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Hydraulic Fracturing Regulatory Updates in California and Pennsylvania

by McDermott Will & Emery | May 24, 2012 | Environmental, Hydraulic Fracturing

California Exploring Hydraulic Fracturing Regulation

California currently has no regulations specific to fracing but has well construction standards designed to keep natural gas and oil field fluids away from underground water sources. Fracing has taken place in California, but applications for permits to frac are reviewed on a case-by-case basis by the Department of Environmental Conservation’s (DEC) Division of Oil, Gas and Geothermal Resources. This is likely to change soon, however, as the DEC announced last week that it will propose new rules specifically for fracing by the end of summer 2012. DEC will hold a series of workshops across the State to gather data and will commission a study on fracing’s effects in the state. The agency also plans to review its existing policies for underground injection wells. If prior regulatory efforts in California are any indication, the issue could progress quickly and fairly strict regulations could be proposed by August or September 2012.

Parallel to this recent activity by DEC, fracing legislation remains pending in Sacramento but there has been little movement on it. Under this proposed legislation, oil companies would be required to post the names and concentrations of fracing chemicals on a national online registry within 60 days of stopping hydraulic fracturing and list the locations of any wells where fracing occurred and the dates when fracing was performed.

"Marcellus Compact" Introduced in Pennsylvania to Limit Hydraulic Fracturing

Earlier this year, the Pennsylvania Legislature passed Act 13, putting into place comprehensive new rules regulating almost every aspect of hydraulic fracturing. Among the new rules in Act 13, and arguably the most controversial, is one that effectively preempts towns from putting in place well siting restrictions that are more stringent than those provided for in state rules. The effect of this rule is that towns and municipalities are prevented from banning (or significantly restricting) fracing within their borders – something that more than 100 towns in neighboring New York have already done under "home rule" laws. Several towns recently filed a legal challenge to the constitutionality of this particular provision of Act 13, and in April they won a 120-day injunction to bring local rules into compliance with the new state rules. The underlying constitutional claim remains pending in that case.

In the interim, several House Democrats recently unveiled what they call the "Marcellus Compact," – six separate pieces of legislation aimed at amending or overriding different Act 13 provisions. One of those bills, sponsored by Democratic Whip Mike Hanna, would substitute a statewide severance tax for Act 13’s local impact fee and, more importantly, would restore local and municipal authority to ban or restrict hydraulic fracturing .

The other bills introduced as part of the Marcellus Compact seek to (1) increase environmental setbacks and bonding requirements for wells; (2) establish a public online tracking system for fracing wastewater storage and disposal; (3) prohibit drilling in floodplains; (4) place a moratorium on discharging drilling wastewater [...]

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EPA Releases Final Permitting Guidance for Fracing with Diesel Fuel

by McDermott Will & Emery | May 22, 2012 | Environmental, Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

Hydraulic fracturing (fracing) on private land has long been overseen by state regulators enforcing state-specific permitting, installation and other requirements. The one exception is wells fractured with diesel fuel, which remain subject to U.S. Environmental Protection Agency (EPA) oversight under the Underground Injection Control (UIC) rules of the federal Safe Drinking Water Act (SDWA). EPA typically has delegated its UIC oversight responsibility to state regulators and, for more than a year, has quietly been providing direction to these state regulators about what EPA wants to see as a condition to issuing drilling permits for wells that will be fractured with diesel. That direction now has been reduced to a formal guidance document, which the agency issued for public review and comment on May 10, 2012. While EPA’s proposed guidance has attracted little media attention (principally because it was issued on the same day that the Department of Interior proposed long-awaited regulations for fracing on federal lands), EPA’s latest initiative to regulate fracing is something that all stakeholders – whether they use diesel or not – need to be following closely for several reasons:

1. EPA has proposed defining "diesel" by reference to six Chemical Abstracts Service Registry Numbers (68334-3-5; 68476-34-6; 68476-30-2; 68476-31-3; 8008-20-6; 68410-00-4), all of which essentially describe different types of diesel fuel, fuel oil or kerosene. However, the EPA has also proposed as an alternative three broader definitions that focus on the chemical and physical characteristics of "diesel" and which, if adopted, could apply to substances like mineral oil. These alternative definitions of "diesel" could bring many more fracing fluids, and many more fracing stakeholders, under UIC and EPA regulatory control.

2. EPA has proposed significant changes to existing federal permitting requirements relating to (a) permit duration and well closure; (b) Area of Review analyses; (c) well monitoring and integrity analyses; (d) water quality testing and monitoring, including baseline groundwater testing before drilling; and (e) other data and information requirements for obtaining a permit including, potentially, requiring applicants to conduct expensive seismic surveys. While much of this information is already required by state regulatory authorities, it is clear that the permitting scheme being contemplated by EPA would be more costly, time-consuming and burdensome than the rules imposed by most states.

3. Finally, in a notable departure from its own prior pronouncements, at page 16 of its guidance, EPA suggests that fracing can open conduits in the subsurface that might allow fracing fluid to migrate upward into shallow drinking water supplies: "Due to high injection pressures, there is potential to induce fractures that may serve as conduits for fluid migration …" EPA’s statement is troubling because it suggests that the agency is stepping back from decades of research (including studies by USGS and EPA itself) which demonstrates that deep fracing poses no threat to shallow groundwater located above thousands of feet of bedrock and other sub-strata. EPA’s retreat on this important point potentially opens up a new line of attack [...]

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Recent Developments in Federal and State Efforts to Regulate Hydraulic Fracturing

by McDermott Will & Emery | Apr 30, 2012 | Environmental, Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

Obama Signs Executive Order Creating Hydraulic Fracturing Task Force

President Obama’s position that hydraulic fracturing must be conducted in a "safe and responsible" manner has been interpreted as suggesting the need for increased federal regulation of fracing. Indeed, various federal agencies have stepped forward with proposed regulations targeting air emissions, chemical disclosures, wastewater handling and other fracing-related issues. Many natural gas stakeholders have expressed concern about this building wave of federal regulation, from different agencies and regulators, and the potential that this will result in inefficient, burdensome and even conflicting federal-versus-federal and federal-versus-state regulatory requirements.

Perhaps in response to these concerns, on April 13, President Obama signed an executive order creating a task force of 13 federal agencies to "coordinate the efforts of Federal agencies responsible for overseeing the safe and responsible development of unconventional domestic natural gas resources and associated infrastructure and to help reduce our dependence on oil …." While some in the oil and gas industry have applauded the creation of this task force for its potential to streamline and coordinate federal activity on fracing, stakeholders will keep a close eye on the path taken by the Obama Administration. Since 2005, the bulk of hydraulic fracturing oversight has come from state regulatory authorities – who typically are better positioned to deal with the unique regional and local issues often presented by oil and gas development.

Requiring coordination among 13 different federal agencies may be a positive development. However, the precedent of federal regulation – and the possibility that coordination may lead to calls for more regulation in the future – may be one that stakeholders will be less than enthusiastic about, particularly after the Environmental Protection Agency wraps up its multi-year study of fracing’s impacts on groundwater in 2014.

Colorado Governor’s Task Force Releases Draft Report

A task force established by Colorado Governor John Hickenlooper recently released a draft report on strategies regarding state and local development and regulation of oil and gas activities. The task force determined that "drawing bright lines between state and local jurisdictional authority was not realistic or productive," thus refusing to find that local authority is completely preempted by the Colorado Oil & Gas Act. The group also concluded that no new laws are necessary at this time, but that consideration of Colorado’s oil and gas rules related to setbacks and air quality are topics for further discussion.

The task force is comprised of representatives from counties, municipalities, the state, industry, civic organizations and the general public. The Governor’s task force was established only a few days after two New York trial courts rejected separate legal challenges to local zoning amendments that banned hydraulic fracturing – handing victories to those who advocate for "local" (not state) control over whether fracing is allowed. Fracing supporters in Colorado had hoped that the task force report would conclude (or recommend) that state regulation preempted local ordinances like those in New York. Fracing opponents had hoped for [...]

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UK DECC Commissioned Report Recommends Hydraulic Fracturing in Britain

by McDermott Will & Emery | Apr 25, 2012 | Environmental, EU Developments, Hydraulic Fracturing

by Charlotte Doerr

The practice of fracing (referred to as “fracking” in the UK) in the United Kingdom has once again come under scrutiny. The UK’s Department of Energy and Climate Change (DECC) commissioned an independent panel to examine a possible relationship between the practice and certain earthquakes which took place in April and May 2011. The earthquakes occured near the site of the UK’s only fracing operation in Preese Hall, near Blackpool. On April 17, 2012, the panel published its findings in a report.

Fracing is the practice of pumping water, sand and chemicals into shale rock at a high pressure in order to extract reserves of natural gas stored within the shale rock, known as "shale gas." The report considered the impact such a process may have on seismic activity. The report concluded that the fracing operation (which was suspended following the earthquakes) had caused the earthquakes, thus providing some of the first evidence of this connection. However, the report also found that the risk that fracing could cause an earthquake resulting in significant damage was "very low."

The report recommended that fracing be allowed in the UK but, given that there is evidence of a connection between fracing and seismic activity, a number of safety provisions should be put in place to mitigate against seismic risks arising from fracing. The safety provisions include:

conducting a detailed assessment of the relevant area prior to fracing taking place, including: performing baseline seismic monitoring so that seismic risk of the area can be determined; using both geological and geophysical data to determine the existence of any active faults in the area; and using ground motion prediction models to consider and assess the possible impact of any earthquakes; and
implementing a "traffic light" system with real-time monitoring of seismic activity during the fracking process. A "red light" would be triggered by any seismic tremor meauring 0.5 local magnitude (a level lower than the size of the 2011 earthquakes) or higher. The triggering of a red light would require the cessation of fracing and the taking of certain safety procedures including, allowing fluid to flow back to the surface.

In conjunction with the publishing of the panel’s report, the DECC is inviting public comment on the recommendations made by the report until May 25, 2012.

The DECC has stated that no decision will be made as to whether fracing operations for shale gas can be resumed until all comments in response to the report have been received and considered.

EPA Releases Final Fracturing Air Rule

by McDermott Will & Emery | Apr 19, 2012 | Environmental, Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

The U.S. Environmental Protection Agency (EPA) released final regulations on April 17 to reduce certain emissions at hydraulically fractured wells by 95 percent. The rule, a product of a February 2010 consent decree with WildEarth Guardians and the San Juan Citizens Alliance, adds New Source Performance Standards (NSPS) and amends existing National Emissions Standards for Hazardous Air Pollutants (NESHAPS) for the oil and gas industry.

NSPS Standards

The NSPS standards will reduce by 95 percent volatile organic compound (VOC) emissions during the completion phase of hydraulically fracturing a well. In addition, although not a regulated substance under NSPS, the new rules have the effect of reducing fugitive methane emissions by 25 percent. These VOC and methane emissions reductions will be attained by requiring that all newly fractured or refractured wells incorporate reduced emissions controls (RECs). In total, EPA estimates that the rule will result in reductions of 11,000 tons of Hazardous Air Pollutants (HAPs), 190,000 tons of VOCs, and 1 million tons of methane, with a net benefit of $15 million as a result of the increased profit from captured methane sales.

The final rule adopts several changes suggested during the public comment period, most important of which is the delayed deadline of January 1, 2015 for requiring the use of RECs. While REC technology currently exists, EPA recognized that the number of REC units required to meet the new regulations far exceeds those actually in existence today. Until then, well operators or owners can achieve specified VOC reductions using flaring or other approved combustion methods.

The final rule also modifies the definition of "well completions," limiting the REC requirement to that period when fracing operations end and flowback begins. The requirement remains in effect until the well is either continuously flowing to the flow line or storage vessel for collection (in which case there should be no fugitive emissions) or shut in, whichever occurs first.

In addition, EPA has exempted low-pressure wells from the REC requirement in response to comments that it is unfeasible to require RECs for low-pressure wells. For low-pressure wells, as well as wildcat (or exploratory) and delineation wells, which are also exempted from the REC requirement, operators can continue to use flaring to achieve specified reductions.

EPA also has rewarded early adopters of REC technology, and encourages others to join early, by redefining actions that constitute "modifications" triggering NSPS requirements. Some states require that any source subject to federal NSPS must get a state minor source air permit. This new definition allows owners and operators of existing wells employing RECs to refracture without changing state permit status, thus avoiding delays and costs associated with the state permitting process.

Finally, but importantly, the rest of EPA’s new rules are not delayed, and take effect 60 days from publication in the Federal Register.

NESHAPS Standards

While EPA adopted many of the comments about the NSPS rules, stakeholders were less successful in obtaining changes to the proposed [...]

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Maryland: Split Decision on Two Hydraulic Fracturing Bills; Permanent Ban Proposal Next?

by McDermott Will & Emery | Apr 19, 2012 | Environmental, Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

Western Maryland sits atop the Marcellus Shale and, since approximately 2008, several companies have leased lands in anticipation of conducting hydraulic fracturing (fracing) operations in the area. Those operations have been on hold since March 2011 because of a de facto moratorium on fracing that Governor O’Malley and the Legislature put in place to give officials time to complete a two-year study of potential environmental and health impacts, and to propose rules for how fracing operations in the state should be conducted. That study is due to be completed in 2013, but in the interim Maryland legislators have proposed almost 20 bills aimed at fracing activity in the State. Stakeholders should be aware of recent actions taken on two of these legislative proposals.

First, $1 milion reportedly is required to finish the administration’s study, and funding has not been provided for in this year’s state budget. To close this funding gap, Governor O’Malley recently proposed legislation that would have imposed a one-year fee of $10.00 (Senate version) or $15.00 (House version) per acre on all lands already leased in western Maryland for potential fracing activity. After the General Assembly rejected that fee legislation, Governor O’Malley announced that his administration will complete the study with funds from other (yet undisclosed) sources. The issue for stakeholders is that, the lack of funds may delay the study’s completion — meaning that Maryland stakeholders may have to wait until 2014, or longer, to see if fracing will be allowed and under what rules.

Indeed, whether fracing takes place at all may be the next battle in Maryland. Representative Heather Mizeur (D-Montgomery County), who introduced the fee legislation in the Maryland House, has warned that she may now seek a permanent ban on fracing in light of industry’s opposition to the fee bill. Fracing stakeholders with an existing (or potential) interest in Maryland may want to keep an eye on Annapolis in the coming months before committing resources to the Old Line State.

Second, on April 6, the Maryland General Assembly passed another of Rep. Mizeur’s legislative initiatives, a bill that creates a "presumptive impact area" around a well that has been hydraulically fractured. Under this new rule, well operators will be presumed responsible for any contamination that occurs within 2,500 of a well for one year after the last operational activity on that well. The operator will bear the burden of proving that any such contamination was not caused by its fracing operations. If this burden cannot be met, the operator will be required to install a new water supply well (or retrofit the existing supply well) for anyone impacted by the contamination. Burden-shifting rules exist in several states for contamination caused by leaking underground storage tanks, and legislation similar to Maryland’s also has been proposed in New York. Because such rules make it easier for property owners to sue for alleged impacts to their private water supplies, they may encourage litigation – something [...]

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New York: Senate Bill Calls For Earthquake-Hydraulic Fracturing Study

by McDermott Will & Emery | Apr 19, 2012 | Environmental, Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

The link between hydraulic fracturing activity and seismic activity has been the subject of much discussion of late, including on this blog (see "USGS Study Concludes Increased Seismicity May Be Attributable to Hydraulic Fracturing," posted on April 4, 2012). Ohio has put in place new rules for deep-well injection disposal of used fracing water, in an attempt to avoid the small earthquakes that occurred in Youngstown last Fall. New York is now weighing in on the issue. State Senator Tony Avella recently introduced a bill that would require a seismological impact study related to hydrofracking to be performed by a state university. Sen. Avella’s bill would require that the study consider potential seismic effects both locally and state-wide; that it recommend activities or practices to mitigate future seismic activity; and that it provide a plan to monitor for seismic activity in the future.

The bill proposes to fund the study through appropriations from the general budget, which was the death-knell for a similar piece of legislation introduced earlier this year that would have funded a state university study of fracing’s health effects. Given New York’s tight fiscal environment, and the fact that federal studies of a possible fracing-earthquake link are already underway, we expect this bill to meet the same fate as the health study. Sen. Avella, fully aware of the fate of the heath study bill (which he sponsored) likely is making a political statement with this latest legislation. Nevertheless, stakeholders need to be aware that the earthquake-fracing link is one that is catching increased attention from federal and state authorities, and likely will remain an issue for some time.

Pennsylvania: EPA Again Concludes that Dimock Well Water Is Safe to Drink

by McDermott Will & Emery | Apr 19, 2012 | Environmental, Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

At the request of residents in Dimock, PA, for the past several months EPA has been testing drinking water wells for contamination that the residents attribute to nearby fracing activities by Cabot Oil. Earlier this month EPA concluded that the water in several of these wells was safe to drink. Last Monday, EPA reported that the water in several other wells also was safe to drink.

Drilling Down on Hydraulic Fracturing; EPA Dismisses “Emergency Powers” Claim in Latest Regulatory Twist

by McDermott Will & Emery | Apr 11, 2012 | Hydraulic Fracturing, Renewables

by James A. Pardo and Brandon H. Barnes

The practice of hydraulic fracturing (fracing) for natural gas is arguably the most visible and controversial energy/environmental issue of the day. Federal, state and local regulators across the country are racing each other to regulate. Academic, industry, environmental, community and a myriad of other interest groups and non-governmental entities are attempting to influence the regulatory process. The media, and the plaintiffs’ trial bar, is circling.

In “Drilling Down on Hydraulic Fracturing,” presented at the 63rd Annual Oil & Gas Law Conference in Houston in February 2012, McDermott trial partner, James A. Pardo, provides an overview of the most significant issues and recent developments that may effect fracing in 2012 and beyond. These issues are of potential importance not only to oil, gas and energy companies, but to any company with a "stake in the game" on fracing: financial institutions, private equity investors, pension funds, hedge funds, developers, etc.

In the weeks since that presentation, several developments have occurred which touch on one or more of the topics discussed in this paper. In one of the latest developments, the U.S. Environmental Protection Agency (EPA) announced on March 30 that it was dismissing claims that fracing by Range Production Company (RPC, a subsidiary of Range Resources Corporation) had contaminated groundwater near Fort Worth, Texas.

In December 2010, EPA issued a Safe Drinking Water Act (SDWA) emergency order requiring RPC to halt fracing activity and undertake remediation of the groundwater. Because fracing largely is exempted from the SDWA, the agency acted against RPC by invoking the “emergency powers” it retains under that statute to act when it believes a company’s activity may pose an imminent and substantial danger to human health. Fracing stakeholders have been concerned that EPA was using the action against RPC as a test case for broader “emergency powers” regulation of fracing that, in effect, would allow the federal agency to circumvent Congress’ SDWA exemption.

Considering that the facts in this action were particularly weak for EPA, the agency’s decision to drop enforcement of its emergency order (and a companion lawsuit) against RPC should not be interpreted as EPA disclaiming SDWA “emergency powers” entirely. Unless and until Congress revokes the SDWA exemption, EPA can be expected to continue its efforts to regulate fracing from several different angles. We would not be surprised to see the agency file another "emergency powers" action on better facts, and against a less-motivated opponent, in the coming weeks or months.

Nevertheless, EPA’s dismissal unquestionably is a setback for the agency that has been forced to beat two other retreats from fracing-related regulatory efforts in recent weeks (e.g., Pavillon, WY; and Dimock, PA).

Hydraulic Fracturing: Air Joins Water as Point of Contention

by McDermott Will & Emery | Apr 10, 2012 | Environmental, Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

The public and regulators alike continue to scrutinize the impact of hydraulic fracturing on water resources – e.g., possible contamination of drinking water; volume of water used; and disposal of used fracing wastewater. These water issues have dominated the debate for some time, overshadowing concerns that some have raised about potential impacts from an air quality perspective. Recent events, however, indicate that air emissions are likely to become a fracing issue.

On April 3, Henry Waxman (D-CA) and Diana DeGette (D-CO) wrote to Environmental Protection Agency (EPA) Administrator Lisa Jackson asking the agency to consider a recent Colorado School of Public Health (CSPH) study linking air emissions from hydraulic fracturing activities to increased risks of cancer and non-cancer illnesses. The letter comes one day after EPA delayed publication of final rules for air emissions from oil and gas extraction activities to give itself time to review the more than 156,000 public comments submitted on the draft rules.

The CSPH study found that residents of Battlement Mesa who reside within 1/2 mile of a hydraulically fractured well have an increased risk of contracting illnesses due to volatile organic compounds (VOC) that drilling operations release into the air. The study methodology and analysis have been criticized by stakeholder groups for using data gathered before enactment of stricter state air standards; for assuming that residents remain in town for 350 days per year, 24 hours per day, thus receiving 24-hour doses; and, for disregarding VOC contributions from local highway traffic.

The study was commissioned by Garfield County in 2010 at the request of Battlement Mesa residents, then decommissioned by the county in May 2011 after questions were raised by the County Department of Public Health. CSPH scientists continued with the analysis on their own, and are scheduled to publish the results in an upcoming edition of the magazine, Science of the Total Environment. Garfield County, however, disavows any connection to the study.

Battlement Mesa residents are part of what is widely considered the test case for class actions alleging harm from hydraulic fracturing. The suit contends that residents have suffered health impacts from air and water contamination as a result of natural gas development at a well pad near the community, and stand to endure further environmental effects and diminution of property value because of plans to drill up to 200 additional wells within town limits..

The CSPH study follows a National Oceanographic and Atmospheric Administration (NOAA ) study on fracing emissions, reported in the Journal of Geophysical Research in February. The NOAA study concluded that fugitive natural gas emissions from drilling operations ranged from 3 to 5 percent. These findings were roughly in line with an earlier Howarth (Cornell University) study and were above industry reported levels. Critics of the industry quickly pointed to the study as evidence that fracing is making significant contributions to greenhouse gas emissions, invoking the results as a basis for increased federal regulation.

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