drilling

A lot of money could be riding on three letters.

The Pennsylvania Supreme Court has agreed to weigh in with its interpretation of the word “any” in the statutory definition of “stripper well”—a decision that could be bound to hit either the shale industry or the Pennsylvania Utility Commission in the wallet depending on which way it goes.

The high court granted allocatur Oct. 18 in Snyder Brothers v. Public Utility Commission, agreeing to review a March ruling by a split en banc Commonwealth Court panel that an unconventional gas well that produces fewer than 90,000 cubic feet of gas per day during one month of a calendar year is not subject to impact fees.

Act 13 defines a “stripper well” as an “unconventional gas well incapable of producing more than 90,000 cubic feet [cf] of gas per day during any calendar month.”

The panel had found that the General Assembly intended “any” to mean “one,” rather than “every,” when it said in Act 13 that a stripper well is one that falls below the threshold “during any calendar month.” Stripper wells, as opposed to “vertical gas wells,” are not required to pay impact fees. The case attracted the attention of the Pennsylvania Independent Oil and Gas Association, which was an intervenor on behalf of Snyder Brothers Inc.

In its two-page order granting allocatur, the Supreme Court agreed to take up the following issues, as stated on appeal by the PUC: “(1) On a question of first impression involving substantial public interest, did the Commonwealth Court err in finding that the definition of ‘stripper well’ in the Unconventional Gas Well Impact Fee Act of 2012 (Act 13), was clear and unambiguous? (2) Is the Commonwealth Court’s opinion based on factual and legal errors and is it a significant departure from accepted judicial practices? a. Did the Commonwealth Court err in its statutory construction analysis, misreading the definition of ‘stripper well’ in Act 13, ignoring relevant legislative history, and ultimately reaching a conclusion that is an absurd result? b. Where the commission is charged with the administration and enforcement of the impact fee provisions of Act 13, did the Commonwealth Court err in failing to give deference to the commission’s interpretation of Act 13?”

The lower court majority had little use for dueling interpretations of what it said was straightforward legislative language.

“Viewing the plain language of the statutory provision in a common sense fashion, we agree with petitioners that the word ‘any’ in the definition of ‘stripper well’ is unambiguous and it clearly and plainly means what it says—’any month,’” Judge Patricia A. McCullough wrote for the 5-2 majority.

“Because a calendar year is a definite class consisting of 12 individual months, the most natural way to construe ‘any’ is to interpret it to mean at least ‘one’ month out of the year, no matter what or which month,” McCullough continued.

The decision reversed an order of the PUC that sought a broad interpretation of the word “any,” which would have required Snyder Brothers to pay impact fees on 24 wells in 2011 and 21 wells in 2012 because they would have been classified as vertical gas wells.

“Ultimately, the commission’s interpretation of ‘any’ in a broad manner to mean ‘every’ is misplaced and would have this court engraft non-existent verbiage onto the definition of ‘stripper well,’ which is something that we are simply not authorized to do,” McCullough said.

The facts of the case were not in dispute, McCullough said. After the Bureau of Investigation and Enforcement in 2014 filed a complaint alleging Snyder Brothers had failed to identify and pay impact fees on its wells, the company claimed they were stripper wells and moved for summary judgment. An administrative law judge agreed with the bureau that the definition of “stripper well” was ambiguous and ordered Snyder Brothers to pay interest, a mandatory penalty at the 25 percent maximum rate, and a $50,000 discretionary civil penalty.

The PUC affirmed the ruling, noting that Snyder Brothers’ interpretation would impede the collection of impact fees and permit drillers to artificially lower their gas produced in one month to avoid paying the fees, McCullough said.

Snyder Brothers appealed, arguing that “any” unambiguously means “one,” not “each and every” or “all.”

In construing “any” to mean “one,” McCullough said, “we conclude that when an unconventional gas well cannot produce more than 90,000 [cubic feet] of gas in at least one month, it is a stripper well and is not subject to impact fees.”

McCullough also noted that Snyder Brothers submitted records showing it had consistently operated the wells to full capacity, indicating that its interpretation of the statute “would not thwart or undermine the purpose of Act 13 or permit well producers to escape its requirements.”

In reviewing Snyder Brothers’ alternative argument—that the definition of “any” is ambiguous and because the impact fees are taxes, the term must be construed in the company’s favor as a taxpayer—the court also sided with the company. The decision applied the rule of lenity, which says that when a statute is penal and its language is ambiguous, it must be construed in favor of the defendant and against the government.

“Assuming, arguendo, that ‘any’ is an ambiguous term, this court concludes that an analysis of the statutory construction factors does not resolve the ambiguity and that the ambiguity must be construed in favor of [Snyder Brothers],” McCullough said.

Judge Michael Wojcik dissented, joined by Judge Joseph Cosgrove.

Brandon Coneby of Dinsmore & Shohl in Pittsburgh, who represented Snyder Brothers, could not be reached for comment.

Pioga’s Kevin Moody said he was surprised the Supreme Court took up the case because, in his view, this is not an issue of first impression: In reaching its interpretation of the word “any” in Act 13, the Commonwealth Court relied in part on the Supreme Court’s 2007 decision in Commonwealth v. Davidson, in which the justices interpreted the word “any” in a statute to mean “one.”

A spokesman for the PUC also could not be reached for comment.

Zack Needles can be contacted at 215-557-2373 or zneedles@alm.com. Follow him on Twitter @ZackNeedlesTLI.