This Week in Hydraulic Fracturing

Volume 2, No. 32, August 5, 2013 to August 11, 2013


Hydraulic fracturing off California coast. Companies operating off the coast of California have used hydraulic fracturing in off-shore wells in an effort to stimulate older wells with declining production. A moratorium prohibits new oil leases off the California coast, but existing oil platforms may operate, and the use of hydraulic fracturing was authorized by U.S. Environmental Protection Agency (“EPA”) and the Bureau of Safety and Environmental Enforcement as exempt from new permitting. In response to questions regarding this practice, EPA has said it will reconsider whether off-shore hydraulic fracturing should require a separate permit and more environmental review. Critics argue chemicals used in hydraulic fracturing fluids are toxic to aquatic life and are calling for a moratorium on the practice until potential effects can be studied. A group of California state legislators demanded a federal investigation, complaining that they were unaware of off-shore hydraulic fracturing. Hydraulic fracturing has been used successfully in off-shore oil wells in the North Sea and Gulf of Mexico, but the companies operating in the Pacific Ocean have reported mixed results.

Third LNG export terminal approved. Lake Charles Exports LLC, a joint venture between BG Group and Southern Union Company, received approval from the U.S. Department of Energy (“DOE”) to export two billion cubic feet of liquefied natural gas (“LNG”) per day to countries without a free trade agreement. The license is contingent on the Federal Energy Regulatory Comission (“FERC”) approving the company’s pending application to construct the facility. This is the third DOE non-free-trade export license approved overall and the second in three months. DOE’s Office of Fossil Energy faces a large backlog of export applications but this approval provides some reason for optimism for critics who have complained that DOE’s delays in considering applications are hurting the country’s economy. Sen. Ron Wyden (D-Or.), Chair of the Senate Energy and Natural Resources Committee, who has opposed unlimited LNG exports, issued a statement that DOE should make it more difficult for each succeeding export application to be approved. Manufacturers that use natural gas complain that the cumulative effects of LNG exports will drive up natural gas prices and harm their businesses.

BLM will re-evaluate Colorado oil and gas projects. As part of a settlement agreement, the U.S. Bureau of Land Management (“BLM”) agreed to re-examine potential air quality impacts from 34 oil and gas drilling projects covering 1,300 wells on federal lands in Colorado. Four environmental groups filed suit in June 2011 alleging that BLM ignored potential air pollution concerns in its environmental review. As part of a settlement agreement, BLM will re-open its 2006 Roan Plateau environmental impact statement to include the oil and gas projects which the environmental groups claimed were outside of the Roan Plateau area. BLM will also establish an online tracking system for federal drilling permits issued from its Colorado River Valley field office.

Labor Department’s Marcellus Shale initiative continues. The U.S. Department of Labor (“DOL”) will continue its Marcellus Shale Initiative for a second year. DOL has been investigating claims that companies are improperly labeling employees as independent contractors to avoid paying overtime and paying day rates without recording the number of hours employees work in a day or week. The largest fine to date was levied against Groundwater and Environmental Services, Inc., an environmental consulting company that collected water samples at well sites, for improperly exempting 69 employees from Fair Labor Standards Act requirements. DOL has been conducting compliance audits, and if violations are identified, companies can be required to pay back wages. DOL has also agreed to furnish relevant information to the IRS, which can lead to Social Security and Medicare tax issues as well.

Interior Secretary tours Bakken Shale play. Interior Department Secretary, Sally Jewell, is touring the Bakken Shale play, accompanied by North Dakota’s two Senators, John Hoeven (R) and Heidi Heitkamp (D), as well as Lieutenant Governor Drew Wright (R). Secretary Jewell stated her visit will focus on job creation, concerns about gas flaring, and technologies to mitigate greenhouse gas emissions. Sen. Hoeven stated that the tour will demonstrate that state regulation of hydraulic fracturing is robust, that additional federal regulations of the practice are unnecessary, and that the Keystone XL pipeline and other infrastructure is vital to improving safety and reducing truck traffic in the area.


Pennsylvania DEP eliminates emission plan exemption for shale gas wells. In a new guidance document, the Pennsylvania Department of Environmental Protection (“PDEP”) is now requiring shale gas well operators to either file air quality plans for each well site or demonstrate that well controls are more stringent than the recently updated federal New Source Performance Standards. Pennsylvania requires operators to implement a leak detection and repair program for the well pad and related facilities and only permit flaring on an emergency basis. Federal standards require wells to use reduced emission completions (or “green completions”) by January 2015. PDEP had previously exempted all unconventional oil and gas wells in the state from the obligation to file air quality plans for individual well sites.

Environmental group settles wastewater suit against PDEP. Clean Water Action settled its challenge to a PDEP operating permit issued to Appalachian Water Services for a new wastewater treatment facility designed to treat wastewater from hydraulic fracturing operations. The suit alleged that the operating permit failed to protect water quality in the Monongahela River by not imposing more stringent total dissolved solids (“TDS”) limits. Under a consent decree, Appalachian may not discharge to the River until it installs additional equipment to reduce TDS. The revised operating permit will also require the plant to shut down immediately if it violates the new limits.

PDEP shuts down wastewater treatment plant. PDEP revoked the discharge permit for Aquatic Synthesis Unlimited which treated hydraulic fracturing wastewater. The company will also forfeit its $1 million bond after operational problems led to a series of spills. The plant was previously sanctioned by PDEP for beginning construction of the site in December 2011 without required permits. The plant was envisioned as a “drive through” treatment plant, where trucks could dispose of wastewater and pick up clean recycled water at another end of the plant. A lack of financial capability led to an inability to recycle all of the wastewater being delivered, and the plant began shipping the wastewater to other disposal sites without a permit. As the company’s finances deteriorated, it laid off staff, resulting in a series of overflows and spills from pits and storage tanks. PDEP is now moving to remediate the site.

Suit alleges hydraulic fracturing caused earthquakes. Texas landowners filed a class action suit in state court alleging that hydraulic fracturing by EOG Resources, Shell, Sunoco, and Enterprise Products Partners caused earthquakes that damaged homes. Plaintiffs’ complaint alleges that homes in Alvarado, Texas, near the Barnett Shale play, have suffered cracked foundations. They claim that a person can feel tremors on the surface with each hydraulic fracturing job. Plaintiffs also allege that the companies are responsible for tremors caused by the underground injection of hydraulic fracturing wastewater, although no owner or operator of a disposal well was named in the suit. The complaint alleges claims for nuisance, negligence, and strict liability and seeks compensatory and punitive damages.


S&P: NGL prices will cause midstream companies to struggle. Credit rating agency Standard & Poor (“S&P’s”) issued a report opining that midstream companies handling significant volumes of natural gas liquids (“NGLs”) will see weak financial results through 2013 and beyond. NGL prices are low and expected to weaken from low domestic demand, making NGLs a weaker commodity than natural gas, which is selling at low but relatively stable prices. S&P recently downgraded ONEOK Partners and DCP Midstream from “stable” to “negative” ratings due to their NGL business.

MarkWest, Kinder Morgan announce Utica Shale joint venture. MarkWest Utica EMG and Kinder Morgan Energy Partners announced they will jointly construct two new infrastructure projects to capitalize on production of natural gas liquids in the Utica Shale play. The first is a cryogenic processing facility capable of handling 400 million cubic feet of gas and liquids per day. The companies expect the plant to come on-line in late 2014 with a second plant as an option thereafter if there is customer interest. The second project is a 200,000 barrel per day NGL pipeline running from Ohio to Texas. The 1,100 mile pipeline is expected to start up in late 2015.

BHP Billiton continues to buy up U.S. shale assets. The CEO of Australian company BHP Billiton Ltd, the world’s largest mining company, recently announced that the company will continue to commit billions of dollars to U.S. shale assets. CEO Andrew Mackenzie announced his intention to make the company a leader in U.S. shale development. The company has backed this up with $20 billion in North American shale acquisitions in 2011 and an additional $4 billion in 2013.


NOAA study: methane emissions form Utah oil and gas operations. The National Oceanic and Atmospheric Administration (“NOAA”) published a study in the journal Geophysical Research Letters finding that drill sites in Utah’s Uintah Basin were emitting fugitive methane, on average, equivalent to 9% of the gas they produced. This rate is higher than other studies which place fugitive methane emissions at around 2%. The study’s main author stated that, at a 9% emission rate, natural gas would have no advantage over coal in reducing greenhouse gas emissions. An industry representative stated that oil and gas companies have every incentive to capture all of the gas they produce and that additional controls can be implemented to reduce fugitive emissions.

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