opr Inc 4 1/21/14 053-30483 Forest Harmony Twp

1/23/14 053-30484 Forest Harmony Twp1/27/14 053-30566 Forest Harmony Twp1/30/14 053-30471 Forest Harmony Twp

XTO Energy Inc 5 1/15/14 019-22058* Butler Oakland Twp1/15/14 019-22149* Butler Oakland Twp1/15/14 019-22150* Butler Oakland Twp1/15/14 019-22168* Butler Oakland Twp1/15/14 019-22077* Butler Oakland Twp

OPERATOR WELLS SPUD API # COUNTY MUNICIPALITY OPERATOR WELLS SPUD API # COUNTY MUNICIPALITY

CM HALL ASSOCIATES, INC.Manufacturer’s Representatives

Engineered Products for the Marcellus & Utica

Craig M. Hall

326 W. Pike Street PBV – Trunnion Ball Valves Canonsburg, PA 15317 USA CompressionOfc. 724.916.3070 Horizontal & Submersible PumpsCell: 724.747.6633 Kirk Key Interlockscraig@cmhallass.com GEA Heat Exchangers

www.cmhallass.com

Serving the Oil & Gas Industry for over 90 years.

MRC CORPORATE OFFICE

Austintown, OH 330-799-1100 Bradford, PA 814-368-8145 Buckhannon, WV 304-472-3565 Carrollton, OH 330-627-0259 Columbus, OH 614-475-4033 Corbin, KY 606-523-9640 Horseheads, NY 607-739-8575 Hurricane, WV 304-562-5724 Indiana, PA 724-349-6823 Williamsport, PA 570-748-5276 Norton, VA 276-679-6452 Wooster, OH 330-264-0077

Page 26 The PIOGA Press

PIOGA once again teamed up with theUnified Sportsmen of Pennsylvania toshare a booth at the Great American

Outdoor Show (formerly the Sportsmen’sShow). The name isn’t the only thing thathas changed; the attitudes of the peopleattending have as well. Two years ago weaveraged four people an hour who stronglydisagreed with our industry, and theyweren’t afraid of loudly sharing their opin-ions. This year we were averaging one a day.

More important are the numerous atten-dees that stopped by each day and sharedtheir support for natural gas developmentwithin the state. We averaged over 100 peo-ple daily stopping to ask questions and quellconcerns about the industry. Surprisingly,there was no main theme to the questions;they ranged from water protection topipelines to geology to erosion and sedimen-tation.

PIOGA has already secured booth spacefor the 2015 outdoor show, so as you readthis think about volunteering to help talkabout our industry at next year’s show. Thisis the largest show of its kind east of theMississippi—on opening day it averagedover 10,000 people an hour at the gate. ■

PIOGA at the Great American Outdoor Show

February 2014 Page 27

Page 28 The PIOGA Press

Looking at LNG forfueling applicationsBy Joyce TurkalyDirector of Natural Gas Market Development

The liquefied natural gas (LNG) industry is highly competi-tive in terms of being the fastest growing source of energy trade.What was once thought only as a global gas market is quicklybeing defined as a global fuel market as well. LNG projects, bothdomestic and international, for the end-use markets in the areasof mining, rail, marine, highway trucking and oil field opera-tions—as well as manufacturers working to commercialize newtechnologies, including engines, fuel delivery systems and lique-

faction—were on hand as part of the World LNG Fuels 2014Conference held January 21-23 in Houston. The common domi-nators across all applications are fuel cost savings and reducedemissions when combining natural gas with diesel in a bi-fuelengine or replacing diesel altogether.

LNG is a very expensive fuel to transport; therefore, there is asignificant interest in providing small-scale liquefaction facilitiesconfigured to meet smaller applications versus delivering productto the Gulf Coast for 20-year off-take agreements. GDF Suezowns America’s oldest and most active terminal in Everett,Massachusetts, where it loads about 10,000 LNG trailers annual-ly. Natural gas storage is not available in this region of the U.S.and GDF Suez is the only company importing LNG today, fordelivery to local distribution companies in Massachusetts andMaine. GDF Suez is also very optimistic about the LNG motorfuels market, which currently represents only 1.25 percent of the

www.safety-law.com

The Law Office of Adele L. Abrams PC focuses its practiceon defending employers in MSHA, OSHA and EPA litigationnationwide. Our 10 attorneys include Certified Mine SafetyProfessionals and Certified Industrial Hygienists who canevaluate citations, represent your company in settlementconferences, and be strong advocates for you in litigation.We provide safety training (MSHA Part 46 and 48), safetyand health audits, and program development and reviewservices. Our attorneys are admitted in PA, OH, MD, MI, DC,MT and SC, and many federal courts.

DDon’t go it alone …. call the pros!

301-595-3520

MSHA, OSHA orEPA Woes?

U.S. market. The U.S. fuels market needs a source of supplywith a stable price, emphasized Guy Braden, SVP Commercial,GDF Suez.

For all fueling applications, it is understood that LNG avail-ability is key. LNG has recently entered into the market as a“fuel.” The natural gas and high horsepower (HHP) segmentshave to figure out how they fit together. For the HHP and off-road segments, proximity was debated to a small degree; somepresenters had worked economics for their particular projectsbased on a 200-mile radius, while others were mileage indiffer-ent. Pennsylvania, unlike states such as Texas and Oklahoma, hasto consider terrain. When you think about the mileage factorhere, it’s perhaps best to think about the time or duty range,which for mountainous regions would cut the numbers down to a150-mile radius. If you are not hauling your fuel supply by truckto a depot of some sort, you are using on site. Perhaps those whowere mileage indifferent when calculating chose to work theirnumbers as in all in cost; suppliers such as Prometheus Energy,Noble Energy and Pennsylvania based REV LNG can offer suchservices.

For rail, tank design or standardization appears to be thebiggest holdup in moving this application forward. TheAmerican Association of Rail Roads (ARR) has not yet agreedon design, and for this reason tank manufacturers are on holdawaiting further requirements. The LNG supply chain for railinvolves five major segments: natural gas pipeline, liquefaction,LNG filling station, LNG tender car and, finally, an LNG loco-motive. Rail pilots continue in the Powder River Basin withmany positive outcomes pointing to savings in the neighborhood

Above left: Designed for the well servicing market, the Cummins QSK45. Right: Sweden’s CYRO AB. the world’s first LNG supply ves-sel, a converted car ferry.

February 2014 Page 29

Six more CNG stationsto be built in Pennsylvania

Pennsylvania’s Commonwealth Financing Authority hasapproved funding through the state’s Alternative andClean Energy program to support the development of six

new compressed natural gas (CNG) refueling stations. Hereare the project details:

Columbia, Cumberland and Lebanon counties. Love’sTravel Stops & Country Stores will receive an $885,910 grantfor the construction of a public CNG fueling station located inMifflin Township, Columbia County; a $924,809 grant for theconstruction of a public station located in Jonestown Borough,Lebanon County; and a $924,809 grant for the construction ofa public station located in Middlesex Township, CumberlandCounty.

Love’s will install a pair of dual-hose, high-flow dispensersfor heavy-duty, Class 8 tractors and one dual-hose dispenserfor light-duty and private vehicle use at each site. Totaling$13.46 million, the projects include costs of running naturalgas to the sites to ensure adequate supply and pressure tomeet the demand of the commercial vehicles.

Chester and Montgomery counties: Silvi Concrete willreceive a $244,222 grant for the construction of a public CNGfueling station at its concrete plant in Downingtown.Constructural Dynamics Inc., a subsidiary of The Silvi Group,will also receive a $244,222 grant for the construction of aCNG fueling station at its concrete plant in Limerick Township.

Northampton County: Waste Management ofPennsylvania Inc. will receive an $806,248 grant for the con-struction of a public CNG filling station at the Grand CentralSanitation facility in Pen Argyl. The station will feature one fast-

fill pump for thepublic’s use and52 private time-fillposts to supportWaste Manage -ment’s 55 heavy-duty natural gasvehicles.

Source:NGTNews

of $1.8 billion/year. Rail net savings is represented by a some-what stable fuel source “gas price” with decisions to construct orbuy, substitution rate, fleet size, fuel consumption and deploy-ment rate. The average life of a locomotive is 50-60 years.

The marine segment appears to be making the most progresscurrently. Notably there are air restrictions around intercostalwaterways, which bring operators choices down to just a fewoptions: using ultra-low-sulphur diesel, installing fuel oil scrub-bers or simply making the switch to substitute to LNG. If youare going to operate on heavy oil, you must install scrubbers by2019. Eric Rottier, CEO of Taylor-Wharton International, pre-dicts that 3,200 ships will be needed by 2025. Taylor-Whartondesigns and manufactures stationary bulk and portable cryogenicstorage systems for LNG in vehicle and bunker tanks. TheUnited States has agreed to become an Emission Control Area or“ECA.” Compliance would mean that the sulfur content in fuelas a percentage drops significantly with ECA 2014 limits at 3.5percent or less and significantly less than .5 percent by 2020.Northern European and North American ECAs, plus the 2020limit, provide extra reasons for Atlantic trade routes to convert toLNG.

As you would imagine, Texas and Louisiana have nine of thetop 15 ports in the U.S. Sabine Pass, the supply hub for marine islocated here. The shuttle vessel also serves as a bunker vessel bydelivering LNG to supply hubs or to big ships via a bunker ves-sel. The common methods for bunkering oil will also apply toLNG: truck to ship, tank pipeline to ship or ship to ship. Onhand to speak about developing infrastructure and obtainingLNG supply in order to provide LNG to marine users for bunker-ing fuel, as well as domestic users for transportation fuel for

In 2013, PIOGA member Seneca Resources, the exploration andproduction division of National Fuel Gas, entered into an agree-ment with Prometheus Energy to supply LNG and related equip-ment and services for gas-fueled operations in the northeasternU.S. Pictured here, Julianne Heins, director of procurement, wasinvited to describe the outcomes of this operation and Seneca’splans going forward at the World LNG Fuels Conference inHouston last month.

HHP engines, was Keith Meyer, founder & CEO, LNG Central,who enthusiastically spoke of a bunker barge as a first of itskind, saying “there is an opportunity here for the team to usherin a new era of domestic fuel and really shape this industry.” ■

Page 30 The PIOGA Press

February 2014 Page 31

Flat-rate royalty leasesand Section 34 of theOil and Gas Lease Act

While the development of the Marcellus Shale has led toincreased focus on many of Pennsylvania’s oil and gasstatutes, Section 34 of the Oil and Gas Lease Act, for-

merly known as the Guaranteed Minimum Royalty Act (GMRA),58 P.S. §§ 33-35, has been largely ignored. Section 34 addressesmany older leases with flat-rate royalty and other similar royaltyprovisions. This article explores Section 34 and its continuingrelevance to operators and lessors in Pennsylvania.

Overview of Section 34Section 34 provides, in full:

§ 34. Escalation of royaltiesAn oil, natural gas or other designation gas well or oil,natural gas or other designation gas lease which doesnot provide a one-eighth metered royalty shall be sub-ject to such an escalation when its original state isaltered by new drilling, deeper drilling, redrilling, artifi-cial well stimulation, hydraulic fracturing or any otherprocedure for increased production. A lease shall not beaffected when the well is altered through routine main-tenance or cleaning.Id. §34.

Section 34 applies to all oil and gas leases in existence as ofthe GMRA’s effective date, September 18, 1979, that “do notprovide a one-eighth metered royalty[.]” Id. This includes mostleases that require the lessor to pay a flat-rate royalty—some-times referred to in leases as a “gas well payment”—rather thana percentage royalty for each productive well on the leasehold.Thus, the lessor is paid a set amount irrespective of the amountof gas produced. Flat-rate royalties generally consist of a fixedquarterly or annual payment, typically about $200 to $300 perwell, per year.

While Section 33.3 of the Oil and Gas Lease Act invalidatesall leases entered into after September 18, 1979, that do notguarantee lessors at least a one-eighth royalty, Section 34addresses the numerous flat-rate style leases already in effect atthe time of the GMRA’s passage. It provides a mechanism toconvert the royalty obligations under pre-GMRA leases to one-eighth royalties. Section 34 “escalates,” or automatically convertsthese pre-GMRA wells and leases when their “original state isaltered by new drilling, deeper drilling, redrilling, artificial wellstimulation, hydraulic fracturing or any other procedure forincreased production.” Id. § 34. Routine maintenance and clean-ing, however, cannot cause such a conversion.

Procedures for increased production under Kepple In Kepple v. Fairman Drilling Co., 532 Pa. 304, 313-14, 615

A.2d 1298, 1303 (1992), the Pennsylvania Supreme Courtaddressed several key issues regarding Section 34. In Kepple, thecourt held that it makes no difference whether the procedure forincreasing production was employed before or after the GMRA’seffective date or even whether it was employed before or afterany production from the well had taken place. The court further

explained that if theprocedure was com-pleted after theGMRA’s effectivedate, as would bethe case with any“new drilling” underSection 34, the obli-gation to pay anescalated royaltyarises once the pro-cedure is completed.If the procedure wascompleted before the GMRA’s effective date, September 20,1979, percentage royalties are required to be paid for all periodsafter December 17, 1979—90 days after the GMRA’s effectivedate. Id. at 315, 615 A.2d at 1304; 58 P.S. § 35.1

Royalty conversion of a well versus conversion of a leaseUnder Section 34, a well or lease that does not provide a one-

eighth metered royalty is converted to a one-eighth royalty wellor lease “when its original state is altered” by any “procedure toincrease production.” 58 P.S. § 34. Importantly, the term “its”appears to encompass alterations to either a well or a lease. Incertain situations, such as when one or more productive pre-GMRA wells exist under a lease and an operator is consideringdrilling a new well, or when two or more wells exist under alease and the operator is considering using a procedure toincrease production on less than all of the wells, the distinctionmay be more than academic.

Kenneth J.Witzel

Authors:

Jason P. Webb

Barnes Dulac Watkins

Page 32 The PIOGA Press

Section 34 provides that a royalty escalation is triggered uponthe occurrence of “new drilling, deeper drilling, redrilling, artifi-cial well stimulation, hydraulic fracturing or any other procedurefor increased production.” Id. Under one reading of Section 34,because “new drilling” cannot “alter” a “well,” but can only altera “lease,” the drilling of a new well would trigger an escalationfor all wells on the lease. Conversely, because any procedure forincreased production other than “new drilling” can be read as analteration to a “well,” as opposed to a “lease,” if multiple produc-tive pre-GMRA wells exist under a lease and only one well is“altered,” only the production from that well should be subject toa royalty escalation.

A more conservative reading of Section 34 would be that anyprocedure for increased production would cause all wells under alease to convert to a one-eighth royalty. Under such an interpre-tation, all procedures for increased production would be deemedto be alterations to the lease. Such a reading would appear to dis-regard the statute’s language that a procedure for increased pro-duction can trigger a royalty escalation for a well or a lease,however.

These issues have not been addressed by the courts and adegree of uncertainty exists as to them. Therefore, prudent opera-tors may be wise to consider construing Section 34 broadly toconvert an entire lease upon the occurrence of any escalationactivity. To act otherwise, while justifiable under the statute’slanguage, may invite litigation. Fortunately, the cost of adoptinga cautious approach is also unlikely to be financially onerousgiven that the pre-GMRA wells involved are more likely to belongstanding shallow wells with limited production.

Activities triggering escalationFinally, while the meaning of the terms “new drilling,” “deep-

er drilling,” “redrilling,” “artificial well stimulation” and“hydraulic fracturing” may be clear, it is less clear what activitiesconstitute an “other procedure for increased production.”Although Section 34 provides that merely performing “routinemaintenance” to or “cleaning” a well does not trigger a royaltyescalation, questions remain. For instance, does the use of acompressor trigger an obligation to pay a percentage royalty?Again, reasonable arguments exist on both sides of the issue. Onthe one hand, the use of a compressor does not “alter” a well inthe same way that deeper drilling, redrilling, artificial well stimu-lation or hydraulic fracturing do. On the other hand, a compres-sor can, depending on the circumstances, be used to “increaseproduction” from a well. Unfortunately, at this time, no pub-lished cases address the issue.

Failure to pay proper royaltyWhere a lessee has failed to recognize its obligation to pay an

escalated royalty under Section 34, the good news for the lesseeis that while a failure to pay an escalated royalty will expose aproducer to a claim for damages, it should only result in thelease’s termination if the lease “distinctly reserve[s]” the right todeclare a forfeiture for such a failure. Penn-Ohio Gas Co. v.Franks’ Heir, 322 Pa. 233, 238-39, 185 A. 280, 282 (1936). Asexplained by the Supreme Court of Pennsylvania, “Forfeiture asa method of compelling compliance must be limited to thegrounds upon which the agreement states it may be invoked.This court will not read into the agreement a ground for forfei-ture not expressly set forth by the parties.” Id.

Conclusion For parties with interests in pre-GMRA leases that do not pro-

vide a one-eighth metered royalty, it is important to be aware ofthe following key effects of Section 34 of the Oil and Gas LeaseAct. While Section 34 recognizes the ongoing validity of suchleases, conversion to one-eighth royalty for a well, and possiblyan entire lease occurs if “deeper drilling, redrilling, artificial wellstimulation, hydraulic fracturing” or other processes to increaseproduction have ever been utilized. At least a one-eighth royaltymust be paid on any “new” wells drilled after September 1979,and possibly on all other pre-existing wells under the lease aswell. Other practices to increase production, including the use ofa compressor, may also trigger a royalty conversion. Finally,while a lessor may bring an action to recover unpaid royaltiesfollowing conversion, a failure to pay an escalated royalty, byitself, will not terminate a lease unless the lease expressly pro-vides that such a failure with result in forfeiture. ■

Mr. Witzel is a principal and Mr. Webb is an associate with thelaw firm Barnes Dulac Watkins, a boutique firm located inPittsburgh that specializes in oil and gas law. The viewsexpressed in this article do not necessarily reflect those ofBarnes Dulac Watkins or its clients.

1 It is worth noting that the Kepple court declined to consider arguments that theGMRA violated the contracts clauses of the Pennsylvania and United States con-stitutions to the extent it triggered an increased royalty obligation for work thatpredated the GMRA. Id. at 313, 615 A.2d at 1303. The court found that the argu-ment had been waived because the attorney general had not been notified of theseconstitutional challenges, as required under the rules of civil procedure. Id. Id. §34. Thus, Kepple could be subject to challenge on constitutional grounds.

R.L. Laughlin & Co., Inc.“Providing Gas Measurement Services Since 1970”

t Site Automation t Electronic Chart Integration

t Meter Sales t Meter Installations

t Gas Analysis t Calibrations & Repairs

NOW SERVING YOU IN 3 LOCATIONS:

125 State Rt. 43 5012 Washington St., W.

Hartville, OH 44632 Charleston, WV 25313

330-587-1230 304-776-7740

2895 Maysville Pike

Zanesville, OH 43701

740-297-8061

February 2014 Page 33

f rom explorat ion to marketReliable Resources...SM

CEC is a reliable resource in the expanding energy industry, delivering integrated engineering, ecological and environmental

and Midstream markets.

Civil & Environmental Consultants, Inc.

w w w. c e c i n c . c o m | 8 0 0 - 3 6 5 - 2 3 2 4

E x p e r i e n c eWell sites and impoundments, dams

Gathering and transmission pipeline projects

Compression, fractionation and other infrastructure facilities

How factoring helps get it done in the MarcellusBy Michael MilleTransfac Capital Inc.

As with any booming industry, the activity in theMarcellus Shale creates both opportunities and chal-lenges for entrepreneurs and small companies. Many

service providers are struggling with the financial demands oftheir expanding workload; meeting payroll, the costs of materialsand rental equipment, etc., can cause acute problems, particularlyfor a smaller business. Without an available financing source tosupport growth opportunities, business owners may be forced toturn down work.

Who is willing to lend to these companies? Unfortunately, tra-ditional banks don’t seem to be responding to the call. Theanswer may be a form of secured lending known as factoring:working capital advances based on a company’s accounts receiv-able.

A factoring company provides financing to its clients by usingtheir unpaid invoices as collateral. It typically works like this: theclient “sells” its receivables to the factor, which will thenadvance 80-90 percent of the face value of the accounts. Theseadvances are usually available very quickly—normally within 24hours of acceptance and verification by the factor. The result:more reliable cash flow and an acceleration of the company’scash flow cycle by 45-60 days, or however long it would other-wise take to collect the receivables.

As sales grow, so does borrowing availability, because the fac-toring facility is tied directly to account receivable. Typically,

there is no “bank loan committee” review process. Factors arealso more lenient when it comes to financial reporting and per-sonal credit issues. This kind of flexible, aggressive funding canbe a real shot in the arm to a small company, helping not only torelieve cash flow stress, but also to increase production capacity.

How do they do it? The answer lies in the structured “sale” or “assignment” of

receivables by the company to the factor. The factor is able tolend aggressively to the client because the factor literally boughtthe collateral. The factor has the legal right to notify the cus-tomer (or “account debtor”) to pay directly to the factor. Thisstructure allows the factor to rely on the financial strength andcreditworthiness of the customer—which is frequently a larger,well established company—rather than the client, which may besmall and undercapitalized, or even an unproven startup.

More aggressive lendingThanks to this collateral-driven approach, the factor can lend

more as sales and receivables grow, and usually without thedelay or interruption typical in the bank review process. It’s notunusual for a small business owner to be able to leverage hisinvestment by 10-to-1 or more using advances from the factor.That can be a game-changer for a small company faced withgrowth opportunities. In our business, we have seen companiesthat were growing at a 10-20 percent annual pace suddenly boostgrowth to 100 percent or more. The profits generated by thisgrowth in sales more than covers the cost of factor financing.

Page 34 The PIOGA Press

Value-added serviceTo protect its collateral, the factor does credit checking, col-

lection, cash posting and bookkeeping. The client benefits fromall of these back-office functions. Effectively, the factor becomesan outsourced credit/collection department. This allows the busi-ness owner to focus on sales and production and reduce adminis-trative costs. Pretty slick, huh?

So, what’s the catch? The factor’s active management of the accounts implies a

need to communicate with those customers to verify and collectinvoices. If you decide to factor your invoices, it’s not going tobe a secret to your customers. Is this a bad thing? Not really.Larger companies know what factoring is. Chances are, quite afew of their vendors and service providers are already factoring,so they know the drill. Verification, validating the accounts sub-mitted for funding (is the work or product delivery completed?Are the pricing and terms correct?), can be done by an experi-enced factoring company without being intrusive. And contactwith the A/P department for collection purposes by a factorinstead of an office assistant is preferred, because the factoringagents should be professional and efficient.

Other common myths about factoring:Myth #1 – If you are factoring, you must be in financial trou-

ble. Any business owner who has paid a visit to his communitybank loan officer knows how difficult it is to get adequate bankfinancing. Factors have filled the gap. This has become such acommon occurrence that this myth has become a dated cliché. Itnever made much sense. What lender wants to lose money lend-ing to a company that’s falling off the cliff? A good factor wants

his client to be a viable business with a reasonable chance ofsuccess.

Myth #2 – All factoring companies are the same. There are lit-erally hundreds of factoring companies out there, and all are dif-ferent. Some focus on specific industries. Some are bank-owned.The size of the factoring company is very important: larger fac-tors tend to be more stable and professional, but they could alsobe more rigid and less service oriented. Smaller factors generallyhave a better service reputation, but is the staff knowledgeable?As with any product/service, it’s important to know who you aredealing with. The best way is to insist on references. Even as thefactor is doing its due diligence in the application process, youneed to do yours.

Myth #3 – Factoring is expensive. Unlike banks that charge aninterest rate, factors generally charge a discount of 1-3 percenton each invoice financed (the actual rate is contractual and isgenerally based on volume). Yes, banks are cheaper. But if theyaren’t lending, is it really a fair comparison? Alternatives mayinclude investors looking for a large chunk of ownership. Nowthat’s expensive. Factoring can be cost effective if you considerthe additional sales volume (and related profits) that would oth-erwise be lost without the financing. And don’t forget that theservice aspect of factoring—the management of credit and col-lections—that is included in the cost of financing. For growthcompanies in particular, factoring costs are a smart investment.

Myth #4 – My customers are not going to like this. Do youknow what they like less? Small companies that ask them to paycash on delivery, or request deposits before starting a project, orhound them for shortened credit terms. Factoring allows theclient the ability to extend normal industry credit terms to its

www.fmctechnologies.com

Frac Flowback

Cased HoleWireline

Fiber OpticLogging

FMC Technologies Completion Services, Inc.2170 Washington Road, Canonsburg, Pennsylvania 15317 Phone: 724.916.4852

Completionswithout Compromise

February 2014 Page 35

customers. Those customers also benefit from the increased pro-duction capacity provided by the financing.

Some clients worry that the factor’s need to communicatemay chafe certain customers. A good factor will not overstressyour customers. And here again, the factor provides some servic-es that benefit those customers at no cost to them. The factor willassist in making sure that your billing procedures conform toyour customers’ standards, for instance. The factor’s communica-tion with your customers assures integrity in the billing process.Your more sophisticated customers will understand that benefit.

Myth #5 – Factoring will hurt my credit rating. Generally, theopposite is true. Having available financing means vendors getpaid on time, which makes credit managers happy. Many of ourclients proudly tell new vendors they have a factoring facility toprovide consistent cash flow. In most cases, a company that fac-tors its receivables benefits not only from the financing provided,but also by the expansion of vendor credit lines. Free vendorcredit is a very good thing.

Myth #6 – My business does not sell a tangible product, sofactoring can’t benefit me. Factoring works for goods or services.The key qualifier is whether there are verifiable business-to-busi-ness accounts receivable. Labor service companies are actuallyan excellent fit for factoring, since the advances allow companiesto meet weekly payroll needs despite customers that pay in 60days. ■

Michael Miller is a senior executive at Transfac Capital Inc.,which has been providing financing for small-to-medium sizedcompanies since 1942. For more information, contact RichardMoore at 412-831-4896 or rmoore@transfaccapital.com.

dsteffy@newprospect.comCell: (412) 667-9817

www.newprospect.com

NEW PROSPECT COMPANY

Office: (724) 742-1122Fax: (724) 742-4703

NEW PROSPECT COMPANY120 MARGUERITE DRIVE, SUITE 201 • CRANBERRY TOWNSHIP, PA 16066

DANIEL R. STEFFYNE Business Development ManagerEngineering, Completions and Drilling Consultants

Joseph KeliharBusiness Development

Manager

Upstream | Midstream | DownstreamSurveying | Engineering | Environmental | GIS

Steve Boddecker Vice President

Oil & Gas Services814-450-9316

Southpointe | canonsburg, PA

www.fisherassoc.com

PIOGA member news

Layfield opens new distribution warehouse

Geomembrane manufacturer Layfield EnvironmentalServices announces its newest distribution center, locatedin the Weirton, West Virginia, area. Layfield specializes

in manufacturing and fabrication of frac tank liners and pads, oilpit liners, and well pad liners for the upstream oil and gas sector.The company also provides a full line of geogrids, geotextilesand other geosynthetics used for soil reinforcement of accessroads and lease sites.

To better serve the Marcellus and Utica shale plays, the newWeirton distribution facility can provide 24-hour shipment serv-ice in the region. The facility is located at 2700 Harmon CreekRoad, Colliers, West Virginia.

Paluda joins 84 Energy Supply

84 Lumber Company’s 84 Energy Supply division announcesthe addition of Stephanie Ann Paluda to the position of businessdevelopment manager. She formerly served as public outreachand business development coordinator for the PennsylvaniaIndependent Oil & Gas Association. Her community outreachactivities helped raise a positive perception within the oil & gasindustry. Paluda will continue as a steward for the industry inher new position with 84 Lumber, as well as help 84 Energy togrow its customer base across shale plays nationally that match84 Lumber’s store footprint, helping to educate customers on theproducts and services that can now be found at the traditional 84Lumber store. ■

Page 36 The PIOGA Press

Wells Drilled by CountyCounty Conventional Unconventional 2013 Total 2012 TotalWarren 305 1 306 371Washington 0 220 220 203McKean 198 13 211 265Susquehanna 0 206 206 192Forest 168 4 172 108Lycoming 2 167 169 203Venango 164 1 165 132Greene 9 117 126 113Bradford 0 108 108 163Butler 3 92 95 75Elk 61 9 70 37Wyoming 0 67 67 15Armstrong 6 34 40 53Tioga 2 31 33 122Westmoreland 1 28 29 55Fayette 1 23 24 49Mercer 4 17 21 16Indiana 10 7 17 15Sullivan 0 15 15 27Crawford 13 0 13 16Lawrence 1 12 13 19Allegheny 3 9 12 19Clarion 10 1 11 32Beaver 0 10 10 17Cameron 0 5 5 0Erie 4 0 4 8Jefferson 1 3 4 11Clearfield 0 3 3 22Clinton 0 3 3 10Cambria 1 0 1 6Somerset 0 1 1 6Totals 967 1,207 2,174 2383

2013 activity recap

“PA Independent Oil and Gas Association”

February 2014 Page 37

Allegheny Comb. oil & gas 3Gas 27County total 30

Armstrong Comb. oil & gas 1Gas 72Oil 2County total 75

Beaver Gas 41County total 41

Bradford Gas 456County total 456

Butler Gas 159Oil 16County total 175

Cambria Gas 6County total 6

Cameron Gas 10County total 10

Centre Gas 4County total 4

Clarion Comb. oil & gas 4Gas 22Oil 9County total 35

Clearfield Gas 21County total 21

Clinton Gas 8County total 8

Crawford Comb. oil & gas 14Gas 3County total 17

Elk Gas 37Injection 1Oil 28County total 66

Erie Comb. oil & gas 1Gas 3County total 4

Fayette Gas 51County total 51

Forest Comb. oil & gas 22Gas 22Oil 253County total 297

Greene Gas 259Oil 10County total 269

Indiana Gas 33County total 33

Jefferson Gas 34County total 34

Lawrence Comb. oil & gas 4Gas 24County total 28

Lycoming Gas 357County total 357

McKean Comb. oil & gas 116Gas 49Oil 318Undetermined 1County total 484

Mercer Comb. oil & gas 15Gas 25Multiple well bore type 2County total 42

Potter Comb. oil & gas 1Gas 10County total 11

Somerset Comb. oil & gas 1Gas 3County total 4

Sullivan Comb. oil & gas 1Gas 57County total 58

Susquehanna Gas 557Oil 1County total 558

Tioga Gas 93County total 93

Venango Comb. oil & gas 16Gas 8Oil 290County total 314

Warren Comb. oil & gas 14Gas 2Oil 413County total 429

Washington Coalbed methane 1Comb. oil & gas 6Gas 404Multiple well bore type 5County total 416

Westmoreland Gas 52Oil 5County total 57

Wyoming Gas 135Oil 1County total 136

Total permits 4,619

Drilling Permits by County

Top Gas-Producing States2011 vs 2012

Source: U.S. Energy Information Agency Natural Gas Annual

Date source (unless otherwise noted):PA Department of Environmental Protection

Purchasers of Penn Grade & Utica Crude Oil

77 N. Kendall Ave.Bradford, PA 16701

814-368-1200

www.amref.com

Dan PalmerCrude Relationship Mgr PA / NY

814-368-1263dpalmer@amref.com

ISO 9001:2008 Certified

Supplying Quality Lubricants Refined UsingPenn Grade Crude Oil

Page 38 The PIOGA Press

Wells Drilled by OperatorOperator Conventional Unconventional TotalCatalyst Energy Inc 155 0 155Range Resources Appalachia LLC 0 146 146Southwestern Energy Prod Co 0 108 108EQT Production Co 0 91 91Cabot Oil & Gas Corp 0 90 90Chesapeake Appalachia LLC 0 82 82Chief Oil & Gas LLC 0 76 76Chevron Appalachia LLC 0 69 69XTO Energy Inc 0 62 62Anadarko E&P Onshore LLC 0 55 55Cougar Energy Inc 55 0 55ARG Resources Inc 51 0 51Vista Opr Inc 50 0 50Seneca Resources Corp 0 48 48SWEPI LP 3 41 44CNX Gas Co LLC 0 38 38PA Gen Energy Co LLC 7 31 38NTS Energy LLC 34 0 34Inflection Energy LLC 0 30 30Howard Drilling Inc 28 0 28Talisman Energy USA Inc 0 27 27Titusville Oil & Gas Assoc Inc 26 0 26Hilcorp Energy Co 5 20 25Minard Run Oil Co 25 0 25Autumn Ridge Energy LLC 24 0 24Rice Drilling B LLC 0 23 23Snyder Bros Inc 12 11 23RE Gas Dev LLC 0 20 20D&S Energy Corp 19 0 19Chautauqua Energy Inc 18 0 18Otter Exploration Inc 18 0 18Alpha Shale Res LP 0 17 17Enervest Opr LLC 17 0 17Gas & Oil Mgmt Assoc Inc 17 0 17Universal Resources Holdings Inc 17 0 17Carrizo (Marcellus) LLC 0 16 16Lake Erie Energy Part LLC 15 0 15Wpx Energy Appalachia LLC 0 15 15John D Branch 14 0 14Cameron Energy Co 14 0 14Chestnut Oil LLC 14 0 14

MDS Energy Dev LLC 1 13 14Tachoir Resources Inc 14 0 14Kastle Resources Enterprises Inc 13 0 13Pennenergy Resources LLC 0 13 13Stateside Energy Group LLC 13 0 13Noble Energy Inc 0 12 12Dannic Energy Corp 11 0 11Energy Corp Of Amer 0 11 11Pierce & Petersen 11 0 11Weldbank Energy Corp 11 0 11James Allen Cripe 10 0 10KCS Energy Inc 10 0 10Penneco Oil Co Inc 10 0 10Vantage Energy Appalachia Ii LLC 0 10 10Airdale Oil & Gas LLC 9 0 9BF Adventures LLC 9 0 9Citrus Energy Corp 0 9 9Devonian Resources Inc 8 0 8Missing Moon Oil Inc 8 0 8Brooks A Whilton 8 0 8Horizontal Exploration LLC 7 0 7Kylander Oil Inc 7 0 7Wilmoth Interests Inc 7 0 7Armstrong Gas Co LLC 6 0 6Imod Oil Prod LLC 6 0 6Lindell & Maney LLC 6 0 6John E McCool 6 0 6Northwestern Well Svc Inc 6 0 6Penn View Exploration Corp 6 0 6Vantage Energy Appalachia LLC 0 6 6EXCO Resources Pa LLC 0 5 5Galati Enterprises Inc 5 0 5James E Mead Mead Oil Co 5 0 5MSL Oil & Gas Corp 5 0 5Open Flow Gas Supply Corp 5 0 5Remington Capital Holdings Inc 5 0 5SV Abs Interest Wetmore Proj 5 0 5Utica Resources Inc 5 0 5William H Brawand 5 0 5A&S Prod Inc 4 0 4Bearcat Oil Co LLC 4 0 4Bull Run Energy LLC 4 0 4

Operator Conventional Unconventional Total

February 2014 Page 39

Operator Conventional Unconventional Total

Interstate Gas Mkt Inc 4 0 4Leali & Leali Oil Inc 4 0 4Bald Hill Oil 3 0 3Em Energy Pa LLC 0 3 3EOG Resources Inc 0 3 3Halcon Opr Co Inc 0 3 3J&L Allen Inc 3 0 3Magee & Magee Inc 3 0 3Marco Drilling Inc 3 0 3R&N Resources LLC 3 0 3Russ Holden Well Svc 3 0 3Susquehanna Expl & Prod LLC 3 0 3US Energy Exploration Corp 3 0 3ABARTA Oil & Gas Co Inc 2 0 2Anderson Family Farm Inc 2 0 2Armac Resources LLC 2 0 2Baker Gas Inc 2 0 2Campbell Oil & Gas Inc 0 2 2Energy Resources Of Amer Inc 2 0 2Glenn D Gavin & John R Gavin III 2 0 2Mead Oil LLC 2 0 2Phoenix Energy LLC 2 0 2Sylvan Energy LLC 2 0 2WB Prod Mgmt Co 2 0 2Benson Energy LLC 1 0 1BJS LLC 1 0 1BLX Inc 1 0 1Cal Penn Properties LLC 1 0 1Curtis Oil Inc 1 0 1David L Hill 1 0 1

DE Ltd Family Partnership 1 0 1Holden Oil & Gas 1 0 1Hydro Solutions Inc 1 0 1Jones Dev Inc 1 0 1MDS Energy Ltd 1 0 1Northeast Natural Energy LLC 0 1 1Northeastern Consolidated Energy

Partners Inc 1 0 1Old Glory Energy LLC 1 0 1Plants & Goodwin Inc 1 0 1R&J Well LP 1 0 1Ridgeview Gas & Oil Inc 1 0 1Roilwell Inc 1 0 1The Production Co LLC 1 0 1Waste Trmt Corp 1 0 1WGM Gas Co Inc 1 0 1Willard M Cline 1 0 1William Mcintire Coal Oil & Gas 1 0 1Totals 967 1,207 2,174

Operator Conventional Unconventional Total

Page 40 The PIOGA Press

Natural Gas Futures Closing PricesFebruary 7

Month PriceMarch 2014 $4.775April 4.516May 4.490June 4.512July 4.541August 4.534September 4.512October 4.525November 4.571December 4.691January 2015 4.787February 4.728

Low$87.4612/10/12

SourcesAmerican Refining Group: www.amref.com/Crude-Prices-New.aspxErgon Oil Purchasing: www.ergon.com/prices.phpGas futures: http://quotes.ino.com/exchanges/?r=NYMEX_NGBaker Hughes rig count: http://gis.bakerhughesdirect.com/ReportsNYMEX strip chart courtesy of Hess Energy Marketing, 304-464-1176

Oil & Gas Stats

0

20

40

60

80

100

120

Mon

th Feb

Mar

Mar Apr

Apr

May

May

May Jun

Jun Jul

Jul

Aug

Aug

Sep

Sep

Oct

Oct

Nov

Nov

Nov Dec

Dec

Jan

Jan

Feb

Previous Year Currrent Year

Pennsylvania Rig Count

High$110.739/6/13

OIL & GA S

www.hdrinc.com

Facilities and Infrastructure Services

Environmental Services

Construction Services

Support Services

Forward Thinking

Pittsburgh 412.497.6000

Well Site Service ProsFISHING SERVICES & TOOLSRENTAL EQUIPMENT COMPLETION & SLICKLINE SERVICESAPI CERTIFIED MACHINE SHOPS ACCOMMODATIONS PIPE RECOVERY & WIRELINEPRESSURE CONTROL SERVICES

www.BlueDotInc.com | 304.842.3829

February 2014 Page 41

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

$7.00

$7.50

1/12

/09

3/11

/09

5/7/

09

7/6/

09

8/31

/09

10/2

7/09

12/2

3/09

2/24

/10

4/22

/10

6/18

/10

8/16

/10

10/1

2/10

12/8

/10

2/4/

11

4/4/

11

6/1/

11

7/28

/11

9/23

/11

11/1

8/11

1/19

/12

3/16

/12

5/14

/12

7/11

/12

9/6/

12

11/1

/12

1/2/

13

3/4/

13

4/30

/13

6/26

/13

8/22

/13

10/1

8/13

12/1

7/13

NYMEX Natural Gas Futures Contract 12 Month Forward Strip Average Prices Through 01/24/14

Well Pad Site DesignPipeline Route Design

Compressor & Metering Station SitesWater Withdrawal & Impoundment Permitting

Land Surveying Roadway & Bridge Engineering

Environmental ServicesConstruction Management & Inspection

1500 Sycamore Rd., Suite 320Montoursville, PA 17754570-368-3040www.mctish.com

Additional OfficesAllentown, PAPittsburgh, PA

Page 42 The PIOGA Press

PIOGA EventsEastern Oil & Gas Conference and Trade Show

May 13-14, Heinz Field, PittsburghInfo: www.ipaa.org/meetings-events/upcoming-meetings

PIOGA Summer PicnicJune 16, Wanango Golf Club, RenoInfo: www.ipaa.org/meetings-events/upcoming-meetings

Calendar of Events

➤ More events: www.pioga.org

PIOGA Pig Roast, Equipment Show and ConferenceJuly 22-23, Seven Springs Mountain Resort, ChampionInfo: www.ipaa.org/meetings-events/upcoming-meetings

17th Annual Divot Diggers Golf OutingAugust 15, Tam O'Shanter Golf Club, HermitageInfo: www.ipaa.org/meetings-events/upcoming-meetings

Industry EventsPAA Congressional Call-Up

March 3-5, The Loews Madison Hotel, Washington, DCInfo: www.ipaa.org/meetings-events/upcoming-meetings

OOGA Winter Meeting March 5-7, Hilton Columbus at Easton, Columbus, OHInfo: ooga.org/events/ooga-events

IPAA Midyear MeetingJune 18-20, The Broadmoor, Colorado Springs, COInfo: www.ipaa.org/meetings-events/upcoming-meetings

NAPE EastApril 9-11, David L. Lawrence Convention Center, PittsburghInfo: www.napeexpo.com/nape-shows/nape-east

DUG EastJune 3-5, David L. Lawrence Convention Center, PittsburghInfo: www.dugeast.com

IOGAWV Annual Oil & Gas Equipment ShowJuly 9-11, Buckhannon, WVInfo: events.iogawv.com

IOGANY Summer MeetingJuly 16-17, Peek'n Peak Resort,Findley Lake, NYInfo: www.iogany.org

IOGAWV Summer MeetingAugust 3-5, The Greenbrier, White Sulphur Springs, WVInfo: events.iogawv.com

OOGA Summer MeetingAugust 4-5, Zanesville Country Club, Zanesville, OHInfo: ooga.org/events

Shale Insight 2014September 24-25, David Lawrence Conv. Center, PittsburghInfo: www.shaleinsight.com

IPAA Annual MeetingNovember 12-14, The Breakers, Palm Springs, FLInfo: www.ipaa.org/meetings-events/upcoming-meetings

OOGA Oilfield ExpoDecember 2-4, IX Center, Cleveland, OHInfo: ooga.org/events

Physical and Hedging Expertise for the O&G Industry

Art Cipriani Frank Kronz Phill Sabol

www.asset-risk.com Phone: 412-886-1800

Houston Pittsburgh Chicago Denver

Helping fuel our future with clean burning natural gas.

412.963.6443 | abartaenergy.com

ABARTAenergy

PIOGA Board of DirectorsGary Slagel (Chairman), Steptoe & Johnson PLLC (representing

CONSOL Energy)Sam Fragale (Vice Chairman), Chief Oil & Gas, LLCFrank J. Ross (2nd Vice Chairman), T&F Exploration, LPJames Kriebel (Treasurer), Kriebel CompaniesCraig Mayer (Secretary), Pennsylvania General Energy Co., LLCTerrence S. Jacobs (Past President), Penneco Oil Company, Inc.Thomas M. Bartos, ABARTA Oil & Gas Company, Inc.Stanley J. Berdell, BLX, Inc.Rob Boulware, Seneca Resources CorporationMike Cochran, Energy Corporation of AmericaDon A. Connor, Open Flow EnergyTed Cranmer, TBC ConsultingJack Crook, Atlas Resource Partners, LPRobert Esch, American Refining Group, Inc.Frederick W. Fesenmyer, Minard Run Oil CompanyMichael Hillebrand, Huntley & Huntley, Inc.Cathy Kirsch, Oil & Gas Management, Inc.Ron McGlade, Tenaska Resources, LLCJim McKinney, EnerVest Operating, LLCSteve Millis, Vineyard Oil & Gas CompanyGregory Muse, PennEnergy Resources, LLCStephen Rupert, Texas Keystone, Inc.Jake Stilley, Patriot Exploration CorporationGary M. Violi, Appalachian Well Services Inc.Burt A. Waite, Moody and Associates, Inc.Roger B. Willis, Universal Well Services, Inc.Thomas Yarnick, XTO Energy

Committee ChairsEnvironmental Committee

Paul Hart, Fluid Recovery Services, LLCKen Fleeman, ABARTA Oil and Gas Company, Inc.

Pipeline & Gas Market Development CommitteeBob Eckle, Appalachian Producer Services, LLCRon McGlade, Tenaska Resources, LLC

Health & Safety CommitteeDoug Mehan, Penn Energy Resources, LLCPat Carfagna, CONSOL Energy

Meetings CommitteeLou D’Amico, PIOGA

Tax CommitteeDonald B. Nestor, Arnett Foster Toothman, PLLC

Communications CommitteeTerry Jacobs, Penneco Oil Company, Inc.

Membership CommitteeCathy Kirsch, Oil & Gas Management, Inc.

StaffLou D'Amico (lou@pioga.org), President & Executive DirectorKevin Moody (kevin@pioga.org), Vice President & General Counsel Debbie Oyler (debbie@pioga.org), Director of Member ServicesMatt Benson (matt@pioga.org), Director of Internal Communications

(also newsletter advertising & editorial)Joyce Turkaly (joyce@pioga.org), Director of Natural Gas Market

DevelopmentDan Weaver (dan@pioga.org), Public Outreach DirectorDanielle Boston (danielle@pioga.org), Director of AdministrationChris Lisle (chris@pioga.org), Manager of Finance Tracy Koval (tracy@pioga.org), Administrative Assistant

Pennsylvania Independent Oil & Gas Association115 VIP Drive, Suite 210 • Wexford, PA 15090-7906724-933-7306 • fax 724-933-7310 • www.pioga.org

Northern Tier Office (Matt Benson)Mail: P.O. Box L, Mount Jewett, PA 16740-0554

Physical address: 167 Wolf Farm Road, Kane, PA 16735Phone/fax 814-778-2291

© 2014, Pennsylvania Independent Oil & Gas Association

February 2014 Page 43

New PIOGA members — welcome!

Draeger Safety, Inc.101 Technology Drive, Pittsburgh, PA 15275412-788-5543www.draeger.comService Provider

Keystone Clearwater Solutions, LLC1129 W. Governor Road, P.O. Box 797, Hershey, PA 17033-0797717-508-0550www.keystoneclear.netService Provider

Vincent P. Makovics111 Timber Lane, Belle Vernon, PA 15012-3134Royalty Owner

NGE (Novel Geo-Environmental, LLC)171 Montour Run Road, Moon Township, PA 15108412-722-1970www.ngeconsulting.comProfessional Firm

Pennsylvania Power CorporationP.O. Box 1812, West Chester, PA 19380484-887-8886www.pennpowercorp.comService Provider

Roe-Ada Well Support1445 West Cardinal Drive, Lock Haven, PA 17745412-600-4309www.roe-ada.comService Provider

SG Methane751 McClellandtown Road, Suite B, Uniontown, PA 15401-5053Royalty Owner

Skye Petroleum, Inc.4771 Sweetwater Boulevard, #213, Sugar Land, TX 77479814-489-3560www.skyepetroleum.comService Provider

Becky Snyder 1175 Hilltop Road, Indiana, PA 15701Royalty Owner

Stric-Lan Companies160 Imperial Plaza Drive, Imperial, PA 15126267-884-4269www.striclan.comService Provider

Venango Machinery Equipment & Appraisals453 Moody Run Road, Oil City, PA 16301-9999www.venangoequipment.comProfessional Firm

115 VIP Drive, Suite 210Wexford, PA 15090-7906

Address Service Requested

Largest

HDPE PipeStocking Distributor

in the EasternUnited States

Your HDPE Specialists: Fabrication • Fusion • Pipe I1-800-353-3747 • www.leesupply.com

QualityPEOPLE • PRODUCTS • SERVICE

Since 1954

SoilStabilization