A vital yet often overlooked aspect of the energy industry is no longer under the radar in Pennsylvania. Pennsylvania’s Department of Environmental Protection (PADEP) has begun to actively apply the 2012 Oil and Gas Act (Act 13) to natural gas storage operations.
Recently, PADEP fined a Pennsylvania-based storage field operator $650,000 for violating Section 3234 of Act 13. The fine was based on the operator’s alleged failure to properly document the identification and mapping of historic gas wells in its storage field reservoir area. Not only was a significant penalty assessed against a storage operator, it was the first time PADEP took action against a storage operator under Section 3234.
Natural gas storage fields in regulatory crosshairs
There are approximately 400 active underground natural gas storage fields in the U.S. Depleted oil and gas reservoirs make up about 80% of these fields. Significant issues involving storage fields are rare, but incidents like the Aliso Canyon leak in California have brought storage fields into the public eye and squarely in regulatory crosshairs. While Pennsylvania has not experienced any significant storage field leaks like Aliso Canyon, many gas wells in Pennsylvania storage fields share characteristics similar to the California wells, some of which are in storage fields that are over 100 years old.
Pennsylvania has a large and active gas storage industry. It has the most storage fields in the country with total natural gas storage capacity of 774,309 million cubic feet, and the fourth largest capacity in the country following Michigan, Illinois and Texas. Pennsylvania has approximately 60 active and 20 inactive storage fields in 25 counties, with virtually all of the active storage fields being comprised of depleted oil and gas reservoirs. It’s estimated that up to 65% of these storage fields are located in populated areas.
Natural gas storage in Pennsylvania has expanded with the exponential growth of the shale industry. Since the mid-2000s, natural gas drilling in Pennsylvania has skyrocketed, with over 11,000 unconventional shale gas wells drilled, many of which in proximity to populated areas. Gas produced from these wells is often stored in gas storage reservoirs in the Commonwealth. While Pennsylvania’s storage industry has operated safely for decades, given the considerable increase in natural gas activity in recent years and its perceived risks, the prospect of enhanced regulatory scrutiny should not be unexpected.
Extensive maps, data and testing pushing Pennsylvania storage fields
Regulation of natural gas storage fields in Pennsylvania is not new – it began in 1955 with the Gas Operations Well-Drilling Petroleum and Coal Mining Act (the 1955 Act). The 1955 Act, and its amendments, provided for comprehensive coordination of coal mine and gas well operations to ensure the safety of those operations. Natural gas storage regulations were most recently amended by Act 13. Act 13 did not add any new substantive storage regulations. It did, however, impose specific requirements on storage operators to compile and share detailed information and records of underground gas storage fields with PADEP as well as, when relevant, with owners or operators of underground coal mines.
Under Act 13, storage field operators have a duty to maintain and operate all wells and the reservoir in a manner sufficient to prevent the escape of gas. PADEP will now be applying Sections 3231 and 3233 to require storage field operators to locate all wells, which have or may have been drilled into or through the storage stratum, and to plug or recondition those wells.
Storage field operators are further required to provide PADEP with maps and a variety of other specific data regarding these wells, conduct monthly and annual inspections to make sure no gas is leaking or other hazardous condition exists, keep accurate records of inspections and integrity testing data, and implement gas storage well monitoring and integrity testing programs.
In addition, storage field operators are required to case and cement gas storage wells to ensure no gas leakage, notify PADEP before any plugging activity takes place, and also inform PADEP about making any emergency repairs.
Act 13 calls for even stronger regulations on storage fields near active coal mines
Act 13 imposes significant additional requirements on storage operators operating near active coal mines. The requirements of Section 3234 are triggered when a storage field underlies or is within 2,000 feet of an active coal mine. PADEP is now requiring storage field operators in these areas to: (1) use every known reasonable method for discovering and locating all wells that have been or may have been drilled into or through the storage stratum and (2) plug or recondition all of these wells.
The storage field operators are required to document these efforts by filing maps and extensive well data and records with PADEP, and provide a detailed explanation of steps taken and results of discovering and locating all of the wells. Most significantly, operators are required to submit a “verified statement” in which an officer of the company is required to attest, under oath, to the efforts and results of the company’s investigation.
Practical challenges and potential pitfalls
Over the past 150 years, it’s estimated that 350,000+ natural gas wells have been drilled in Pennsylvania. Countless wells were drilled following the birth of the American oil and gas industry with Drake’s Well in 1859 and long before the establishment of the state’s regulatory system. Given this extensive history, it’s not surprising that not only is there no uniform reporting system for many of these wells, but on many occasions available records are missing, incomplete, non-existent or wrong. That makes accurately reporting on historic wells that may be located in a storage field reservoir area a significant challenge especially considering that PADEP estimates that there are over 8,000 orphaned gas wells and approximately 200,000 unaccounted for wells in Pennsylvania.
As a result, the potential level of effort to coordinate and complete what amounts to a forensic investigation is significant. Storage operators will have to use numerous resources – including online databases, GIS, paper well records, aerial photography, historical society information and field observations -- to complete their work. The storage operators are then required to provide and stand by their work notwithstanding the absence of modern, or, in many instances, any verifiable records.
Takeaways for storage field operators
Pennsylvania storage field operators are facing substantially heightened reporting and compliance requirements under Act 13. These requirements are not new, but the manner in which they are being enforced by PADEP is new. Operators essentially have to prove that all wells (including historic orphaned and abandoned wells) that penetrate or may penetrate the storage reservoir are in compliance with Act 13’s requirements.
One challenge is that the records and information concerning these wells is often incomplete, materially inaccurate and/or conflicts with other available records. Nonetheless, operators are required to basically guarantee that they took all necessary steps to locate and report on the compliance status of wells that, in some instances, are over 100 years old.
The stakes are even higher for storage operators near active coal mines as an officer has to verify, under oath, as to the determinations and results of their investigation and compliance efforts.
Learn more about this issue and how Buchanan Ingersoll & Rooney can help you navigate through the heightened reporting and compliance regulations facing your company.