Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 47

Federal

Forest Service reverses ban and allows limited oil and gas leasing in National Forest. On November 18, the U.S. Forest Service reversed its proposal to ban the use of hydraulic fracturing completely in the George Washington National Forest. Instead, the land and resource management plan for the forest will allow oil and gas leasing to continue on approximately 10,000 acres. The 1.1 million acre forest, the largest national forest on the east coast and a popular place for campers, hikers and hunters, contains the headwaters of the Potomac River which supplies water to population centers downstream, including Washington, D.C. Only a handful of wells have been drilled in the forest since the 1990s, but the Bureau of Land Management has estimated that there is a high potential for oil and gas to be found within the forest. The Forest Service currently leases approximately 5.3 million of its 193 million acres for oil and gas development.

States

Boulder, CO extends moratorium on oil and gas drilling. Boulder County extended its drilling moratorium until mid-2018, formally extending the ban that originally went into effect in 2012. County commissioners approved the extension as they await the results of a study that will evaluate the air and water impacts of oil and gas drilling. The $12 million study, funded by the National Science Foundation and led by the University of Colorado, is not expected to be completed until 2017.

Pennsylvania representative expands investigation of waste management practices. Representative Matthew Cartwright (D-Pa.) expanded his investigation into how states are handling waste from hydraulic fracturing operations, contacting regulators in Ohio and West Virginia, in addition to the Pennsylvania Department of Environmental Protection he contacted last month. Rep. Cartwright sits on the House Oversight and Government Reform Committee. He has previously proposed legislation to roll back the environmental exemptions for oil and gas waste. Rep. Cartwright asked the states for three years of data on investigations and complaints, along with details on state permitting and monitoring of waste haulers.

Litigation

Judge denies injunction to block Illinois hydraulic fracturing permits. On November 21, a Madison County judge denied an injunction in the first lawsuit to challenge the Illinois fracking rules, finding that environmental groups and landowners failed to demonstrate they were in immediate danger. Following publication of the rules in mid-November, southern Illinois landowners, along with environmental groups, filed suit in state court seeking an injunction against the publication of new regulations that would allow the Illinois Department of Natural Resources to issue hydraulic fracturing permits. The suit raises various procedural claims, including that the state allegedly failed to provide the required notice for public hearings, did not consider certain studies when developing the regulations, and failed to respond to public questions during a public hearing.

NGOs file suit challenging permitting of waste disposal facilities. On November 19, two environmental groups filed suit in Franklin County Court challenging approvals by the Ohio Department of Natural Resources (DNR) for approximately 20 waste disposal facilities which handle wastewater from hydraulic fracturing operations. The complaint alleges Ohio DNR bypassed the official rulemaking process required to permit such facilities. The facilities have been authorized by temporary permits issued by DNR pending new final rules to be issued by the department that will further regulate these disposal sites. The complaint challenges the temporary authorizations and seeks an injunction compelling DNR to implement permanent regulations before allowing these disposal facilities to accept hydraulic fracturing wastes.

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Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 46

Federal

Fish & Wildlife endangered species listing could further delay permitting for oil and gas development on federal lands in western U.S. The U.S. Fish & Wildlife Service (FWS) formally listed the Gunnison sage grouse as a threatened species under the Endangered Species Act. The decision established a 1.4 million acre area of critical habitat for the ground-dwelling bird in southwest Colorado and southeast Utah. Federal agencies must consult with FWS before authorizing any activity that could “adversely modify” critical habitat, meaning potentially more delays for oil and gas companies seeking permits on federal lands. The “threatened” listing decision drew criticism both from environmental groups, who were pushing for an “endangered” designation, and by effected states and industry, who believe that voluntary conservation measures have stabilized the grouse’s population. FWS stated that it would issue a Section 4(d) rule that provided additional flexibility to oil and gas operations that previously implemented approved voluntary conservation plans. WildEarth Guardians has already announced it would file suit to overturn the “threatened” listing decision and force an “endangered” designation. An “endangered” designation, which FWS previously proposed in January 2013, would impose even more restrictions on oil and gas operations within Colorado and Utah.

States

North Dakota delays railway safety regulations. North Dakota’s Industrial Commission stated that it will reopen the public comment period on proposed regulations governing the shipment of crude oil by railway. As proposed, the regulations would require shippers to lower the Reid vapor pressure of oil transported by railroad tanker to 13.7 psi. Compliance would likely require companies to heat the crude in order to flash off and capture volatile organic compounds like propane and butane. A spokesman for the Department of Mineral Resources stated that there were concerns with the accuracy of some of the vapor pressure testing data but that these concerns would not likely change the content of the regulations. The Industrial Commission scheduled a December 11, 2014 meeting to consider the draft regulations.

Suit seeks to block Illinois hydraulic fracturing permits. Environmental groups filed suit in state court seeking an injunction against the publication of new regulations that would allow the Illinois Department of Natural Resources to issue hydraulic fracturing permits. The regulations were recently adopted on November 6, 2014, more than a year after the legislature passed the Hydraulic Fracturing Regulatory Act. The suit raises various procedural claims, including that the state allegedly failed to provide 20 days’ notice for public hearings, did not consider certain studies when developing the regulations, and failed to respond to public questions during a public hearing.

NGOs challenge California hydraulic fracturing permits. A group of environmental groups filed suit challenging 214 permits issued by the Division of Oil, Gas, and Geothermal Resources (DOGGR) authorizing the use of hydraulic fracturing, alleging DOGGR failed to comply with the California Environmental Quality Act before issuing the permits. DOGGR is in the process of conducting an overall environmental assessment of hydraulic fracturing, as required by California’s recent hydraulic fracturing legislation, S.B.4, however, the plaintiffs claim the agency should have performed an environmental review of each individual well site and the cumulative impacts of drilling in California. The complaint asserts hydraulic fracturing uses significant amounts of water at a time where water supplies in California are strained, and that DOGGR did not conduct the requisite analysis of potential air impacts. The plaintiffs seek an injunction barring drilling until DOGGR performs the individual well site reviews.

Business

Halliburton to purchase Baker Hughes. Halliburton Co., the world’s second-biggest provider of oilfield services, has agreed to buy Baker Hughes Inc. According to a joint statement, Baker Hughes’ shareholders will receive 1.12 Halliburton shares plus $19 in cash for each share they own. Halliburton announced plans to finance the deal through a combination of cash on hand and debt financing. The combined companies would control approximately 40 percent of the market for hydraulic fracturing services. The purchase remains subject to review by the U.S. Department of Justice.

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Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 45

States

Illinois: Administrative rulemaking commission approves new regulations authorizing permits to develop wells using hydraulic fracturing. On November 6, 2014, the Illinois Joint Commission for Administrative Rules (JCAR) approved new rules to implement the state’s Hydraulic Fracturing Regulatory Act. The final rule will allow the Illinois Department of Natural Resources (DNR) to grant permits to develop wells using hydraulic fracturing. The final rule is similar to the most recent draft released by the DNR in August. The JCAR approval marks the conclusion of a year-long regulatory process following the State’s passage of the Act in 2013.

California: Ballot measures to ban hydraulic fracturing pass in two of three counties. Voters in San Benito County and Mendocino County passed local moratoriums on hydraulic fracturing while a third measure failed in Santa Barbara County. By a 57 to 43% vote, San Benito voters banned use of hydraulic fracturing along with acid well stimulation and cyclic steam injection. At present there are 26 operating wells in San Benito County, none of which have used these well completion methods. Mendocino County’s vote passed by a margin of 62 to 38%, but is largely symbolic as there are no oil and gas wells in Mendocino County. By contrast, by a margin of 63 to 37%, Santa Barbara County, which has a large number of active wells, voted down the proposed ban. Santa Barbara also currently has more than 300 permit applications pending, all of which would involve cyclic steam injection.

Ohio: Municipal voters reject 3 of 4 ballot measures to ban hydraulic fracturing. Voters in Ohio largely rejected local measures to ban hydraulic fracturing in last week’s election. Residents in Youngstown voted for the fourth time to defeat a ballot measure to ban hydraulic fracturing. Local bans were also defeated in Gates Mill and Kent. Voters in Athens, Ohio did approve a measure to ban hydraulic fracturing as part of a community bill of rights which also enumerated residents’ rights to clear air and water.

Texas: City of Denton passes initiative to ban hydraulic fracturing; faces immediate lawsuit. The City of Denton became the first city in Texas to ban hydraulic fracturing within city limits. Residents in Denton, which is located in the Barnett Shale and currently has more than 200 operating gas wells, voted 59% to 41% in favor of the ban. Denton’s city council had voted down a similar ban proposed last July. The day after the election, the Texas Land Commissioner and the Texas Oil and Gas Association filed separate declaratory judgment actions seeking to overturn the initiative as preempted by state law and contrary to the Texas Constitution. The Texas Oil and Gas Association has also asked the court to issue a preliminary injunction in advance of the ballot measure’s effective date of December of this year.

West Virginia: University establishes field laboratory dedicated to shale gas resources. On November 6, 2014, West Virginia University announced the launch of The Marcellus Shale Energy and Environment Laboratory, which will be dedicated to the long-term evaluation of shale resource development. The program will employ a multidisciplinary team that will be focused on identifying best practices for responsible shale development. The program obtained $11 million in funding over five years from the U.S. Department of Energy.

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Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 44

Federal

Interest groups discuss BLM rule with White House. On October 30, environmental groups, including representatives from Sierra Club and the Natural Resources Defense Council, met with officials from the Office of Management and Budget (“OMB”) and the Council on Environmental Quality to discuss a Bureau of Land Management (“BLM”) proposed rule to expand regulation of hydraulic fracturing on public lands. Environmental groups believe that BLM must evaluate the proposed rule under the National Environmental Policy Act, while the industry continues to object to the rule as an unnecessary regulation of primarily state operations. If finalized, the rule is expected to require additional public disclosure, increased wellbore integrity requirements and water management plans for wells on public lands. The final rule is presently expected to be released following the November 4 election.

States

California: Three counties weigh voting bans. In this week’s election, three coastal counties in California will be voting on local initiatives to ban the use of hydraulic fracturing. Santa Barbara, San Benito and Monterey are all situated on the Monterey Shale, a deposit believed to contain over 600 million barrels of oil, but none of the counties currently have shale oil development operations, leading some opponents to believe that the vote is unnecessary. Opponents additionally are concerned that the local initiatives will extend to other forms of drilling beyond high volume hydraulic fracturing. Supporters claim the risk to drinking water and the increased threat of earthquakes as among the reasons to vote in favor of the initiatives.

Pennsylvania representative launches investigation of oil and gas waste. Representative Matthew Cartwright (D-Pa.) recently began an investigation of Pennsylvania’s shale oil and gas waste disposal program. In 2013, Rep. Cartwright proposed a related initiative to eliminate the exception for the oil and gas industry from certain hazardous waste requirements, and has stated that he believes that this new investigation will advance that legislation. As an initial step, the investigation will require the Pennsylvania Department of Environmental Protection to answer several questions about its regulatory programs by mid-November.

Texas: Denton citizens considering state’s first fracking ban. Voting is ongoing for a hydraulic fracturing ban in Denton, Texas. Located above the Barnett Shale, Denton has numerous wells within the city limits. Last year, Denton passed a 1,200 foot setback requirement, following complaints from homeowners about increased noise, dust and traffic. At least one company contended it was exempt from the setback regulation, arguing it was grandfathered because it had commenced drilling before Denton enacted the setback requirement. Opponents of drilling are now seeking an outright ban. If passed, it would be the first jurisdiction to enact a ban on hydraulic fracturing within Texas. Other Texas cities have restricted drilling, but none has completely banned the activity within the city limits.

Business

Kinder Morgan schedules merger vote. Shareholders will vote on the proposed merger between Kinder Morgan Energy Partners, Kinder Morgan Management, and El Paso Pipeline Partners on November 20, 2014, according to SEC filings. If approved, the merger, valued at $44 billion, would be the second largest energy merger in United States history.

Studies

Online journal reports data showing air pollutants above federal limits. The online Journal of Environmental Health has reported that in the vicinity of wells in Arkansas, Colorado, Ohio, Pennsylvania and Wyoming, eight chemicals, including benzene and formaldehyde, are present in air quality samples at levels above federal limits. Local volunteers collected the samples near drilling sites and compressors, which were then analyzed by laboratories for the researchers. Industry groups have criticized the report, arguing the local volunteers are not trained objective researchers, but interested stakeholders.

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