Sidley Shale Gas and Hydraulic Fracturing Report

Vol. 4. No. 8

Federal

USGS Releases Decades of Hydraulic Fracturing Data. U.S. Geological Survey (USGS) scientists released data analyzing over 60 years of hydraulic fracturing information. The report covers nearly one million drilled wells and two million fracturing treatment records between 1947 and 2010, and describes trends in water usage and treatment fluids. The report also reflects the rapid increase in horizontal hydraulic fracturing — these wells accounted for six percent of drilled wells in the United States in 2000 and 42 percent in 2010. According to the report, the states with the largest number of hydraulic fracturing wells are Texas, Colorado, Pennsylvania, Oklahoma and New Mexico.

Environmental Group Sues DOI Regarding Offshore Oil and Gas Development. The Center for Biological Diversity (CBD) filed suit against the Department of the Interior (DOI) in federal district court in California, alleging that the agency was issuing offshore oil and gas permits without adequate consideration of environmental impacts, in violation of the National Environmental Policy Act. CBD requested the court issue an order barring all permitting until the impacts are fully studied. The litigation follows a similar lawsuit filed by the Environmental Defense Center challenging permits in the Santa Barbara Channel, as well as a CBD lawsuit seeking information regarding offshore wells permitted in the Gulf of Mexico.

State

Ohio Rejects Local Restriction of Fracking. On February 17, the Ohio Supreme Court invalidated municipal ordinances that purported to ban hydraulic fracturing, holding that the local laws conflicted with, and thus were preempted by, the state’s oil and gas law. In State ex rel. Morrison v. Beck Energy Corp, the court ruled 4-3 that regulations adopted by the town of Munroe Falls regulations were in direct conflict with Ohio’s statewide, uniform regulation of oil and gas operations. Munroe Falls had argued that the ordinances were a valid exercise of the city’s home-rule power, granted by the Ohio state constitution. The court rejected the argument, finding the ordinances would render the state law meaningless and that, notwithstanding home rule powers, the state law was the exclusive authority for regulation of permitting.

Pennsylvania Court Rejects Lease-Extension Doctrine. The Pennsylvania Supreme Court recently ruled that oil and gas drillers are not entitled to longer leases after successfully defending against a landowner lawsuit. Several states have adopted the doctrine that a driller is entitled to make up for production time lost after winning a lawsuit against a landowner, but historically Pennsylvania has not supported the practice. In this case, Cabot Oil & Gas Corp. suspended production during litigation and after prevailing, requested an extension of its leases to recoup its drilling time. The court, however, rejected the argument, finding that oil and gas drillers may draft lease provisions to provide for equitable extensions but the doctrine alone was insufficient.

If you have any questions regarding this Report, please contact us.

Sidley Shale Gas and Hydraulic Fracturing Report

Vol. 4. No. 7

Federal

Industry Challenges White River National Forest Management Plan. The Western Energy Alliance filed a formal objection to the U.S. Forest Service’s White River National Forest management plan, claiming that it was compromised by political pressure from the White House and Colorado Senator Michael Bennett, foregoing reliance on an objective analysis of potential drilling impacts informed through public notice and comment. The management plan would close Colorado’s Thompson Divide to new oil and gas leasing. The Thompson Divide overlays portions of the Niobrara Shale play, however, Senator Bennett has pushed for both legislation and land management policy that would prohibit drilling on all un-leased public lands in the Thompson Divide. The coalition wants the Forest Service to create a new plan that balances multiple uses, instead of only permitting the land to be used for recreation and conservation.

Colorado Sues to Reverse Gunnison Sage Grouse Listing. According to a lawsuit filed by the Colorado Office of the Attorney General, the U.S. Fish & Wildlife Service lacked a scientific justification for listing the Gunnison sage grouse as a threatened species and establishing 1.4 million acres of land in southwest Colorado and southeast Utah as critical habitat. Colorado argues in its district court complaint that voluntary measures by the state, local government and landowners have resulted in a recovery of the bird’s populations, hitting population targets previously spelled out by Fish & Wildlife conservation biologists. Environmental groups previously filed separate suits claiming that the Gunnison sage grouse should have been listed as “endangered” under the Endangered Species Act, requiring more stringent protections for the bird and its critical habitat.

EPA Issues Report on Seismic Activity. Environmental Protection Agency (EPA) researchers have issued a report suggesting that states prohibit wastewater disposal in injection wells if seismic activity persists, despite operational regulations. According to the final report, Class II injection wells “may not be suitable to disposal operations” where there is continued seismic activity. The report suggests permit terms for disposal wells, providing recommendations for state agencies that the researchers believe would reduce the possibility of wells triggering seismic activity. Seismic activity has been linked by some research to wastewater disposal wells in Oklahoma, although, by contrast, a recent paper in Seismological Research Letters found that there is virtually no evidence of wastewater disposal wells leading to seismic activity in the Bakken Shale play.

States

Wyoming Tax on Flaring Flames Out. For the second year in a row, a Wyoming House bill to tax natural gas flaring from oil wells in the state failed to pass. The sponsors stated they intend to re-introduce the bill during the next legislative session, arguing that flaring results in lost tax revenue as valuable gas is wasted. Opponents, however, argued that a tax on flaring would either require companies to invest in new pipeline infrastructure or to pay additional taxes at a time when both oil and gas prices have fallen significantly. Instead, the opponents argued, a new tax would incentivized companies to abandon marginal-producing oil wells, resulting in reduced overall natural resources revenues for the state. Wyoming Gov. Mead ordered the state’s Oil & Gas Conservation Commission to revise its flaring regulations in order to reduce waste, but with its current workload, the Commission is not anticipated to begin reviewing those regulations until next year.

International

UK Allows Development Under National Parks. Britain’s Parliament passed a bill to eliminate existing prohibitions on hydraulic fracturing under national parks and designated areas of outstanding natural beauty. According to Energy and Climate Change Minister Amber Rudd, existing restrictions prohibit hydraulic fracturing on 40 percent of the land the government plans to offer for shale gas exploration, making shale development impractical. The bill would allow companies to drill horizontally under national parks, so long as the well pad is outside of the parks’ boundaries. Prime Minister David Cameron cited shale gas development as necessary to create jobs and reduce reliance on imported natural gas.

Research

Researchers Report a Small Percentage of Processing Facilities Account for Most of Methane Leakage. A study published in Environmental Science and Technology reports that less than one percent of methane leaks from natural gas gathering and processing facilities. According to the report, about 30 percent of natural gas gathering facilities account for approximately 80 percent of all fugitive methane emissions. The study could prove an important additional data set for EPA as it considers potential methane rules. According to the researchers, EPA’s own greenhouse gas inventory for the oil and natural gas sector is outdated, relying on data collected during the 1990s. The inventory fails to account for higher quality technologies that prevent fugitive emissions, leak detection and repair programs being used at a majority of operations.

Business

Crude Prices Still Down, Impacting Shale Development. Despite a brief upsurge, crude prices continued to fall as U.S. stockpiles of crude oil grew, according to the International Energy Agency (IEA). Despite dropping prices, the Organization of Petroleum Exporting Countries (OPEC) has thus far refused to change production targets, putting pressure on higher cost hydraulic fracturing operations to reduce production or find ways to reduce production costs. According to the IEA, U.S. companies are producing 200,000 fewer barrels per day than previously predicted, and Rice University’s Baker Institute for Public Policy confirmed that reduction, estimating that U.S. oil companies drilled 28 percent fewer wells in January 2015 when compared to June 2014. U.S. oil companies, however, are eyeing methods to reduce drilling costs, such as re-fracturing old wells, which can cost roughly 25 percent less than drilling new ones. Service companies reportedly are looking to re-fracturing as a way to stem the recent reduction in the number of active drilling rigs.

If you have any questions regarding this Report, please contact us.

Sidley Shale Gas and Hydraulic Fracturing Report

Vol. 4. No. 6

North Dakota: Bakken Shale Production Slows in Response to Drop in Oil Prices. Drilling companies in North Dakota’s Bakken Shale formation are responding to the drop in oil prices by cutting worker hours and reducing the overall number of drilling rigs. Among the initial signs of a slow-down in production has been a reduction in work hours and overtime and smaller housing allowances. Drilling plans have also been cut back, with 40 rigs having closed over the past six weeks, leaving 146 operating rigs. Each rig employs more than 120 workers and some have predicted that as many as 100 more rigs may be closed by summer unless oil prices rebound. Others suggest a more modest slowdown, leaving approximately 120 active oil rigs in the Bakken play.

Colorado: Oil and Gas Task Force Makes Initial Recommendations Focused on Local Control over Drilling. Following a recent two-day meeting in Denver, the Colorado Oil and Gas Task Force developed a list of approximately 40 working recommendations, several of which focused on opportunities for increased local government oversight of oil and gas development in Colorado. The Task Force was created by Gov. Hickenlooper (D) in a compromise that removed several ballot initiatives related to local control over oil and gas development. Other topics addressed by the working recommendations include additional staff and resources for state agencies with oversight of oil and gas activities, expanded setbacks for large, multi-well sites, chemical disclosure issues and a third-party health study. The Task Force is continuing to revise the working recommendations and is expected to submit final recommendations to the governor by end of the month.

Pennsylvania: Legislature Introduces Bipartisan Bill to Impose Severance Tax on Natural Gas. A bipartisan group of Pennsylvania state legislators introduced legislation that would impose a 3.2 percent severance tax on natural gas development. Pennsylvania is currently the only significant producer of natural gas that does not impose a severance tax. If enacted, the tax would be expected to raise between $500 and $600 million per year that would be earmarked for education (40 percent), pensions (35 percent), human services (15 percent) and environmental programs (10 percent). The severance tax, a tax based on the quantity of natural gas produced, would be in addition to the impact fee currently assessed, a fee which is based on the number of wells drilled and which is used primarily to help fund local governments in areas where drilling is conducted. When combined, the severance tax and impact fee would result in an effective tax rate of approximately five percent.

New York: Report Alleges that New York Landfills Accept Out-of-State Hydraulic Fracturing Waste. In a recent report, Environmental Advocates of New York claimed that New York state landfills have accepted 460,000 tons of hydraulic fracturing waste from out of state, despite the fact that New York currently prohibits hydraulic fracturing. The report alleges that a loophole in existing state regulations allows hydraulic fracturing waste to be classified as construction debris. The New York Department of Environmental Conservation disputed the findings of the report. The Agency stated that landfills may accept rock and soil fragments from drill cuttings and dewatered drilling mud from hydraulic fracturing sites, but stated that those materials did not contain hazardous waste.

If you have any questions regarding this Report, please contact us.

Sidley Shale Gas and Hydraulic Fracturing Report

Vol. 4. No. 5

Federal

Senate Rejects Amendment to Allow Direct U.S. EPA Regulation of Hydraulic Fracturing Under Safe Drinking Water Act. In a 35-63 vote, senators rejected a measure that would have repealed a provision of a 2005 energy bill exempting oil and gas drilling from the underground injection control requirements in the Safe Drinking Water Act (SDWA). Senator Kristen Gillibrand (D-N.Y.) proposed the measure as an amendment to legislation to approve the Keystone XL pipeline. Rejection of the measure means that U.S. EPA still may not use the SDWA to require a federal permit for most injection activities associated with hydraulic fracturing. EPA has asserted the right to regulate injection when the fracturing fluids contain diesel fuels. Versions of the same legislation were proposed previously but ultimately did not reach a vote on the floor.

Federal Legislation Introduced to Compensate New York Landowners. In response to the decision by the administration of New York Governor Andrew Cuomo (D) to ban hydraulic fracturing in the state, Rep. Tom Reed (R-NY) introduced a bill, the “Defense of Property Rights Act,” H.R. 510, that would provide compensation to landowners who would have otherwise economically gained from fracking within the state. Rep. Reed argues that the state is depriving landowners of their property value by prohibiting the lease and sale of mineral rights to developers.

States

Texas Railroad Commission to Increase Community Outreach Rather Than Require Additional Well Inspections in Urban Areas. Following a decision in December to increase inspections at urban drilling sites in response to a growing number of local bans and protests, the Texas Railroad Commission has determined instead to increase community outreach rather than increase individual well inspections in urban areas. The Commission stated it has no evidence that there are higher noncompliance issues in urban areas, and instead that the community needs to better understand the role of the Commission in regulating oil and gas development and the associated potential for effects on communities, such as increased traffic and noise. The Commission decided it would be a more effective use of its resources to focus on improving the coordination between the local districts and communities.

International

British Parliament Members Call for Hydraulic Fracturing Ban. Members of the United Kingdom’s Environmental Audit Committee are calling for a ban on hydraulic fracturing, citing an uncertain effect on the environment. Additionally, lawmakers are concerned that oil and gas development from hydraulic fracturing could impact the country’s carbon emissions targets. Prime Minister David Cameron has publicly supported shale development as a means to grow the economy and move away from reliance on imported oil. The Department of Energy and Climate Change similarly disagree with the Parliament committee, reasoning that shale drilling for natural gas would result in cleaner energy than energy produced from coal. Shale development continues to move forward in the United Kingdom, but government officials did agree to prohibit development in specific high risk areas, including national parks and special interest sites.

Scotland Stops Hydraulic Fracturing Operations. The Scottish Energy Minister recently announced plans for further study of the environmental and health implications of hydraulic fracturing, delaying planned drilling operations within the country. The additional studies will include public consultations, a public health impact assessment and a review and possible revisions of guidance and environmental regulations. The moratorium will cover all planning consents for unconventional oil and gas developments, including hydraulic fracturing.

Business

Oil Prices May Impact Sand Suppliers. Sand suppliers in western and central Wisconsin, where commercial quality sand is frequently sold as a proppant for use in hydraulic fracturing fluid due to its size, shape and durability, anticipate a downturn in demand for their product. However, officials in several counties report that production has not slowed yet and new mines continue to be developed. Some industry experts believe the downturn could actually provide an economic benefit to proppant suppliers, as drillers look for ways to maximize well efficiency—use of additional sand could potentially increase production rates.

If you have any questions regarding this Report, please contact us.