Overview of Legal Issues in Marcellus Shale Development Penn State Ag Council Membership Meeting October 12, 2009 Agricultural Law Resource and Reference Center Ross H. Pifer, J.D., LL.M., Director

Penn State Ag Council October 12, Who Needs Legal Information?   Owners of Natural Gas Rights   Surface Owners   Private Attorneys   Local Government Officials   State Legislators   Industry / Industry Attorneys   General Public Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, Role of Agricultural Law Center   Presentations   Use of technology   Educational Programs   Pennsylvania Natural Gas Summit – November 16 to 18   Continuing Legal Education   Publications   Fact sheets   Case summaries   Legislative summaries   Web site – Natural Gas Exploration Resource Area   The Agricultural Law Brief Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, Sources of the Law   Lease Agreement   Statutes   Regulatory Agencies   Court Opinions Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, Sources of the Law   Lease Agreement   Statutes   Regulatory Agencies   Court Opinions Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, Standard Leasing Process Energy company presents landowner with lease agreement. Energy company presents landowner with lease agreement. Landowner negotiates additional terms to be included as addendum to lease agreement. Landowner negotiates additional terms to be included as addendum to lease agreement. Lease agreement will govern nearly all aspects of relationship between landowner and energy company. Lease agreement will govern nearly all aspects of relationship between landowner and energy company. Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, Contents of Lease Agreement Payment terms Payment terms –Bonus –Delay rental –Royalty –Free gas Conveyance of interest in mineral estate Conveyance of interest in mineral estate –Restrictions / conditions upon the energy company’s use of the property Length of lease agreement Length of lease agreement Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, Sources of the Law   Lease Agreement   Statutes   Regulatory Agencies   Court Opinions Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, PA Oil and Gas Act Declaration of Purpose – Section 102 Declaration of Purpose – Section 102 –Permit optimal development... consistent with protection of health, safety, environment, and property; –Protect safety of employees and facilities; –Protect safety and property of those near development; and –Protect natural resources Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, PA Oil and Gas Act   Specific provisions include:   Permitting   Well location restrictions   Protection of water   Well site restoration   Well plugging   Bonding   Reporting Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, Sources of the Law   Lease Agreement   Statutes   Regulatory Agencies   Court Opinions Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, State Agencies   Department of Environmental Protection (DEP)   Bureau of Oil and Gas Management   Department of Conservation and Natural Resources (DCNR) Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, Federal Agencies   Susquehanna River Basin Commission (SRBC)   Delaware River Basin Commission (DRBC)   Federal Energy Regulatory Commission (FERC)   Environmental Protection Agency (EPA) Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, Sources of the Law   Lease Agreement   Statutes   Regulatory Agencies   Court Opinions Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, Municipal Regulation of Natural Gas Drilling Operations Pennsylvania Supreme Court rulings Pennsylvania Supreme Court rulings –Borough of Oakmont Restriction on oil and gas wells in R-1 zoning district was not preempted by Oil and Gas Act. Restriction on oil and gas wells in R-1 zoning district was not preempted by Oil and Gas Act. –Salem Township SALDO was preempted by Oil and Gas Act. SALDO was preempted by Oil and Gas Act. Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, Minimum Royalty Act litigation Hundreds, possibly thousands, of landowners seek to terminate their lease agreements. Hundreds, possibly thousands, of landowners seek to terminate their lease agreements. Issue: Does reduction of royalty to pay for post-production costs violate Pennsylvania minimum royalty statute? Issue: Does reduction of royalty to pay for post-production costs violate Pennsylvania minimum royalty statute? Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, Rights of Surface Owner Belden & Blake Corp. v. DCNR Belden & Blake Corp. v. DCNR –DCNR could not require company to execute surface use agreement. Agricultural Law Resource and Reference Center

Penn State Ag Council October 12, Governments’ Roles in Natural Gas Development The Agricultural Law Resource and Reference Center Ross Pifer, J.D., LL.M., Director Phone: (814) Web: Agricultural Law Resource and Reference Center