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Department of Justice Launches an Antitrust Investigation into Pressure Pumping Services Used in Hydraulic Fracturing

by Nicole Castle

On July 24, 2013, Baker Hughes, Inc., the owner of the third-largest pressure pumping fleet in the United States, disclosed as part of its filing with the Securities and Exchange Commission that it had received a civil investigative demand (CID) from the Department of Justice (DOJ) on May 30, 2013.  The CID requests information and documents relating to U.S. pressure pumping services for the period from May 29, 2011, through May 30, 2013.  

Baker Hughes stated in its filing that it was “not able to predict what action, if any, might be taken in the future by the DOJ or other governmental authorities as a result of the investigation.”

Pressure pumping services generally refers to the process of pumping water and other materials into a well to break apart rock formations and increase the well’s oil or gas production.   Pressure pumping is the main step in the hydraulic fracturing process, and has in recent years become more heavily used for extracting oil and natural gas from rock formations.

The following day, on July 25, 2013, Halliburton Co., the largest provider of pressure pumping services in the United States., confirmed that it had also received a CID from the DOJ regarding pressure pumping services.  




Illinois Set to Regulate Shale Oil and Gas

by Thomas Hefty

On June 17, 2013, Illinois P.A. 98-0022 (the Act), consisting of the Hydraulic Fracturing Regulatory Act (HFRA) and the Illinois Hydraulic Fracturing Tax Act (HF Tax Act), became law. The Act, which was the result of months of negotiations among industry and some environmental groups, had been stalled since March 2013 after a last-minute amendment added a licensing regime that would have favored water-well drilling contractors. That impasse was resolved when the objectionable well-licensing regime was replaced by a local workforce credit against HF Tax Act liability. The Act is a defeat for those environmental and community groups that favored a moratorium on horizontal hydraulic fracturing in Illinois until the U.S. Environmental Protection Agency completed its ongoing study of horizontal hydraulic fracturing’s potential to affect groundwater resources. HFRA’s supporters tout it as the United States’ most comprehensive and rigorous horizontal hydraulic fracturing regulation, and claim it sets the “best practices standard” for environmental, health and safety regulation.

To read the full article, click here.




Increased Fracking on the Horizon in UK Gas Sector?

 by Charlotte Doerr

The United Kingdom has seen significant steps forward on the shale gas exploitation front.  In light of recent discoveries of substantial reserves in the north-west of England, the ongoing debate on hydraulic fracturing (fracking) has once again come to the fore.  With recent studies from the British Geological Survey estimating that the capacity of the yet-untapped reserves of shale gas could climb to 170 trillion cubic feet (tcf), this is a significant discovery for the United Kingdom and could have important ramifications for the country’s energy supply and policy for many years to come.  The sheer size of these reserves is put sharply into context when viewed alongside the remaining gas reserves in the UK North Sea, judged to be as little as 7 tcf.

The UK’s decision to lift a temporary moratorium on fracking in May 2013, which had been in place since the previous year after shale gas exploration resulted in two minor earthquakes, now paves the way for a flurry of preliminary activity.  Some commentators predict that full-scale exploration will get underway in 2015.

Comments from the UK Chancellor of the Exchequer, George Osborne, that the government would “make the tax and planning changes which will put Britain at the forefront of exploiting shale gas,” suggest that fracking in this sector could become more widespread, as the government relaxes restrictions over the practice.  Supporters have pointed to increased job creation, substantial tax revenues, and reduced reliance on imported energy.  However, critics have been quick to highlight the environmental concerns linked to fracking, such as water contamination and seismic risk.

Everything must be read in light of a governmental Energy and Climate Change Committee inquiry that concluded in April 2013 that any firm determination on the end-result for consumer energy prices based on these gas discoveries is still premature.  Therefore, much work remains to be done and substantial political wrangling will likely follow, before a clear path appears for the UK’s future direction on revitalizing its domestic gas industry.




Illinois to Act on Fracing – Or Not

by Thomas L. Hefty

The Illinois General Assembly could be on the verge of enacting legislation, the Hydraulic Fracturing Regulatory Act (H.B 2615), that some environmental groups are touting as an environmental best practices for regulating the shale oil and gas recovery method known as horizontal hydraulic fracturing (fracing). H.B. 2615, the result of months of negotiations between environmental groups and the oil and gas exploration and production (E&P) industry, was set to be voted on in the Illinois General Assembly in late March, but a last second amendment (favoring in-state licensed drilling companies) has stalled the bill’s progress. 

While HB 2615 is laudable for setting robust regulations on horizontal fracing operations, what should make it the betting favorite is that it is also a revenue bill – the second half of H.B. 2615 contains the Illinois Hydraulic Fracturing Tax Act. Under H.B. 2615, Illinois would finally join the majority of drilling states that tax severed oil and gas. Each Illinois well using horizontal hydraulic fracturing could produce several million dollars in severance taxes during the span of the well’s productive life.

Illinois is one of the few drilling states not to impose any severance or gross production taxes on its substantial oil and gas production. Illinois currently has about 32,000 wells producing between 10 and 11 million bbls of oil (15th nationally) and 2,120 million cubic feet of natural gas, ranking it 26th. That production would increase significantly if large-scale horizontal hydraulic fracturing were introduced in Illinois to the New Albany Shale formation. Technically recoverable shale gas in the New Albany Shale is estimated at up to 11 trillion cubic feet (for comparison, the Marcellus Shale in the East has 84 TCF). A majority of the drilling states, including Indiana and Kentucky, tax oil and gas production. Several others, most prominently Pennsylvania, are currently considering adopting oil and gas severance taxes.

Competing with H.B. 2615 are three other bills: two bills favored by those environmental groups not supporting H.B. 2615 that would put a two-year moratorium on any hydraulic fracturing and an E&P industry-sponsored bill that environmental and community groups strenuously oppose. One would think that with the support of the E&P industry and some environmental groups (including the Natural Resources Defense Council), plus the revenue enhancement features of the severance tax, H.B. 2615 should be a done deal. But given the current state of Illinois politics, taxes might not be the certainty that Ben Franklin once thought they were. 




New Research Finds Shale Natural Gas Production Emits Less Fugitive Methane that Previously Reported

by James A. Pardo and Brandon H. Barnes

Shale natural gas production emits significantly less fugitive methane than previously thought, concluded researchers at the Massachusetts Institute of Technology (MIT) in a November 26, 2012, study published in Environmental Research Letters.  According to the researchers, "it is incorrect to suggest that shale gas-related hydraulic fracturing has substantially altered the overall [greenhouse gas] intensity of natural gas production." 

 Methane has been singled out as one of the most powerful greenhouse gases (GHG) because of its "global warming potential" – or the relative heat trapped in the atmosphere by a gas – which is 20 times greater than that of carbon dioxide.  Fugitive methane emissions are losses of methane gas that may occur during flowback (the return of fluids), during drill-out following fracturing, and during well-venting to alleviate well-head pressure.  Fugitive emissions can also occur as a result of equipment leaks, transportation or storage losses, and processing losses, but in much smaller quantities. 

An earlier study by Cornell University professor Robert Howarth, which garnered much media attention, reported that shale gas production had a lifetime carbon footprint greater than coal production, mainly as a result of fugitive methane emissions that Howarth had estimated to be as great as 4,638 Mg per well.  In contrast, the MIT study determined that actual fugitive methane emissions average approximately 50 Mg per well after taking into account flaring and green completions technology, both of which are widely used by industry and required under most state regulatory regimes (as well as under new Environmental Protection Agency rules).  The MIT researchers evaluated actual production data from approximately 4,000 horizontal shale natural gas wells, and found a potential for about 228 Mg of fugitive methane emissions per well.  The researchers cautioned that estimates about fugitive methane emissions had been "inappropriately used in analyses of the GHG impact of shale gas" insofar as actual emissions are reduced — by an average of 178 Mg per well — by flaring and green completion technology.        

Hydraulic fracturing stakeholders need to understand the body of publicly available science, as a growing body of research will inform how EPA and other state and federal regulatory agencies will regulate the industry.




Department of Interior Secretary Endorses Federal Regulation of Hydraulic Fracturing

by James A. Pardo and Brandon H. Barnes

Speaking about upcoming Bureau of Land Management/Department of Interior (DOI) rules for hydraulic fracturing (fracing) on federal land, DOI Secretary Salazar recently opined that state regulation of fracing was insufficient and suggested that more stringent federal regulations may be required.  This is a sea change for Salazar, who previously made clear his endorsement of state fracing regulation.  While it is possible that Salazar’s comments were meant only to defend the Obama Administration’s issuance of rules for fracing on federal land, that is not the way the comments have been interpreted.  Salazar’s criticism of state fracing efforts as being "not good enough for" him was unambiguous.  The DOI Secretary’s comments came on the same day that DOI extended the period for public comment on the DOI rules by 60 days to September 10, 2012.

The issue of state versus federal fracing regulation has been debated since the process first began garnering significant media attention in the late-2000s.  With some exceptions, the U.S. Environmental Protection Agency (EPA) and other federal agencies cannot regulate the fracing process themselves unless and until Congress reverses its 2005 exemption of fracing from the Underground Injection Control rules of the Safe Drinking Water Act.  Predictably, Salazar’s comments have been seized on by many national non-governmental organizations (NGOs) that have long advocated for federal control over what has always been a state regulated process.  His comments reinvigorate a debate that state regulation advocates appeared to have largely won last year, when Salazar and several members of President Obama’s Department of Energy Task Force on Fracturing openly and clearly expressed their support for state regulatory efforts.  Fracing stakeholders need to be keeping a close eye on the federal-versus-state regulatory debate, as it is certain to gain increased media coverage and political attention in this election year.




Reconsideration Motion Fails in Middlefield

by James A. Pardo and Brandon H. Barnes

Cooperstown Holstein’s attempt to reverse the trial court’s decision upholding the Town of Middlefield’s zoning ban on hydraulic fracturing has failed.  The Cooperstown Holstein case is now heading for appeal to New York’s Appellate Division, Third Department, where it likely will be consolidated with the Town of Dryden action that was appealed earlier this year.  For more information about these cases, please see our earlier article, “Recent Court Decisions May Affect Hydraulic Fracturing in New York and Ohio.”




Indiana Adopts “Emergency” Hydraulic Fracturing Fluid Disclosure Rule

by James A. Pardo and Brandon H. Barnes

As hydraulic fracturing (fracing) activity increases in Indiana, in the view of the state’s Department of Natural Resources, so too has the need for increased and updated regulations.   Last week, Indiana addressed this need in part by adopting new "emergency" regulations for fracing fluid disclosure.  These regulations took effect on July 1, 2012, and require the following information to be disclosed immediately after well completion:

  • Volume and source of base fluid (water or other substance); 
  • Type and amount of proppant (sand or other substance);
  • Trade name of each additive as identified on the material safety data sheets (MSDS);
  • Purpose of each additive;
  • MSDS for each additive;
  • Maximum volume of each additive, expressed as a percentage by mass or by volume;
  • Copies of documents like well service company job tickets that summarize the products used, pressure recording charts and logs or surveys calculating or mapping the fracture length and height.

Because these emergency regulations modify (rather than replace) Indiana’s existing disclosure rules for coal-bed methane operations, the existing provision protecting trade secrets remains intact under the new regulations.  The definition of “base fluid,” however, is broader than we have seen proposed in states like New York, so drillers probably will not be able to avoid fluid disclosure requirements by using liquid propane.  Many stakeholders with an interest in Indiana already should be familiar with the requirements of these new rules, as they closely track the disclosures already being voluntarily made on fracfocus.org.




New York Governor Floats Idea to Ban Hydraulic Fracturing in Majority of New York Counties

by James A. Pardo and Brandon H. Barnes

New York Governor Andrew Cuomo is reportedly considering a plan that would ban hydraulic fracturing  (fracing) in all of New York with the exception of five counties along the Pennsylvania border:  Broome, Chemung, Chenango, Steuben and Tioga.  Even within those five counties, however, fracing would be strictly limited under the Governor’s scheme.  Specifically, fracing permits would only be issued for wells located in communities that had not acted locally to prohibit the process – in other words, towns within the five counties still could exercise "home rule" to ban fracing by zoning amendment, or otherwise.  Cuomo also would ban fracing in Catskill Park, near any drinking water aquifer, in any nationally-designated historic districts and initially would limit it to the “deepest” areas of the Marcellus Shale.

Governor Cuomo has been under intense pressure from both sides in the fracing debate, and his idea – which an anonymous New York State Department of Environmental Conservation (NYSDEC) official deliberately leaked to the New York Times – was an attempt to take the temperature of both sides to a possible compromise.  It appears that Cuomo’s team sought to please environmentalists by banning fracing in most of the Empire State; assuage industry stakeholders by permitting fracing in certain counties with significant Marcellus plays and where public opinion appears to be leaning in favor of natural gas development; and build support with local officials from around the state by implicitly reaffirming "home rule" rights to ban fracing.  Initial reaction to this "trial balloon" idea was largely negative from the anti- fracing side – which has been trying to build momentum for a full statewide ban – but recently has drifted towards tepid support as fracing foes may see it as their best chance to stop fracing in most of New York.  Stakeholder response has been fairly neutral, with some companies expressing optimism because the plan allows fracing at all – an indicator of just how tight the debate has become in New York right now. 

Cuomo’s plan would give everything to nobody, and something to everybody – providing considerable political cover to both the Governor and NYSDEC.  For this reason alone, it is a plan that may have the best chance of passing through the regulatory, legislative, legal and public opinion gauntlet that currently exists for fracing in New York.




Hydraulic Fracturing Regulatory Updates in California and Pennsylvania

by James A. Pardo and Brandon H. Barnes

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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