American Oil and Gas Reporter - July 2018 - 125

tax rate is 384 percent higher than Ohio's
tax rate and 172 percent higher than
Pennsylvania's limited-term local impact
fee (the state does not have a true severance tax). Increasing West Virginia's

severance tax rate would diminish our
competiveness with Ohio and Pennsylvania and reduce our ability to realize
the hope for broad-based economic
growth. Is this really how we "fix"

PEIA's failing fundamentals?
The natural gas industry is the catalyst
for the best hope for a strong and vibrant
West Virginia. We simply have to allow
it to happen.
r

Bankruptcy Tops Gathering Contract
NEW YORK-A federal appeals court
has affirmed a lower court ruling that the
U.S. bankruptcy code allows a bankrupt
oil and gas producer to reject its gas
gathering agreements with a midstream
company.
Ruling in Sabine Oil & Gas Corp. v.
Nordheim Eagle Ford Gathering LLC, a
panel of judges at the U.S. Court of Appeals for the 2nd Circuit held on May 25
that a gathering agreement didn't create
a covenant that ran with the land, and
thus the bankruptcy code allowed a debtor
to reject that agreement as an executory
contract.
Under a 2014 contract, Nordheim
agreed to provide Sabine with gathering,
transportation and services for all of
Sabine's natural gas and condensate production in a designated area. The contract
required Sabine to pay Nordheim if required minimum amounts were not de-

livered, court documents describe.
Sabine filed for bankruptcy in July
2015. The company then sought judgment
in bankruptcy court that its gathering
agreement didn't run with the land and
therefore could be rejected. The bankruptcy
court accepted that argument in May
2016, and granted summary judgment to
Sabine. Nordheim appealed, but the U.S.
District Court for the Southern District
of New York affirmed the original decision,
concluding the gathering agreement did
not "touch and concern the land" because
it did not "affect the nature, quality or
value of the things demised," court documents state.
In its appeal to the 2nd Circuit, Nordheim argued the two lower courts erred
by misconstruing the gathering agreements
as personal obligations rather than "real
covenants that run with the land," court
documents say.

The appeals court points out this distinction is significant because if the agreements constitute real covenants that run
with the land, they are not executory contracts and the bankruptcy court lacks the
authority to approve their rejection. However, the court determined that under
Texas law, which the two parties selected
as the rule of law, horizontal privity-a
common interest in the land other than
the covenant-is required for a covenant
to run with the land, which is not the case
in Sabine, allowing for the gathering
agreement to be rejected in a bankruptcy.
Media reports speculate that in the
future, midstream companies may seek
to protect themselves from producers rejecting gathering agreements conveying
some real estate interest, such as the
grant of an overriding royalty interest,
within the structure of their gathering
agreements.
r

Industry Backs EPA's CTG Revisions
WASHINGTON-The Environmental
Protection Agency's proposal to withdraw
its recommendations for reducing volatile
organic compounds from oil and gas industry emission sources is receiving support from several trade groups and associations.
The EPA published its "Release of
Final Control Technique Guidelines (CTG)
for the Oil and Natural Gas Industry" on
Oct. 27, 2016. The agency says the CTG
provided information to state, local and
tribal air agencies to help them in determining reasonably available control technology (RACT) for VOC emissions from
select oil and gas emission sources in
ozone nonattainment areas classified as
moderate or higher, and states in the
Ozone Transport Region.
According to the agency, the CTG relied on underlying data and conclusions
made in the "Oil and Natural Gas Sector:
Emission Standards for New, Reconstructed, and Modified Sources (New
Source Performance Standards," issued
June 3, 2016. Two days later, EPA agreed
to reconsider the rule.
"In light of the fact that the EPA is re-

considering the 2016 NSPS and because
the recommendations made in the CTG
are fundamentally linked to the conclusions
in the 2016 NSPS, EPA believes it is
prudent to withdraw the CTG in its entirety," the agency says. "EPA also believes
that the withdrawal will be more efficient
for states in revising their state implementation plans."
The Independent Petroleum Association
of America, filing comments on behalf
of itself and 52 trade groups and state associations, asserts EPA is taking the prudent course in seeking to completely
withdraw the CTG. The industry coalition
says the agency's actions in reconsidering
federal air emission regulations, combined
with the efforts by states to impose their
own CTGs as required by state implementation plans, justifies EPA's course
of action.
"While the current action to withdraw
the existing CTG is essential, it is important
to understand that these CTGs as written
are flawed," the groups state. "NSPS require a determination of the Best System
of Emissions Reductions (BSER) while
a CTG requires a determination of RACT.

These CTGs essentially use the NSPS
technology requirements that are based
on the BSER standard with the NSPS
created for large hydraulically fractured
oil and natural gas wells."
Unaffected Sources
EPA says its withdrawal of the CTG,
if finalized, would remove the mandatory
RACT review requirement for affected
sources in ozone nonattainment areas
classified as moderate or higher, and
states in the Ozone Transport Region.
The agency adds the withdrawal would
not affect oil and natural gas industry
sources otherwise covered by the major
source thresholds for RACT review: 100
tons per year (tpy) for moderate areas,
50 tpy for serious areas, 25 tpy for severe
areas and 10 tpy for extreme areas.
According to EPA, the CTG's withdrawal will not hinder states from establishing, where desired or otherwise required, emissions standards for oil and
gas industry sources, including standards
based on recommendations contained in
the withdrawn CTG. "Having said that,
the withdrawal of the CTG will relieve
JULY 2018 125

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