Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 39

Federal

GAO Report offers mixed review of PHMSA oversight of oil and gas transportation. A recent report by the Government Accountability Office (GAO) found that Pipeline and Hazardous Materials Safety Administration’s (PHMSA’s) recent rulemaking for the transport of oil by rail provided adequate precautions to address potential environmental risks. At the same time, the GAO reported that additional regulations were needed to address risks associated with larger, higher pressure gathering lines associated with natural gas development. In response, the PHMSA agreed that additional regulations were required, and noted that gathering lines were not subject to the same degree of PHMSA oversight as other natural gas pipelines. The GAO report was requested by Sens. Rockefeller (D-W.Va.), Thune (R-S.D.), and Wyden (D-Ore.).

Environmental group petitions EPA to prohibit discharge of produced water from hydraulic fracturing. On September 23 Public Employees for Environmental Responsibility (PEER) petitioned the Environmental Protection Agency (EPA) to conduct a rulemaking to prohibit the discharge of produced water from hydraulically fractured wells into surface streams in the western United States. Produced water is water obtained from a well bore during the production phase after the well has been completed. Under current regulations, produced water from oil and gas development can be discharged into streams if the water quality is acceptable for wildlife or for use in agriculture. The regulations were intended to increase water flow in arid states across the west. PEER argues in its petition that produced water from hydraulically fractured wells may contain chemicals from the hydraulic fracturing fluid that may be harmful to human health or the environment.

States

Texas: Eagle Ford shale formation poised to surpass Bakken in oil production. An ongoing study by the University of Texas, San Antonio has concluded that the Eagle Ford shale formation will soon overtake the Bakken shale and become the top oil producing field in the U.S. Researchers noted that the Eagle Ford also has the most capital investment of any shale field in the U.S. The economic effects of this growth are significant and the researchers project that the economic impact of oil development in 2023 will exceed $137 billion over a 21-county area where the Eagle Ford is located. This is a nearly $50 billion increase over last year’s estimates. At present, the oil industry’s activities in the Eagle Ford shale have generated 155,000 full-time jobs with payrolls of more than $5.6 billion.

Standards

API issues standards for transporting crude oil by rail. On September 25, the American Petroleum Institute (API) issued new standards and best practices addressing the transport of crude oil by rail. The standards address the development of sampling and testing programs for crude oil, the frequency of testing and methods to avoid overfilling rail cars. The standards were developed through collaboration with members of the oil and gas industry, the rail industry and the PHMSA. Representatives from the rail industry expressed support for the standards, while PHMSA representatives stated that the final standards were still under review.

Studies

Studies show lack of groundwater contamination from hydraulic fracturing. A recent study conducted by Ohio State University, Duke University, and the University of Rochester, as well as a second study by the Department of Energy, both found that hydraulic fracturing operations do not contaminate groundwater. The university study focused on potential contamination during the hydraulic fracturing process, while the Department of Energy study focused on potential contamination from fracturing fluids left behind after well completion. These studies confirmed that faulty well casings – as opposed to the practice of hydraulic fracturing itself –are the most likely pathway for any potential shale resource development to impact groundwater. This is consistent with the focus in many states on further strengthening existing regulations governing well casings and well integrity.

Report questions climate benefits of natural gas. A recent article published in Environmental Research Letters questions whether an increased emphasis on natural gas development will reduce GHG emissions. The authors concluded that a number of factors related to natural gas development could have a detrimental effect on overall GHG emissions, including potential methane leaks, a shift in investment from renewable energy to natural gas development and increased electricity consumption due to low energy prices. The study modeled a number of different policy scenarios including a carbon tax or cap on carbon emissions and concluded that a renewable portfolio standard mandating renewable energy has the most promise for reducing GHG emissions.

Report outlines NGO concerns about silica mining for hydraulic fracturing. A recent report by the Civil Society Institute’s Boston Action Research in cooperation with the Environmental Working Group and Midwest Environmental Advocates identified potential public health and environmental concerns associated with the mining of silica for hydraulic fracturing. Silica mining is based primarily in Wisconsin and Minnesota, as well as a handful of other states, but could expand depending upon demand. The report’s primary focus is on air quality and the health risks posed by respirable silica dust to workers and nearby landowners. The report also concludes that silica mining may pose risks for water resources due to the volume of water required to operate a mine and the discharge of wastewater associated with silica processing.

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Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 38

States

Illinois legislators seek extension to consider hydraulic fracturing rules. The Illinois Joint Committee on Administrative Rules (“JCAR”) exercised a 45-day extension to act on rules proposed by the state Department of Natural Resources (“IDNR”) to regulate the use of hydraulic fracturing in Illinois. IDNR received over 30,000 comments on its original draft of the rules prior to issuing the revised draft. The revised rules include additional disclosure provisions and strengthened public participation requirements. JCAR must choose to adopt the rules by November 15, 2014 or the drafting process will start over.

North Dakota: Companies developing strategies to better manage natural gas produced in Bakken. Over the past three years, companies extracting oil from the Bakken Shale have burned up to 300 million cubic feet per day of natural gas, nearly a third of all gas being produced there. According to some estimates, between 2,000 and 4,000 wells are currently flaring gas that could otherwise be collected for sale. North Dakota recently passed regulations that will require companies to submit gas transportation plans for every new oil well, and beginning in 2015, companies that continue flaring could be ordered to stop or slow production or face penalties. In response, companies are working to develop systems to provide uses for the gas and installing well-site capture units. As an example, Statoil USA, one of the largest oil producers in North Dakota, recently announced a plan to begin a pilot project to capture flare gas and use it to run drilling rigs and a fleet of trucks. Other efforts are underway, as North Dakota’s Department of Mineral Resources reports that flaring is down from 36 percent of natural gas produced in 2011 to 26 percent in July 2014.

Litigation

Pennsylvania shale developer pays record fine. Range Resources Corp., agreed to pay over $4 million in fines to settle environmental claims related to leaks, spills and other environmental violations at eight of its water impoundments in Pennsylvania. The fine is the largest ever paid by a shale driller. In addition to paying the fine, the company will close several of the impoundments and make improvements at others.

Studies

Stanford research evaluates drilling pros and cons. Stanford University researchers recently published a study after reviewing multiple government databases and a range of academic reports on hydraulic fracturing. The researchers considered water usage, potential groundwater impacts, emissions of air pollutants, seismicity and overall effects on greenhouse gas emissions. Among other findings, the study reports that while drilling operations can impact local air quality, natural gas produced with hydraulic fracturing can generate electricity which produces greenhouse gas emissions at a much lower rate than coal-fired power plants. The report also makes several recommendations, including calling for increased chemical disclosure, additional short-term and long-term studies and more pre-fracking baseline studies to help evaluate changes in environmental conditions.

Well integrity, not migration from injection process, linked to water impacts. A new study published by the Proceedings of the National Academy of Sciences concludes that leaking oil and gas wells are primarily responsible for groundwater impacts observed in Pennsylvania and Texas, not the hydraulic fracturing itself. The peer-reviewed study, prepared by researchers from five universities, found that there was no evidence that methane found in shallow groundwater was migrating upward through rock layers during the hydraulic fracturing process. Instead, a more likely source was through the wells’ steel casing. Additional research is necessary to determine whether the high volume of water and pressure used in hydraulic fracturing may have contributed to issues with well integrity.

USGS scientists link Colorado and New Mexico quakes to wastewater injection. Four scientists at the U.S. Geological Survey have linked deep underground wastewater injection to increased seismic activity in Colorado and New Mexico in a new report published on September 16. Since 2001, there have been more than a dozen earthquakes measuring 3.8 or greater in magnitude, and the increased activity has been limited to an area within a 3.1 mile radius of wastewater injection wells. Prior to the start of wastewater injection in 1999, the Raton Basin spanning the two states had very little seismic activity.

New technology improves well productivity. Improvements in technology in the last ten years have led to exponential growth in well productivity. In 2003, the country’s most productive gas well, operated by Four Sevens Oil in the Barnett Shale, produced 5.9 million cubic feet a day. In contrast, in 2013, the most productive well produced nearly 30.3 million cubic feet a day. Based on these improvements, the federal government currently estimates that crude output could continue to rise through 2040.

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Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 37

Federal

Court denies challenge to BLM oil and gas leases. Environmental groups lost their challenge to a U.S. Bureau of Land Management (BLM) oil and gas lease sale for parcels on federal lands in Nevada, including wells that would be developed by hydraulic fracturing. The groups had claimed that BLM violated the National Environmental Policy Act because its environmental assessment for the sale understated the environmental impacts of hydraulic fracturing, especially purported threats to underground sources of drinking water. The court ruled that the proposal was not a final agency action because BLM is still considering four administrative protests filed to block the action. BLM cannot issue the leases until those protests are resolved.

NGOs file suit seeking response to petition asking for rail car ban. The Sierra Club and Forest Ethics filed suit in the U.S. Court of Appeals for the Ninth Circuit claiming that the U.S. Department of Transportation (DOT) failed to respond to its petition asking for an immediate ban on certain rail cars used to ship crude oil from the Bakken Shale play. The groups filed their petition in July 2014, alleging DOT 111 tank cars were too dangerous to ship crude oil by rail. The petition was filed as DOT worked to propose regulations that would phase out the DOT 111 tank cars as new cars become available. In their petition, the NGOs seek a writ of mandamus requiring DOT to make a decision on their proposed ban within 30 days.

Congress examines crude oil rail shipments from Bakken. The House Science, Space, and Technology Committee’s Energy and Oversight subcommittees held hearings last week on the Bakken Shale play, including the controversy over the safety of shipping the play’s light sweet crude by rail. Rail shipments of crude have grown significantly over the past few years, but the increase has come with high profile derailments and explosions involving Bakken crude. Officials from the U.S. Pipeline and Hazardous Materials Safety Administration testified that Bakken crude is more volatile than other types of crude oil, based on a recent sampling effort, while other witnesses pointed out that a similar effort by the North Dakota Petroleum Council found Bakken crude to be typical of other light crudes. Some companies are already experimenting with processes to modify its makeup for shipping purposes. A finding that Bakken crude is more volatile could impact shipping regulations.

States

Groups appeal court decision striking down hydraulic fracturing ban. Environmental activists are appealing a state district court decision ruling that a Colorado town’s ban on hydraulic fracturing was preempted by Colorado state law governing oil and gas regulation. They claim that the July 2014 decision, invalidating Longmont, Colorado’s ban on hydraulic fracturing, overlooked key facts that they claim show the practice to be a threat to human health and the environment and that Colorado law allows for local regulation in cases of mixed state and local concern. The suit was originally filed by the Colorado Oil & Gas Conservation Commission but it agreed to dismiss its action in early August 2014 in exchange for the groups dropping four other ballot initiatives scheduled for this November. The Colorado Oil & Gas Association continued the case.

Business

EIA: Petroleum product exports up. Fueled largely by the Eagle Ford and Permian Basin shale plays, U.S. refiners exported an average of 5.2 million barrels per day of refined petroleum products like gasoline, petcoke, and jet fuel, according to the U.S. Energy Information Agency (EIA). This includes nearly 500,000 barrels per day of gasoline. The total petroleum product exports are up 57% over three years ago. Nearly three quarters of the increase accrued to Gulf Coast refiners with easy access to shale oil. However, industry consultants believe that Gulf Coast refiners are nearing full capacity, meaning that they will have to expand to see continued growth.

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Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 36

Federal

EPA Administrator outlines plan for hydraulic fracturing study. In a recent speech, Environmental Protection Agency (EPA) Administrator Gina McCarthy provided details on the agency’s ongoing study of the potential impacts of hydraulic fracturing on drinking water resources. Administrator McCarthy stated that the study would be consistent with the Administration’s support for unconventional oil and gas extraction within the context of its climate program and focus on best management practices that states and industry members could implement to protect drinking water resources. The study was designed to cover a number of issues related to hydraulic fracturing, including water acquisition, chemical mixing, well construction, wastewater disposal and seismicity. Administrator McCarthy stated the study is part of the agency’s overall efforts regarding hydraulic fracturing, which also include a methane strategy that EPA intends to release this fall.

Rail shipment of crude oil reaches all time high. The Association of American Railroads announced that rail shipments of crude oil reached an all-time high of 119,634 car loads in the second quarter or 2014. This represented an increase of more than 10,000 car loads in the first quarter and was more than double the amount oil shipped by rail in the second quarter of 2012. The shipment of oil by rail has been under scrutiny, with the Pipeline and Hazardous Materials Safety Administration proposing regulations to address concerns that have been raised over the volatility of crude oil from the Bakken shale region.

States
<lt;BR>Pennsylvania: DEP releases private wells data.
On August 28, the Pennsylvania Department of Environmental Protection (DEP) released comprehensive data on constituents found in private wells which the agency reports are due to natural gas development. The data identified constituents present in nearly 250 private wells since 2007. The data show significant improvement since 2010, with the number of allegedly impacted wells reduced nearly 50% from 2010 to 2013. DEP officials attribute this improvement to revised regulations with an increased emphasis on protecting water quality.

Nevada agency adopts hydraulic fracturing regulations. The Nevada Commission on Mineral Resources has approved regulations for oil and gas exploration using hydraulic fracturing as directed by the state legislature. Among other things, the regulations would require sampling of nearby water wells both before and after hydraulic fracturing operations. The regulations would also require pre-drilling disclosure of hydraulic fracturing chemicals and allow the agency to deny the use of certain high-risk chemicals. The regulations must be approved by a legislative committee on rulemaking before becoming effective.

Oklahoma: Governor announces council to evaluate seismic activity. Oklahoma Governor Mary Fallin announced the formation of a Coordinating Council on Seismic Activity which will provide a forum for interested stakeholders to share information related to seismic activity in Oklahoma. Headed by the Oklahoma Secretary of Energy and Environment, the council will be open to the state legislature, the Oklahoma Geologic Survey, research institutions, industry groups and environmental groups. The state, which has seen a significant increase in seismic activity in recent years, is in the process of developing a critically stressed fault map that will inform future regulation and permitting of injection wells related to hydraulic fracturing activities.

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Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 35

Federal

BLM sends federal rules governing use of hydraulic fracturing on federal and Indian lands to OMB. On August 29, the Bureau of Land Management (BLM) sent revised final regulations governing hydraulic fracturing on federal and Indian lands to the White House Office of Management and Budget (OMB) for review. BLM initially published a proposed rule in 2012, and after receiving public comment, published a revised proposal the following year. The rules are expected to address a spectrum of issues including well integrity, chemical disclosure and the storage and disposal of flowback water, but the details of the final rule sent to OMB remain undisclosed at this time. BLM has indicated that a final rule could be issued later this fall.

Independent scientific review on potential environmental impacts of hydraulic fracturing released. The California Council on Science and Technology, a non-partisan scientific research organization, issued an independent scientific review of California’s oil and gas development operations using hydraulic fracturing. Commissioned by BLM and peer-reviewed by the U.S. Geological Survey, the report found that overall, the direct environmental impacts from hydraulic fracturing operations in California were relatively limited. The report concluded that fracking itself does not result in an increased seismic hazard in the state, and that the main potential impacts on the environment would come from related activities such as increased traffic and wastewater disposal. The researchers also found no reported instances of potable water contamination, while noting certain data limitations on its work, including insufficient groundwater quality data near certain hydraulic fracturing operations. Based on the results of the study, BLM plans to resume oil and gas leasing in California for the first time since late 2012. The agency anticipates holding an oil and gas lease sale by the summer of 2015, after it takes time to evaluate nominated land parcels, solicit public comment and conduct additional environmental review.

States

Colorado court strikes down third local ban. For the third time this summer, a Colorado district court has decided to strike down a local ban on hydraulic fracturing. On August 27, the Boulder County District Court overturned Lafayette’s local ban, holding that the Colorado Oil and Gas Conservation Act pre-empted the local law. Lafayette, Colorado passed a “Community Bill of Rights” via ballot initiative in 2013 that, among other things, prohibits hydraulic fracturing within city limits, purports to strip corporations of any right to challenge the ban, and declares that any state or federal laws inconsistent with the ban are null and void in Lafayette. In its decision, the court found that the local law clearly conflicted with the statewide law regulating oil and gas development. The Lafayette decision follows similar decisions overturning bans in Fort Collins and Longmont, Colorado earlier this summer.

&llt;STRONG>Illinois issues long-anticipated rules governing use of hydraulic fracturing. On August 29, the Illinois Department of Natural Resources (IDNR) published revised rules that, if approved, will allow fracking to move forward within the state. IDNR originally issued proposed regulations in 2013 triggering a record-level of public participation during the rulemaking process after the agency received 31,000 comments on the draft rules. The revised regulations address these comments and make several substantive changes, including expanding public participation requirements, broadening the rules governing chemical disclosure and increasing enforcement penalties. Industry representatives believe that the revised rules, considered to be some of the strictest in the country, may dissuade companies from investing in the development of hydraulic fracturing within the state. The Illinois General Assembly’s Joint Committee on Administrative Rules has forty-five days to consider the proposed regulations. If approved, companies will be able to apply for high-volume hydraulic fracturing permits for the first time in Illinois.

Litigation

Pennsylvania contractor admits falsifying well reports. A Pennsylvania contractor, Ronald Wright, pleaded guilty in federal court, admitting that he prepared false certifications regarding the plugging of abandoned oil wells near a proposed injection well, as required by the Safe Drinking Water Act. The misconduct occurred on multiple occasions between 2009 and 2011. Environmental regulators relied upon the false certifications to approve an injection well nearby, and discovered the falsifications only after EPA conducted a mechanical integrity test of the injection well and discovered leaking fluid from an abandoned well. Based on the false reports, nearly 95 wells in Pennsylvania will likely require re-inspection and re-plugging.

International

Brazil weighs five-year ban on hydraulic fracturing. The Brazilian legislature is considering a bill that would ban hydraulic fracturing for five years while the government studies the potential environmental impacts of the practice. The legislation was originally introduced in December 2013 following the National Oil Agency’s (ANP) sale of land in the five onshore oil and gas basins to domestic and international bidders, but has gained momentum in recent weeks. ANP estimates that the Brazilian basins may hold up to 515 trillion cubic feet of oil and gas reserves. Government officials anticipate the legislature will vote on the bill in 2015.

Report signals Nova Scotia is hesitant to accept hydraulic fracturing. An independent review report indicates that the public is reluctant to accept hydraulic fracturing in Nova Scotia, with only forty percent of the public favoring its use, even accompanied by strict regulation. The Nova Scotia provincial government commissioned the report in August 2013 during a two-year moratorium on development that began in 2012. The report estimates around 4,000 wells could be developed within Nova Scotia, providing the government with approximately $138 million in revenue each year. The report recommends a significant period of public education and dialogue and further research into the potential impacts before revisiting the issue.

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