PA Court Says Compressor Stations Essential to Production

Zack Needles      The Legal Intelligencer      May 28, 2012

A gas compressor station operation.

The Commonwealth Court has ruled that the operation of a compressor station falls within the definition of gas production as used in a townships zoning ordinance, and thus cannot be banned by a township in areas where gas production is otherwise permitted.

The ruling could be an important one as Pennsylvania municipalities seek to control certain aspects of Marcellus Shale-related natural gas development.

A three-judge panel led by Judge Mary Hannah Leavitt reversed McKean County Common Pleas Senior Judge William F. Morgans ruling, which affirmed an order of the Bradford Township Zoning Hearing Board that held that a compressor station was not a permissible use in the townships forest, slope and residential district despite the fact that oil and gas production is allowed there.

Judge Leavitt said a compressor station was necessary to move gas from the wellhead to a pipeline in order to be carried away from the site, and was therefore a component of gas production under the townships zoning ordinance.

The ordinance allows for oil and gas production, including equipment necessary to drilling or pumping operations, but not including the construction or alteration of new or existing storage.

The evidence is uncontroverted that without the compressor station, New Centurys gas at the wellhead is useless, except, perhaps, for flaring and roasting marshmallows, Judge Leavitt said.

Judge Leavitt was joined by Judges P. Kevin Brobson and Renee Cohn Jubelirer.

In the appeal, Bradford Township Zoning Officer Jack Carnes issued a notice to New Century Pipeline, a company that drills and pumps for shallow gas, claiming the companys compressor station violated a section of the townships zoning ordinance.

The zoning officer said the compressor station was not necessary to drilling or pumping operations, since its function was to process gas that had already been extracted which, Mr. Leavitt, said is only permissible in the townships general manufacturing district, not its residential and woodland districts.

New Century, however, contended that the station was essential to gas production because gas could not be moved from the wellhead without it.

At the hearing on the enforcement notice, William Woodring, a nearby resident and retired fire chief at an oil refinery, testified that the compressor was not involved in gas production because it was not necessary for removing gas from the ground.

Trial court Judge Morgan cited Blacks Law Dictionarys definition of produce [t]o bring (oil, etc.) to the surface of the earth and interpreted production as the act of bringing gas from underground to the earths surface.

Ultimately, Judge Morgan determined that the compressor station was processing the gas since it was changing the chemical composition of it after it had moved a few feet from the wellhead.

New Century, however, argued that the edition of Blacks Law the trial court relied was wrong.

Judge Leavitt, meanwhile, said the defining issue is the meaning of oil and gas production, including equipment necessary to drilling or pumping operations.

The fixation on single words has perverted a logical construction of [the] Zoning Ordinance, Judge Leavitt said, explaining that dictionaries were of limited utility in the case since the compressor station fits the definitions of both production and processing.

Judge Leavitt said the board also should not have relied on Mr. Woodrings initial testimony. Judge Leavitt also disagreed with the townships reliance on the Supreme Courts rulings in both Gulf Oil, from 1947, and Kilmer v. Elexco Land Services from 2010.

In Kilmer, the Supreme Court, in ruling that gas companies could deduct production costs from royalty payments, made a determination between production and post-production, but did not address processing, Judge Leavitt said.

Gulf Oil, meanwhile, was a tax case in which the justices mentioned the definition of processing merely in passing.

In sum, we hold that operation of the compressor station is gas production, [and,] as such, a permitted use, Judge Leavitt wrote.

Any other interpretation makes gas production, including equipment necessary to drilling or pumping operations impermissible, which contradicts the Zoning Ordinances express authorization of gas production in the Forest District.

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