Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 4


CSSD to Begin Independent Audits of Natural Gas Operations in the Marcellus Shale. The Center for Sustainable Shale Development (CSSD) announced that four member companies—Chevron Corp., Consol Energy, Inc. EQT Corp., and Royal Dutch Shell PLC—have agreed to participate in voluntary audits of their drilling and hydraulic fracturing operations in the Marcellus Shale. The audits will assess conformity with 15 CCSD performance standards. The standards go beyond what is required in many states’ regulations and include extensive pre-drilling surveys, above-ground storage tanks with double-lined reserve pits, and limitations on venting and flaring gas during well development and workovers. CSSD is a collaborative organization whose members include environmental organizations, philanthropic foundations, and energy companies.

New Mexico: Mora County sued over hydraulic fracturing ban. On January 10, SWEPI LP, a subsidiary of Royal Dutch Shell PLC, filed a lawsuit in federal court alleging that Mora County’s anti-drilling ordinance violated the U.S. Constitution and state law. The ordinance bans all oil and gas development, prohibits the use of water for hydraulic fracturing, and limits the legal rights of corporations. SWEPI alleges that the ordinance violates the First Amendment, the due process and equal protection clauses of the Fourteenth Amendment, the Commerce Clause, and is preempted by the Supremacy Clause. A complaint alleging similar claims was filed in 2013 by landowners, lessees, and trade associations.

Texas: Regulators Claim Limited Authority to Address Seismic Activity. After announcing plans to hire a seismologist to work with other state researchers to study the cause of seismic activity located near injection wells used to dispose of hydraulic fracturing wastewater, the Texas Railroad Commission Chairman explained that the Commission has limited authority to address the issue. Speaking at a public hearing, Chairman Smitherman explained that there are no provisions related to seismic activity in the current or proposed rules for Class II injection wells in Texas. He further stated that even if seismic activity were linked to an injection well, the Commission lacks authority to investigate surface damage and would have to comply with procedural requirements before shutting down a well.


European nations to form coalition to promote LNG exports. A dozen European nations are working with U.S.-based oil and gas trade associations to form a coalition to promote exports of liquefied natural gas (LNG) from the United States. The coalition, which will be called LNG Allies, is expected to include Austria, the Czech Republic, Estonia, Finland, Latvia, Lithuania, Poland, Romania, the Slovak Republic, Croatia, Hungary, Slovenia, and Greece. These countries currently depend heavily on Russia for natural gas and are seeking to loosen U.S. restrictions on natural gas exports in order to provide a significant alternative supply source.

Australia: Shell sells stake in LNG Project. Royal Dutch Shell PLC announced plans to sell for $1.14 billion its interest in the Wheatstone LNG project, an LNG project under development in Western Australia. Shell’s interest will be purchased by the Kuwait Foreign Petroleum Exploration Co., another member of the joint venture project that is led by Chevron Australia Pty Ltd. The $29 billion Wheatstone LNG project, which began construction in 2011, is expected to include an 8.9 million ton-per-year LNG export facility. Shell also owns a 25% stake in the Gorgon LNG project in Australia, which began construction in 2009 and is expected to begin production in 2015.


IHS Global Insight Report projects low natural prices for next 20 years. A recent report by IHS Global Insight, “Fueling the Future with Natural Gas: Bringing It Home,” projects that natural gas prices could remain in the $4-5 per BTU range for the next 20 years. Based on its analysis, IHS projects that the significant increase in demand that is expected for natural gas over the next two decades can be supplied from low-cost resources without requiring a significant price increase, as continued improvements in technology have also lowered the cost of producing natural gas. IHS also cited a number of potential growth markets, such as the conversion of trucking fleets to natural gas, which could increase long-term demand for natural gas.

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Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 3


FERC Draft EIS Finds Cameron LNG Export Project Will Have Limited Environmental Impact. On January 10, 2014, the Federal Energy Regulatory Commission (FERC) issued a draft Environmental Impact Statement (EIS) for the $6 billion Cameron LNG Export Project in Hackberry, Louisiana. After accounting for proposed mitigation efforts, the EIS found the proposed facility would have limited environmental impact. It found most impacts would be temporary, while identifying some permanent impacts on lands, migratory birds and certain fish species. FERC is accepting comments on the draft EIS until March 3, 2014. If a final EIS and record of decision are issued by the agency approving the project, Cameron will be able to construct the facility, subject to other state and federal permitting requirements.

Industry Trade Associations Challenge BLM’s Deferral of Oil and Gas Lease Sale. The Western Energy Alliance, along with member company Castle Valley Holdings LLC, have appealed the Bureau of Land Management’s (BLM’s) decision to withdraw nearly 100,000 acres of federal land in Utah from a November 2013 lease sale. The appeal, which was filed with the Interior Board of Land Appeals, alleges that BLM based its decision on an untimely protest by the Utah Rock Art Research Association. A number of interest groups submitted comments opposing leases on some of the withdrawn lands. BLM claims that it withdrew this acreage in order to address residual concerns regarding cultural resources and sensitive species.

EPA Letter to NRDC Stresses Agency Actions to Address Hydraulic Fracturing. In a letter to the Natural Resource Defense Council (NRDC), Environmental Protection Agency (EPA) Administrator Gina McCarthy defended the agency’s hydraulic fracturing initiatives. McCarthy stressed EPA’s draft guidance for the use of diesel fuel in hydraulic fracturing under the Safe Drinking Water Act’s Underground Injection Program, the agency’s involvement in BLM’s proposed regulations for hydraulic fracturing on public land, and the agency’s ongoing groundwater study. The letter stated that EPA’s diesel fuel guidance is anticipated to be issued in the next few weeks. McCarthy did not respond to charges concerning EPA’s investigations into alleged impacts from hydraulic fracturing in Pavilion, Wyoming, Dimock, Pennsylvania, and Parker County, Texas.

DOT Meeting Sparks Voluntary Railway Safety Changes for Oil Transport. After meetings last week with the Department of Transportation, oil and rail industry representatives, including the Association of American Railroads and the American Petroleum Institute, agreed to adopt a series of safety measures for transporting crude oil by rail. Specific measures addressed at the meetings include speed reductions on high-risk routes and better information sharing between the railroads and oil industry. The meetings were prompted by a series of train derailments over the past year involving cars transporting crude oil.


Texas: Duke University Testing Finds Methane in Wells. Testing data from Duke University researchers found elevated levels of methane in wells near Weatherford, Texas. These tests took place near the location of a Range Resources well that EPA previously claimed had impacted groundwater, but EPA has since dropped its pursuit of those claims. The Duke data contrast with data collected by Range Resources, who submits their operations did not cause or contribute to the presence of what is naturally occurring methane.

Arkansas: UT Study Highlights Promise of Fayetteville Shale. A study conducted by the Bureau of Economic Geology at the University of Texas has found that the Fayetteville Shale will remain one of the most prolific natural gas plays in the United States. The Bureau’s study was part of a four-basin analysis of shale gas plays funded by the Alfred P. Sloan Foundation. The study concludes that the Fayetteville Shale holds 38 trillion cubic feet (tcf) of recoverable gas, of which 18 trillion tcf can be economically recovered at a price of $4 per BTU. According to the Bureau’s projections, natural gas can be economically extracted through 2050.

North Carolina Commission Approves Chemical Disclosure Rule. On January 14, 2014 the North Carolina Mining and Energy Commission approved new disclosure rules for chemicals used in hydraulic fracturing fluids. Under the rules, information subject to a trade secret claim would not be disclosed, subject to review by the Department of Environment and Natural Resources and except if needed to address a medical emergency. The rule, which will not become effective until it is approved by the North Carolina legislature, is one of many regulations that must be issued before the state lifts its moratorium on hydraulic fracturing.

Minnesota Agencies Form Advisory Panel for Silica Mining. Minnesota’s Pollution Control Agency and Department of Natural Resources formed a 15-member advisory panel to aid them in developing new silica mining regulations. The panel includes individual citizens, as well as representatives from local governments and the mining industry. Legislation passed last year directs the agencies to develop the new regulations.

Alaska Takes Equity Stake in LNG Joint Venture. The Alaska Department of Natural Resources has agreed to become an equity partner in a $45 billion liquefied natural gas (LNG) project along with ExxonMobil, ConocoPhillips, BP, and TransCanada. The LNG export project will include an 800 mile pipeline from Alaska’s North Slope to the Kenai Peninsula and is expected to produce 15-18 metric tons of LNG per year. As part of the agreement, the state will supply $5.75 billion toward the costs of the project.

Oklahoma Proposal Seeks Information from Disposal Wells. In response to increased seismic activity, the Oklahoma Corporation Commission has proposed rules that would expand the integrity testing and reporting requirements for Class II well operators who dispose of hydraulic fracturing waste water. The proposal would generate additional data from which seismologists and the Commission itself could determine whether there is a link between earthquakes and the disposal of waste water from hydraulic fracturing.

Texas Legislature Forms Subcommittee to Investigate Increased Seismic Activity. Last week, the Texas legislature formed a Subcommittee on Seismic Activity to investigate the cause of recent earthquakes northwest of Fort Worth. The announcement comes after the Texas Railroad Commission announced plans to hire a seismologist and to work with other state agencies to investigate the same issues. NGOs, including Texas-based Earthworks, have been critical of the state’s response to the earthquakes to date.


European Union Issues Guidelines for Hydraulic Fracturing. The European Commission today published non-binding guidelines covering hydraulic fracturing operations in the European Union. The guidelines do not impose requirements, but instead provide principles and best practices that member states are urged to follow. In addition, the EU is asking member states to submit to the EU their plans for shale exploration and development. While the EU had considered a legally binding directive that would have established uniform regulatory requirements across the entire EU, opposition by the United Kingdom, among others, resulted in issuance of the guidelines as an alternative.

European Commission Urged to Assess UK Shale Gas Incentives Under State Aid Rules. The United Kingdom’s tax incentives to promote shale gas development have come under scrutiny by hydraulic fracturing opponents, who assert these incentives violate the EU’s state aid rules. The state aid rules prohibit governments from using selective measures to grant an advantage to a specific company or companies. The legality of the UK’s incentives for oil and gas developers, as well as for local communities supporting development, has been hotly debated within the European Parliament. EU Competition Commissioner Joaquin Almunia has signaled a willingness to investigate whether the incentives comply with state aid rules.

Canada Proposes Upgraded Standard for Crude Oil Rail Cars. In response to recent train derailments involving cars carrying crude oil, including the accident in Lac-Megantic, Quebec, the Canadian government has proposed new standards for rail cars carrying crude oil. The proposed regulations, which would apply to Canadian National Railway and Canadian Pacific Railway, along with regional operators, would align Canadian regulations with proposed regulations in the United States. Among other things, the regulations would require the use of thicker shielding and normalized steel, as well as enhanced recordkeeping by railroads on how they classify dangerous goods and document the sampling methods for crude.

China: Shale Gas Output Surpasses 200 Million Cubic Meters in 2013. China’s Land and Resource Ministry reported that 2013 natural gas output increased to 200 million cubic meters (7.1 billion cubic feet), a 500% increase from 2012. The growth occurred primarily in the Changning-Weiyuan, Fushun-Yongchuan, and Fuling areas. China expects growth to continue and has set an annual target of 6.5 billion cubic meters for 2015.


EIA Projects Record High Natural Gas Output. In its January Short Term Energy Outlook, the U.S. Energy Information Administration (EIA) projects that natural gas production will increase to 72.58 billion feet per day by 2015. This marks the fifth consecutive annual record high for natural gas production. At the same time, net imports of natural gas are projected to fall to the lowest levels in 30 years, with the U.S. becoming a net exporter by 2018. According to the EIA, production increases, particularly in the Marcellus Shale, have resulted in a slight decline in natural gas prices.

Operations Begin for Pennsylvania-to-Texas Ethane Pipeline. A Enterprise Products Partners LP ethane pipeline running from the Marcellus Shale to Gulf Coast petrochemical facilities has commenced construction. The 1,230 mile Appalachia-to Texas Express (ATEX) pipeline, which has a 150,000 barrel per day capacity, will send ethane, a co-product in natural gas production to ethylene facilities in Louisiana and Texas. Increased availability of ethane due to hydraulic fracturing has spurred significant investment in ethane facilities, with eight new facilities planned for the Gulf Coast, along with two in the Northeast.

ACC Projects Growth in Chemical Exports Due to Shale Gas Production. A recent report by the American Chemistry Council (ACC) projects that exports of U.S. chemicals will increase by more than 45% over the next five years. Increased production of shale gas and liquids is cited as a primary reason for the resurgence in the U.S. chemical industry. After being a net importer as recently as 2011, ACC projects that net exports will rise to $30 billion by 2108.

Duke University Study Touts Novel Method for Recycling Waste Water. Researchers at Duke University claim to have developed a novel method for removing radioactive material from hydraulic fracturing flowback in Pennsylvania by combining it with acid mine drainage from nearby coal mining operations. When the two fluids are combined, radioactive metals forms solids and settle out of the fluid. While researchers acknowledge that is a not a complete solution for recycling flowback, they note that it can substantially improve the quality of water recovered from hydraulic fracturing operations.

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Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 2


SEAB Task Force Evaluates FracFocus. In recent meetings, the Secretary of Energy Advisory Board (SEAB) FracFocus task force has questioned administrators of the FracFocus website and industry representatives regarding the sufficiency of current chemical disclosures. Some task force members were critical of the extent to which operators invoked trade secret protections, and asked whether operators could protect confidential information by listing chemical constituents of hydraulic fracturing fluid without providing a formulaic breakdown. Industry representatives defended current disclosure as more than sufficient to put interested parties on notice, while protecting trade secrets. Some states require well operators to disclose chemical use through FracFocus, and in its 2013 proposed rule, the U.S. Bureau of Land Management has likewise proposed to require use of FracFocus for disclosures for wells on federal land.

House Energy and Commerce Committee to Release LNG Export Report. The House Energy and Commerce Committee is due to release a report on liquefied natural gas (LNG) exports by the end of January. The report is expected to explore U.S. natural gas supplies and the geopolitical implications of exports. The report is also expected to discuss requests to streamline the permitting process for approval of LNG export terminals by representatives from countries seeking to import U.S. natural gas. Currently LNG export facilities must obtain permits from the Department of Energy and complete a Federal Energy Regulatory Committee environmental review. Opponents of streamlined permitting, including the Industrial Energy Consumers of America, question the impact of LNG exports on domestic manufacturing.

Senators Question Continuing Ban on Crude Oil Exports. Several members of Congress, including Sen. Lisa Murkowski (R-AK), Sen. John Hoeven (R-ND), and Sen. Mary Landrieu (D-LA) have recently signaled an interest in reconsidering laws that, with some exceptions, have effectively banned the export of crude oil from the United States for 40 years. In a recent speech, Sen. Murkowski suggested the Administration has sufficient statutory authority to lift the ban on its own, but would be prepared to introduce targeted legislation if necessary. In the House, Energy and Commerce Chairman Fred Upton (R-Mich. 6th Dist.) noted that the export ban was under analysis, but did not take a position. The American Petroleum Institute and many producers have come out strongly in favor of permitting exports.

BLM Urged to Defer Oil and Gas Lease Sales in Colorado. In comments on a Bureau of Land Management (BLM) draft Environmental Assessment, interest groups are urging BLM to defer a planned lease sale for five parcels in the North Park area of Colorado. The groups are asking BLM to finish revisions to the region’s Resource Management Plan (RPM) before making any decisions regarding specific lease sales. The revised RMP, which should be issued this spring, is expected to consider potential impacts on habitat for the greater sage grouse and on fish populations. The parcels are slated to be included in a June 2014 lease sale, and BLM is expected to make a final decision on their inclusion by March 2014.

President Announces Quadrennial Energy Review. On January 9, 2014 President Obama issued a memorandum convening the Quadrennial Energy Review, a four year policy plan included in the President’s June 2013 Climate Action Plan. The initial review will deliver a report by January 31, 2015 that addresses the nation’s infrastructure for transporting and transmitting energy. Subsequent reviews will be completed every four years. The initial review will be conducted by an interagency task force co-chaired by the White House Domestic Policy Council and the Office of Science and Technology Policy. The task force will include representatives from 22 federal entities including, the Departments of Energy, Defense, and State; the Environmental Protection Agency; and the Council on Environmental Quality. The final report is expected to include recommendations for legislative and regulatory action as well as research and development priorities.

EPA Revises General Permit to Require Disclosure for Off-Shore Drilling Using Hydraulic Fracturing. On January 9, 2014, the Environmental Protection Agency (“EPA”) published a revised Clean Water Act general permit for off-shore drilling in California that includes chemical disclosure and spill reporting requirements. Under the new requirements, operators must maintain an inventory of chemicals used for well completion, treatment, and workover fluids, and report the chemical makeup of such fluids that are discharged in their discharge monitoring reports. EPA added the requirements in response to concerns raised by state legislators.


California: Budget Proposal Includes New Fees for Oil Development. California Gov. Jerry Brown’s proposed budget includes new fees that would be allocated to address risks related to transportation of crude oil. Concluding that increases in domestic oil production have outstripped current pipeline capacity, Gov. Brown proposed to allocate $6.7 million for oil spill prevention and administration, which would focus on the state’s ability to respond to oil releases. The funding would be obtained by expanding the state’s 6.5 cents per barrel fee currently assessed at marine terminals to all crude oil received by California refineries. Gov. Brown declined to support a severance tax on oil production, explaining the state has enacted a number of recent tax increases.

Colorado: Groups Comment on Colorado’s Air Pollution Proposal. The Colorado Petroleum Association and Colorado Oil and Gas Association have filed comments raising concerns with Colorado’s proposal to limit air emissions from oil and gas development. The trade associations argued the rules are too restrictive and the compliance costs will exceed Colorado’s estimate. In contrast, interest groups, including Earthworks and Wildearth Guardians, argued that the proposed rules to do not go far enough. When it introduced the rules last November, Colorado had been joined by three of the state’s largest oil and gas companies and a national environmental group who together worked with the state on the proposal. The Colorado Air Quality Control Commission will hold a hearing on the proposed rule in February.

Colorado: Interest Groups Seek Ballot Measure to Allow Local Restrictions. In response to lawsuits challenging local moratoria on hydraulic fracturing, the Colorado Community Rights Network has drafted a state-wide ballot measure that would permit local governments to restrict industrial activities, including oil and gas development using hydraulic fracturing. The ballot measure still must obtain more than 86,000 signatures to appear on the 2014 ballot.

Ohio: Proposed Drill Site Regulations Expected. More than fifteen months after Ohio passed a law requiring new regulations for the construction of drill sites, the Ohio Department of Natural Resources (ODNR) is expected to issue a proposed rule. The proposal is anticipated to address, among other things, requirements for freshwater storage and erosion controls. While interest groups have been critical of the delay, ODNR representatives have responded that additional time has been taken to ensure the effectiveness of the proposed rule.

Pennsylvania: GIS Database of Abandoned Wells Under Development. As part of an effort to help developers of new natural gas wells, Pennsylvania is developing a detailed GIS database to map up to 50,000 abandoned wells within the state. Releases can occur if fractures created during well stimulation transect existing wells. The database would work in conjunction with proposed rules that would require drillers to review all wells within 1,000 feet of horizontal and vertical well bores. The Pennsylvania Department of Environmental Protection is currently accepting comments on the proposed rules.

Pennsylvania: Agencies Seek Reconsideration of State Supreme Court Ruling. The Pennsylvania Public Utilities Commission and Department of Environmental Protection have asked the Pennsylvania Supreme Court to reconsider aspects of its ruling in Robinson Township v. Commonwealth of Pennsylvania, a decision in which the Court struck down portions of the state’s revised oil and gas law (known as “Act 13”). Act 13 imposed statewide regulations on oil and gas development, but also preempted local zoning laws and other ordinances that would impact such development. The agencies argued in their motion that the Supreme Court based its decision on an incomplete factual record that should have been more fully developed at the trial court level. Separately, Pennsylvania Gov. Corbett expressed concern that the Court’s decision threatened key environmental provisions in the law and urged developers to continue to abide by Act 13’s setback requirements. Industry trade associations have indicated they would comply with the Governor’s request and, to date, there have been no applications for drilling that would not comply with the now-vacated setback requirements.

Texas: Production in the Permian Basin approaches one million barrels per day. In western Texas, unconventional oil development in the Permian Basin increased by more than 100,000 barrels per day in 2013 and is now approaching one million barrels per day. The Permian Basin is made up of a series of unconventional oil and gas plays that occur at a variety of depths and have proved very susceptible to development using hydraulic fracturing. The Permian Basin now accounts for two-thirds of Texas’ oil and gas production and fifteen percent of the United States’ total production.

Texas: Texas Railroad Commission Responds to Seismic Activity near Injection Wells. In response to a series of tremors in the Dallas-Fort Worth area over the past two months, the Texas Railroad Commission is taking steps to evaluate whether underground injection control wells are contributing to the activity, including adding a seismologist to their staff to help with the evaluation. The U.S. Geologic Survey and Southern Methodist University are also evaluating the recent increase in seismic activity in the area and reportedly will publish their results within the next few months. The Commission has also contacted the Texas Bureau of Economic Geology about the potential for conducting a separate study.

Virginia: State Announces Plan to Consider Disclosure Requirements for Hydraulic Fracturing. The Virginia Department of Mines, Minerals and Energy issued a notice of intended regulatory activity that will consider expanded “disclosure of ingredients used in gas and oil well stimulation and completion” as well as industry best practices for oil and gas development. While Virginia currently requires companies to provide a general description of chemicals used in oil and gas development, chemicals used during well stimulation are currently exempt from disclosure. Instead, Virginia recommends that developers voluntarily submit chemical disclosures through FracFocus. The notice is subject to public comment and a public hearing.


Chinese Coal Company Invests in U.S. Shale. China’s largest coal company, China Shenhua Energy Co. announced plans to form a joint venture with Energy Corp. of America to drill 25 natural gas wells in Pennsylvania. China Shenhua intends to use the joint venture to develop expertise in unconventional oil and gas development that it can apply to China’s shale reserves. While China Shenhua is the first Chinese coal company to invest in U.S. shale development, several Chinese oil and gas companies have already made significant investments in United States shale reserves.


Shale Oil and Gas Development Projected to Remain Strong in 2014. Federal government and industry analysts generally project that 2014 will be a strong year for oil and gas development in the U.S. Capital investments by oil and gas developers are expected to increase modestly, maintaining the recent trend of increasing shale oil production. Industry surveys indicate that shale oil operations in the Permian Basin, Eagle Ford, and Niobrara plays are expected to be among the fastest-growing plays in 2014, and investments in oil and gas pipelines and related infrastructure are also expected to grow by as much as 30%. While increased oil supplies and the anticipated end of federal economic stimulus are putting downward pressure on oil prices, analysts are projecting modest price declines. Expected economic growth, both domestically and abroad, and improved efficiency within the industry, are expected to offset declining prices, and a cold winter is also supporting natural gas prices through increased demand.

Peterson Institute Study Evaluates Growth Associated with Shale Development. A recent Peterson Institute for International Economics report concludes the expansion of domestic oil and gas production in the U.S. is providing much-needed economic stimulus and will produce ongoing economic benefits through 2020. The production of shale gas and tight oil could increase GDP growth by an average of 0.2 percent per year through 2020, boosting economic output by a total of 2.1 percent. While substantial, these forecasted benefits are more modest than in other analyses, and the report warns against simply projecting forward the current short-run impact of the boom. Over the past decade, shale oil and gas development have been a significant driver of domestic economic growth by creating demand for labor and materials, reducing energy prices, and shifting the balance of trade. The study predicts that, going forward, some of those benefits may be lost, as increased economic growth will strengthen the dollar, making U.S. products less competitive internationally.

SandRidge Energy Shifts Exclusively to On-Shore Development. SandRidge Energy exited the off-shore oil business, selling its Gulf Coast and Gulf of Mexico assets to Fieldwood Energy LLC for $750 million in cash and the assumption by Fieldwood of an additional $370 million in liabilities. The company intends to focus its resources on the Mississippi Lime and Permian Basin shale formations. SandRidge currently holds the second largest position in the Mississippi Lime formation, with more than 1.9 million net acres. This strategy shift came after shareholder TPG Axon Capital gained four seats on SandRidge’s board.

Australian Firm to Invest in North Slope Shale Development. Australian firm Rampart Energy recently announced plans to conduct 3-D seismic testing on a 120 square mile lease southwest of the Prudhoe Bay oil fields. In 2013, Rampart formed a joint venture with Royale Energy, Inc. that will allow it to obtain an ownership interest by funding exploration. Seismic testing is expected to begin next month, and exploratory wells could be drilled in 2015 if the seismic testing is successful. Rampart is the second firm to engage in shale exploration on the North Slope, following Great Bear Petroleum LLC’s exploratory drilling program in 2012.

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Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 1


EPA Inspector General: Questions remain in Parker County drilling case. The Environmental Protection Agency (“EPA”) Inspector General released a report stating that EPA was justified in placing restrictions on using drinking water wells in Parker County, Texas but that more information is needed to determine if risks still exist. EPA initially ordered Range Resources to investigate and remediate water contamination in the area but later withdrew its order when Range challenged EPA’s evidence linking the company’s shale drilling operations to the contamination. The EPA Inspector General agrees that the residents’ drinking water does not present a current health risk, but that the Agency should continue long-term testing and do more to share its findings with area residents. The report criticized the Texas Railroad Commission for not ordering Range to remediate residents’ well water, but the Commission has stated that the aquifer had a long history of methane contamination and that evidence showed that Range’s wells were not the source.

USGS to document induced seismicity. The U.S. Geological Survey (“USGS”) is embarking on an “induced seismicity” map to complement its standard earthquake hazard maps. Traditionally, USGS excluded seismicity from industrial activities from its earthquake maps, which are used to project the likelihood and severity of natural earthquakes. These are relied upon in setting building codes, engineering public roadways and bridges, and establishing insurance rates. New attention to seismic activity that some have linked to underground injection wells used to dispose of hydraulic fracturing wastewater, has prompted USGS to create separate maps to help the agency and others study induced seismicity and to have more complete information about seismic activity in the United States.


North Dakota to begin oversight of gathering lines. Under new rules, owners of gathering pipelines must now start reporting the locations of those lines to the state. North Dakota estimates that there are 18,000 miles of gathering pipelines in the state, with many more expected to be developed in the near future, but neither the North Dakota Public Service Commission or the U.S. Pipeline and Hazardous Materials Safety Administration had ever compiled a record of their locations. The information will be compiled in a state database, although specific line locations will be protected as confidential business information. Landowners that have an active or abandoned gathering line underneath their property will be notified, however. Abandoned pipelines must be reclaimed, either by the owner or through a $75 million fund if the owner cannot be located.

Court settles disputed Bakken shore zone. The North Dakota Supreme Court ruled against a group of land owners claiming that they owned the “shore zone,” a 25,000 acre area between the high- and low-water marks of the Missouri River that runs through the Bakken Shale play. Instead, the court held that the state owned the shore zone and the accompanying mineral rights. The decision will provide some certainty to drilling companies that have paid over $140 million in disputed royalties into an escrow account. That money will now go to the state. The ruling will not end disputes over all of these mineral rights, as it is still unclear whether the State owns the shore zone on the Fort Berthold Indian Reservation and some private parties may be able to demonstrate that the state previously sold or granted portions of the shore zone to private landowners.


Hydraulic fracturing projects excluded from E.U. environmental impact assessments. In a victory for European oil and gas companies seeking to develop shale formations, the European Union’s environmental impact assessment rules will not require assessments before using hydraulic fracturing techniques to complete a well. The European Commission’s revisions, primarily intended to streamline environmental reviews, rejected amendments by the European Parliament that would have made assessments mandatory for all projects using hydraulic fracturing. The European Commission is already scheduled to release new rules governing the environmental integrity of shale gas development in January 2014.


Kinder Morgan buys into tankers. Midstream operator Kinder Morgan acquired shipping companies American Petroleum Tankers and State Class Tankers for $962 million in cash. The companies provide a fleet of five vessels, with four under construction, that haul crude oil, condensate, and chemicals for domestic trade. Each tanker holds approximately 330,000 barrels of cargo. A Kinder Morgan spokesman stated that shale development has increased demand for alternative shipping methods. The deal will close in the first quarter of 2014.

Berkshire Hathaway buys into midstream. Berkshire Hathaway announced that it will acquire Phillips 66’s specialty products subsidiary that creates polymers to improve flow through pipelines. Although the companies did not disclose the price of the sale, Reuters estimated the value of the business at approximately $1.4 billion. The deal is expected to close near the middle of the year. Phillips 66 stated that the sale allows it to focus on its core oil and gas transportation and processing businesses.

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