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President Trump’s recent executive orders have benefited the oil pipeline industry in a number of ways, including most notably, giving the final “okay” to the Dakota Access Pipeline.  But some legislative mandates have been out of the reach of the President’s pen.  On April 27, the federal Pipeline and Hazardous Materials Safety Administration (“PHMSA”), within the Department of Transportation, released a final rule revising its maximum penalties for violations of pipeline safety laws.  The rule titled, Pipeline Safety: Inflation Adjustment of Maximum Civil Penalties, was issued pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, which requires federal agencies to adjust their civil monetary penalties annually to account for changes in inflation.  So what’s changed?
Continue Reading Some Not-So-Good News Out of Washington, D.C. for Pipeline Operators – Feds Increase Fines for Pipeline Safety Violations

On Thursday, the Environmental Protection Agency (“EPA”) released a long awaited, and congressionally mandated, study detailing the relationship between hydraulic fracturing and drinking water. The EPA found no signs of “widespread, systemic” drinking water pollution from hydraulic fracturing.

“It is the most complete compilation of scientific data to date,” says Dr. Thomas Burke, with the EPA’s Office of Research and Development, “including over 950 sources of information, published papers, numerous technical reports, information from stakeholders and peer-reviewed EPA scientific reports.”

“After more than five years and millions of dollars, the evidence gathered by EPA confirms what the agency has already acknowledged and what the oil and gas industry has known,” said Erik Milito, with the American Petroleum Institute. “Hydraulic fracturing is being done safely under the strong environmental stewardship of state regulators and industry best practices.”
Continue Reading EPA Finds No Systemic Threat to Drinking Water from Fracking

Three states have recently taken a stand for or against controversial bans on hydraulic fracturing. Oklahoma, Texas, and Maryland have all passed laws within the past month relating to hydraulic fracturing bans.

Oklahoma

Last Friday, Oklahoma Governor Mary Fallin signed Senate Bill 809, which prohibits local governments from choosing whether to have oil and gas operations within their jurisdictions. Oklahoma’s law allows exceptions for “reasonable” restrictions for setbacks, noise, traffic issues and fencing. Governor Fallin said “A patchwork of regulations that vary across the state would be inconsistent with the goal of reasonable, easily understood regulations and could damage the state’s economy and environment.” Senate Bill 809 reaffirms that the Oklahoma Corporation Commission is the primary entity charged with establishing a unified regulatory framework for the energy industry. Chad Warmington, president of the Oklahoma Oil and Gas Association, said “This bill was a good compromise for all involved. It maintains the Corporation Commission’s role in regulating oil and gas activities, without limiting cities’ ability to protect their residents.” Senate Bill 809 passed with wide margins in both the House and the Senate.
Continue Reading States Show Their True Colors on Fracking – One Enacts a Ban, While Two Others Prohibit All Local Bans

Today, May 8, 2015, the Pipeline and Hazardous Materials Safety Administration published a final rule for rail transport of crude oil in the Federal Register. These rules come after several high-profile oil train derailments, including one recently in North Dakota that caused the evacuation of a nearby town.

The final rule applies to “high-hazard flammable trains,” defined as trains with a continuous block of 20 or more tank cars loaded with a flammable liquid or 35 or more tank cars loaded with a flammable liquid dispersed through a train. The final rule regulates: (1) tank car design standards, (2) braking systems, (3) speed restrictions, (4) routing restrictions, (5) classifications of unrefined petroleum-based products, and (6) notification requirements.

Tank Car Design

New tank cars constructed after October 1, 2015 are required to meet new design criteria. Tank cars must be constructed with 9/16 inch steel walls and a head shield with a minimum thickness of 1/2 inch. The entire protection system must be covered with a metal jacket of at least 11 gauge steel. Tank cars must also include improved pressure relief valves and bottom outlet valves. All existing tanks must be retrofitted according to a risk based schedule in the next three to five years.
Continue Reading New Federal Oil-By-Rail Regulations Published

On Tuesday, May 5, 2015, the Internal Revenue Service (“IRS”) released proposed regulations defining qualifying income for Master Limited Partnerships (“MLPs”). MLPs are publicly traded partnerships that are taxed as a partnership rather than a corporation.

Being taxed as a MLP has many advantages. While shareholders in a corporation face double taxation  ̶  paying taxes first at the corporate level, and then at the personal level when those earnings are received as dividends  ̶  owners of a partnership are taxed only once, when they receive distributions. The absence of taxes at the company level gives MLPs a lower cost of capital than is typically available to corporations, allowing the MLPs to pursue projects that might not be feasible for corporations.

To qualify as a MLP, at least 90% of the entity’s gross income must be “qualifying income.” Previously, there had been no detailed list of what constitutes qualifying income.

These proposed regulations use the term “qualifying activities” to describe activities relating to minerals or natural resources that generate qualifying income. The IRS has now provided an exclusive list of operations that constitute qualifying activities. The activities addressed include exploration, development, mining or production, processing, refining, transportation, and marketing of any natural resource.
Continue Reading New Rules on MLPs & Qualifying Income: What Oil Services and Exploration Companies Need to Know

On Tuesday, April 21 the Obama Administration released the first Quadrennial Energy Review (“QER”) as a component of President Obama’s Climate Action Plan.  The extensive report analyzes energy infrastructure in the United States, and “identifies the threats, risks, and opportunities for U.S. energy and climate security, enabling the federal government to translate policy goals into a set of integrated actions.”  The primary purpose of the QER is to “modernize” the U.S. energy sector by replacing crumbling infrastructure, by increasing reliance on domestic energy sources, and by implementing a “clean energy economy built to last.”

The report highlights the United States’ complex and advanced energy production system, and includes descriptions and analysis of the different energy sectors.  For example, the report notes that the U.S. is the world’s leading producer of oil and natural gas, and the country is less dependent on foreign oil than it has been in over 40 years.Continue Reading Department of Energy Report Calls for U.S. to Modernize Energy Infrastructure, Invest in Natural Gas Pipelines

Today, Friday, March 20, the Bureau of Land Management (“BLM”), an agency within the Department of the Interior, published regulations for hydraulic fracturing on Federal and Indian lands.  The Final Rule becomes effective in 90 days and will impact about 2,800-3,800 wells each year.  In 2013, 90% of the 2,800 new wells on Federal and Indian lands were stimulated using hydraulic fracturing techniques, according to the BLM.  (Hydraulic Fracturing on Federal and Indian Lands, Final Rule, at p. 14.)  The regulations do not apply to fracking activity on private and state-owned land, where most of the fracking in the United States occurs.

Requirements under the Final Rule

The overarching purpose of the Final Rule is to provide a “baseline for environmental protection.”  (Id. at p. 12.)  Principally, a permit is required under existing oil and gas regulations.  Before beginning operations, an operator must submit an Application for a Permit to Drill (“APD”) to the BLM and wait for approval.  As the new regulations supplement the existing regulations, and do not replace them, this permit requirement will continue under the new regulations.Continue Reading Obama Administration Releases Federal Fracking Regulations

In a closely watched, 4-3 decision issued yesterday, February 17, the Ohio Supreme Court ruled that the ‘Home Rule Amendment’ to the Ohio Constitution does not grant the city of Munroe Falls the power to enforce its own oil and gas permitting scheme simultaneously with a state-wide permitting regime. (State ex rel. Morrison v.

Railroad transportation of raw petroleum, often referred to as “crude-by-rail,” has received increasing media attention in recent months, due to health and environmental concerns.  California took a stab at legislating rail transport through Senate Bill 861 (“SB 861”), which the State Legislature passed in June 2014 and the Governor subsequently signed into law.  On Tuesday, October 7, 2014, a group of railroad companies, led by Union Pacific Railroad Company, filed a complaint the United States District Court, Eastern District of California, alleging that SB 861 is preempted by federal law.

SB 861 imposes requirements on railroads operating within California that are duplicative of federal regulations.  For example, the law mandates oil spill prevention measures including reporting the quantity and substance of transported materials, and a map of track routes and facilities, both which are already required under federal law.  (See Gov. Code § 8670.29.)  Additionally, railroad operators must submit and gain approval of an oil spill contingency plan before they can legally operate throughout California.Continue Reading Railroad Companies Allege Federal Law Governing Petroleum Transport Preempts SB 861

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Here Stoel Rives shares insight and analysis about key mineral law developments. Drawing on a very active natural resources practice, we aim to keep readers informed about the legal aspects of news that impacts exploration and development of all things mineral.