Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 21

Federal

NIOSH investigating potential risks of exposure to hydraulic fracturing flowback. The National Institute for Occupational Safety and Health (NIOSH) is investigating potential risks associated with acute exposure to hydraulic fracturing flowback water. NIOSH initiated the investigation in response to the deaths of four workers who had been taking measurements at flowback storage tanks in the Bakken Shale. NIOSH noted the concern related to hydrocarbons in the flowback, but not from chemicals added to hydraulic fracturing fluids. The agency acknowledged results were preliminary and that additional research was needed. NIOSH is seeking to partner with the industry to characterize and understand worker exposures and related risks.

States

California: EIA reduces estimates of recoverable oil from the Monterey Shale by 96%. The U.S. Energy Information Administration (EIA) cut estimates of recoverable oil in the Monterey Shale play by 96%, from 13.7 billion barrels to 600 million barrels. The reduced estimates do not reflect a change in the amount of oil present, but a change in the amount that can be recovered using existing technologies, including hydraulic fracturing. According to the EIA, the oil-bearing rock strata in the Monterey Shale are uneven and broken up by prior seismic activity, making horizontal drilling more challenging than in other shale oil plays. Industry experts disputed contentions that the revised estimate altered prospects for shale oil development in California, stating that they made investment decisions based on their own geological analysis and have not relied on EIA’s estimates. Beyond development costs, recent hydraulic fracturing laws enacted in California may impose significant additional costs that may make the Monterey Shale less attractive than other shale oil plays.

North Dakota: Expansion of Hess gas plant to reduce flaring. Expanded operations at Hess Corp.’s Tioga Gas Plant will process additional natural gas and reduce significantly the natural gas that would have to be flared in North Dakota’s Bakken field. Once the plant is fully operational, Hess projects that flaring from Hess operations will be reduced to between 15 and 20%. Overall, the expanded facility will process up to 250 million standard cubic feet of gas per day (MMSCFD), up from 120 MMSCFD today. North Dakota governor Jack Dalrymple (R) and Sen. Heidi Heitkamp (D) both lauded the expansion as an example of how the state can create value by collecting and processing natural gas that would otherwise be flared.

North Dakota: Study shows Bakken crude oil no more hazardous than other types of crude oil. A recent study conducted by the North Dakota Petroleum Council concludes that Bakken crude has similar characteristics to other light crudes, with a vapor pressure, boiling point, and flash point within the normal range. The study is based on 150 samples taken from well site and rail loading facilities during March and April, 2014. The conclusions differ from a recent report by the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA), which found that Bakken crude oil has a lower flash point and poses a greater fire risk. The relative safety of Bakken crude has been at the center of a debate regarding appropriate requirements for shipment of crude by rail. Rail shipments have increased as Bakken production has increased, with a 50% increase in 2013.

International

United Kingdom: BGS study finds up to 8.5 billion barrels of oil in Weald Basin. A recent study by the British Geological Survey (BGS) found that the Weald Basin in southern England holds between 2.2 and 8.5 billion barrels of oil. The BGS cautioned that the estimates include the total amount of oil in the formation, and that it is still too early to determine how much may be recoverable. In addition to offering tax incentives to promote shale oil development, the UK has announced plans to simplify property access for shale oil and gas developers. At the same time, the government also announced plans to increase royalty payments to local communities where shale oil and gas development occurs.

Markets

Cameron LNG Project partner signs long-term supply contract with Japan. GDF Suez recently signed a long-term contract to supply 270,000 metric tons of liquefied natural gas (LNG) annually to Japanese utility Tohoku Electric Power Co beginning in 2018. The LNG will be supplied by the Cameron LNG Project in Louisiana, which will have an export capacity of 1.7 billion cubic feet of LNG per day when operating at full capacity. The Cameron LNG Project received conditional approval from the Department of Energy to export LNG and a finding of no significant impact from the Department’s National Environmental Policy Act (NEPA) review. GDF Suez and other partners have entered into a joint venture agreement with Sempra, the current owner of the Cameron LNG facility, and will take an equity interest after necessary regulatory approvals for LNG export have been obtained.

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Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 20

Federal

NGOs petition EPA to regulate oil and gas wells under the Clean Air Act. In a petition filed May 13 with the U.S. Environmental Protection Agency (EPA), several NGOs requested that EPA establish an area source category under the Clean Air Act for oil and gas wells and their associated equipment. The petition additionally requests that EPA issue regulations limiting hazardous air pollutant emissions. EPA is already examining the impact of methane releases from the oil and gas industry in connection with President Obama’s Climate Action Plan.

FERC rejects push for review of LNG export project’s environmental impacts. The Federal Energy Regulatory Commission’s (FERC) final environmental impact statement (EIS) for Sempra’s proposed Cameron liquefied natural gas (LNG) facility and natural gas pipeline expansion in Louisiana was published on May 7, 2014 in the Federal Register. EPA and several environmental groups had called for a broad review of the project’s potential environmental impacts, including an examination of the potential impact of increased demand for natural gas and the quantification of lifecycle greenhouse gas (GHG) emissions. FERC rejected these requests in its final EIS, concluding that the environmental impact of the proposed project would not be negative if proper steps are taken. The FERC’s environmental assessment of the project has been ongoing since 2012, and the review appears to be the first in a series of EIS reviews for LNG projects.

GAO reports deficiencies in BLM inspections of oil and gas wells. A report issued by the U.S. Government Accountability Office (GAO) concluded that the U.S. Department of Interior’s Bureau of Land Management (BLM) was unable to inspect over half of the high-priority wells drilled between 2009 and 2012, is missing data on nearly 1,800 wells, and failed to review or monitor inspection activities in its field and state offices. The GAO identified numerous reasons for BLM shortcomings including a lack of sufficient funding and staffing, continued reliance on outdated guidance and limited coordination with state regulators. In a comment letter, the BLM agreed with GAO’s conclusions and reported it was taking steps to increase oversight, including the development of revised rules for hydraulic fracturing on public lands which BLM expects to issue this year.

States

Colorado: County urges BLM to prevent drilling on contested leases in national forest. The Garfield County Commission in northwest Colorado asked BLM to not approve a set of contested leases in the Thompson Divide portion of the White River National Forest. BLM is evaluating approximately sixty leases in the area of the national park as part of an environmental impact statement. While BLM conducts the EIS, the contested leases are on hold. The Commission seeks special consideration for the Thompson Divide leases in the EIS analysis due to the nature of the surrounding land. Other local governments are expected to support Garfield County’s request, including, Pitkin County, the city of Glenwood Springs and the city of Carbondale. Colorado Senator Michael Bennet continues to sponsor a bill, S. 651, that would honor existing leases in the Thompson Divide but would make the remainder of the area ineligible for oil and gas leasing.

New Jersey: State Senate votes to ban treatment of hydraulic fracturing wastes. The New Jersey Senate approved a measure to bar the treatment or disposal of hydraulic fracturing waste in New Jersey. New Jersey has no shale plays, but Pennsylvania companies have transported hydraulic fracturing wastes to New Jersey landfills. If passed, the legislation would prohibit the treatment, discharge, disposal and storage of wastes from hydraulic fracturing within New Jersey state borders. New Jersey Governor Chris Christie previously vetoed two legislative attempts to regulate hydraulic fracturing—in 2011, Gov. Christie conditionally vetoed a bill to ban hydraulic fracturing and in 2012, he vetoed an earlier version of the waste legislation. Identical legislation remains pending in the New Jersey Assembly.

Ohio: State House passes hydraulic fracturing tax legislation. The Ohio House of Representatives voted to pass legislation that would impose a 2.5 percent severance tax on horizontal oil and gas hydraulic fracturing within the state. The tax revenue would be allocated to various projects, including state regulatory efforts, a well-plugging program, geological mapping services and local governments. Supported by the Ohio Oil and Gas Association, the bill now moves to the Ohio Senate for debate and a likely vote.

Utah: BLM releases master leasing plan maps detailing restrictions on oil and gas exploration. BLM recently unveiled maps that show areas around Moab, Utah where drilling would be prohibited as part of the bureau’s master leasing plan (MLP). The MLP will close certain areas to development and set aside roughly half of the area for no-surface disturbance. Industry officials have criticized the MLPs as an unnecessary and inefficient layer of planning that will prevent oil and gas exploration. If finalized, the Moab MLP will direct oil and gas and potash leasing on approximately 800,000 acres of federal land.

Wyoming: Commission rejects tighter rules for setbacks and natural gas flaring. The Wyoming Oil and Gas Conservation Commission voted to reject a landowners group’s petition calling for stricter regulation of natural gas flaring and more stringent setback requirements – the required minimum distance between drilling operations and homes. The Commission found the petition was unnecessary given that the state is in the process of reviewing its setback and flaring requirements.

Transportation

Industry officials consider processing Bakken crude oil before rail-transport. Following number of trail derailments involving crude oil from North Dakota’s Bakken Shale, industry representatives are considering processing Bakken crude to remove natural gas liquids from the oil prior to transportation on rail cars. Eliminating natural gas liquids before shipment could reduce crude volatility but may cost billions of dollars to install and operate. At this time, it is unclear whether regulators will implement a processing plan, however the U.S. Department of Transportation reported that it is considering all available options for improving rail safety.

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Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 19

Federal

EPA announces it is seeking public comment on disclosure of chemicals used in hydraulic fracturing. In an advanced notice of proposed rulemaking (ANPR), the Environmental Protection Agency (EPA) is seeking input from the public on how to provide for broader public disclosure of the chemicals used in hydraulic fracturing fluid. EPA stated that it is open to approaches that would not require new federal regulations, such as voluntary standards and recognition programs to incentivize companies to disclose the information. EPA issued the ANPR in response to a petition by environmental groups seeking regulations mandating public disclosure of chemicals without trade secret protections. Many states already require the disclosure of chemicals used in hydraulic fracturing fluids on FracFocus.org, a website managed by the Groundwater Protection Council and the Interstate Oil and Gas Compact Commission. While some have praised the website, others have criticized it for allowing well service companies to invoke trade secret rights to protect proprietary information. The public will have 90 days to comment on the ANPR, once the notice is published in the Federal Register.

DOT railcar standards expected this summer. U.S. Department of Transportation (DOT) is working on new safety standards for oil tanker cars and announced plans to issue proposed regulations by the summer. Until then, DOT has ordered all railroads with trains shipping more than one million gallons of Bakken crude oil to notify state emergency response authorities for every state in which that train will travel. A failure to do so could result in fines up to $175,000 and ten years in prison. DOT also issued a safety advisory encouraging shippers of Bakken crude oil to avoid using DOT-111 rail cars “to the extent reasonably practicable.” However, the advisory may not impact the way Bakken crude oil is shipped this year, because alternatives to the existing DOT-111 fleet will not be available until 2o15. Opponents of shipping crude oil by rail have criticized state emergency response authorities as being unprepared for derailments and are questioning whether newer safety features would prevent derailments or the release of oil during an accident. Ten of the 13 tanker cars that ruptured during a recent derailment in Lynchburg, Virginia were built after 2011. Some industry groups have likewise criticize DOT’s approach, arguing that DOT assumes without adequate support that Bakken crude is more hazardous than other types of crude oil or refined product.

DOT seeks information on characteristics of Bakken crude oil. DOT recently sent information requests to 37 companies with operations in the Bakken shale, seeking information regarding the characteristics of Bakken crude oil. DOT is seeking information regarding the crude oil’s flash point, initial boiling point, gas content and corrosivity. DOT also asked whether these characteristics change based on temperature, season or transportation mode. This information comes after a January 2014 announcement from DOT that crude oil from the Bakken shale was more flammable than other types of crude oil.

Senators urge new study of LNG export economics. Twenty-two Senators signed a letter to President Obama calling for a new examination of how Liquefied Natural Gas (LNG) exports could impact gas prices for U.S. consumers and manufacturers. The Senators assert that LNG exports could reverse the economic benefits of the past few years’ historically low gas prices. The letter serves as a counter-point to legislation seeking to expedite Department of Energy approval of LNG exports to countries without a free-trade agreement with the United States and a recent push to liberalize gas exports following Russia’s recent incursion into the Ukraine.

States

Connecticut passes moratorium on hydraulic fracturing wastes. Connecticut passed a three year moratorium on the disposal of any waste related to hydraulic fracturing, even though Connecticut has no developed shale plays nor any facilities handling drilling wastes. The bill’s proponents claim that if New York lifts its long-standing moratorium on hydraulic fracturing, drillers could look to Connecticut as a place for disposal. The law requires the Commissioner of Energy & Environmental Protection to perform an environmental impact study and propose regulations to manage hydraulic fracturing waste by June 2017. Those regulations, however, would treat hydraulic fracturing wastes as hazardous wastes under the Resources Conservation and Recovery Act, not “special wastes” as EPA currently classifies them.

Cities push new hydraulic fracturing moratoria and bans. Voters in Denton, Texas, located in the middle of the Barnett Shale play, will see a proposal to ban hydraulic fracturing on their ballot this November. Denton already has a moratorium on hydraulic fracturing in place until September of this year. The Denton Drilling Awareness Group claims it collected more than three times the 600 signatures needed to put the proposal to voters this fall. Oil and gas wells are already located in Denton, and the city unsuccessfully sued to stop EagleRidge Energy from drilling new wells. Likewise, a third initiative this year alone will be on the ballot in Youngstown, Ohio. The group “Frackfree Mahoning Valley” has stated it intends to continue obtaining the signatures needed to put the initiative on every ballot until it passes. Meanwhile, Beverly Hills became the first city in California to pass a ban on hydraulic fracturing, even though there are no proposals to use the method within the city limits.

Pennsylvania moves towards flat fee for hydraulic fracturing. Pennsylvania’s Independent Regulatory Review Commission agreed to a plan for unconventional wells that would replace the state’s existing sliding scale drilling fee with a flat fee that is likely to increase the cost to drilling companies. Pennsylvania currently charges companies based on the length of horizontal well bores. Under the existing fee schedule, the average horizontally drilled well costs approximately $3,200. The same well would require a $5,000 fee under the flat fee schedule. Conventional wells that do not use hydraulic fracturing techniques would still be charged according to the sliding scale. Pennsylvania’s Department of Environmental Protection cited the need for increased fees for staffing to perform permitting and oversight responsibilities, while noting that revenue has decreased since 2010 due to fewer permit applications. The Pennsylvania Attorney General must now review the plan before it could become effective.

International

House of Lords Committee: Hydraulic fracturing “urgently needed” in U.K. The House of Lords Economic Affairs Committee published a report encouraging the government to speed exploratory drilling for shale gas, finding that it could create substantial economic benefits and reduce the country’s dependence on imported gas. As with many European countries, the U.K. relies significantly on Russia for gas supplies, especially as gas production from the North Sea declines. The report branded public concerns over environmental and health risks as mostly “unfounded” and blamed “regulatory uncertainty” for the slow pace of shale development in the U.K. Since lifting its moratorium on hydraulic fracturing, the U.K. Environment Agency has not received any permit applications for exploratory drilling.

Litigation

Group sues to block drilling in Utah national forest. WildEarth Guardians sued to enjoin the Bureau of Land Management (BLM) and the Forest Service from approving oil and gas drilling in Utah’s Ashley National Forest, located within the Uinta Basin. The group claims that drilling will destroy roadless areas in the forest, diminish air quality, and threaten the Greater sage grouse. According to the lawsuit, BLM and the Forest Service failed to adequately review the potential individual and cumulative environmental impacts from the project.

Encana settles antitrust claims. Encana will pay $5 million to the state of Michigan and plead no contest to a misdemeanor charge that it colluded with Chesapeake Energy to avoid bidding up land in the Collingwood Shale formation. Although Encana denied the charges, citing an internal investigation showing no wrongdoing, the allegations led to a management shakeup and the company pared back its plans to drill in Michigan. The federal government previously investigated the claims, brought to light through emails made public by Reuters in 2012, but declined to indict either company.

Business

Encana buys Eagle Ford acreage for $3.1 billion. Encana agreed to buy 45,500 acres in the Eagle Ford Shale play from Freeport-McMoRan Copper & Gold in a deal topping $3 billion. The deal comes with 355 wells producing approximately 53,000 barrels of oil equivalent per day. Encana announced that it intends to drill at least another 400 wells in the area.

Studies

U.S. and Oklahoma Geological Surveys find underground injections “likely” contribute to tremors. The U.S. Geological Survey (USGS) and Oklahoma Geological Survey (OGS) issued a joint statement that the increase in tremors within the state, and the increasing likelihood of a larger earthquake, is “likely” due in part to deep injection wells used to dispose of hydraulic fracturing wastes. A recent report by the Seismological Society of America not considered by the USGS and OGS report, however, cited four injection wells in Oklahoma as being at the center of the increased tremors and did not find that all disposal wells contributed to seismic activity. The state has already recorded more tremors of a magnitude 3.0 or greater in 2014 than it did last year, which set a record for seismic activity. The USGS and OGS have increased the number of monitors in the state and will continue assessing seismic trends.

Canadian report finds gaps in data on potential impacts from hydraulic fracturing. The Council of Canadian Academies released a report arguing that hydraulic fracturing in Canada is continuing to develop rapidly despite gaps in health and safety data. According to the report, more information is required on seismic risks, air pollution and groundwater pathways. It stated that there is a dearth of peer-reviewed studies on health impacts from hydraulic fracturing, the chemicals used in fracturing fluid and fluid behavior in shale formations. The Council drafted the report at the request of Environment Canada.

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Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 18

Federal

EIA agrees to examine effects of ending restrictions on export of crude oil. The Administrator of the Energy Information Administration (EIA) announced that the agency would examine the potential effects of ending the current restrictions on crude oil exports from the United States. The decision came shortly after a request from Sens. Mary Landrieu (D-La.) and Lisa Murkowski (R-Ak.). Among the issues the EIA will consider are the amount of crude available for export, existing domestic refinery capacity, the costs of modifying refineries, and the impact on domestic gas prices. Based on current projections of domestic oil production, the United States could become a net exporter of oil by 2030.

EPA report identifies regulatory gaps in state drilling waste programs. The Environmental Protection Agency’s (EPA) recent “Review of State Oil and Natural Gas Exploration, Development, and Production (E&P) Solid Waste Management Regulations” asserts there are gaps in state regulatory programs to address solid waste from oil and gas development, citing gaps in groundwater monitoring, leachate collection, air monitoring and waste characterization requirements. EPA’s report urges greater compliance with voluntary standards such as the American Petroleum Institute (API) guidelines, Interior Department guidelines and criteria from the State Review of Oil and Natural Gas Regulations. For the federal government to regulate these wastes, Congress would have to remove the current exclusion for oil and gas development under the Resource Conservation and Recovery Act.

DOT seeks information on characteristics of Bakken crude oil. The Department of Transportation (DOT) recently sent information requests to 37 companies with operations in the Bakken shale, seeking information regarding the characteristics of Bakken crude oil. Citing a lack of comprehensive data on Bakken crude oil, DOT is seeking information regarding the crude oil’s flash point, initial boiling point, gas content and corrosivity. DOT also asked whether these characteristics change based on temperature, season or transportation mode. This information comes after a January 2014 announcement from DOT that crude oil from the Bakken shale was more flammable than other types of crude oil.

States

Group of states form coalition to evaluate link between seismic activity and underground disposal of hydraulic fracturing wastewater. The Interstate Oil and Gas Compact Commission (IOGCC) and the Groundwater Protection Council (GWPC) have announced a partnership to study, collaborate and share experiences with potential links between seismic activity and the disposal of wastewater from hydraulic fracturing operations. The IOGCC and GWPC also administer the FracFocus website. The initiative, which will be called the State Oil and Gas Regulatory Exchange, has received interest from Arkansas, California, Colorado, Illinois, Kansas, Ohio, Oklahoma, Pennsylvania, Texas and West Virginia.

International

Canadian report identifies opportunities to improve management practices for shale oil and gas development. In a report commissioned by the Canadian Minister of the Environment, the Council of Canadian Academies identified a series of opportunities to improve management of shale oil and gas development. The report focused on prevention or mitigation of impacts associated with well integrity, groundwater and surface water, greenhouse gas emissions, land impacts, seismic events and human health. The Minister of Natural Gas Development for British Columbia, a province with significant shale deposits, questioned the report’s conclusions, noting that hydraulic fracturing had been occurring in British Columbia for more than 50 years without reported contamination incidents.

U.K. announces plan to reduce environmental impacts of shale gas development.<lt;/STRONG> The United Kingdom pledged to adopt a series of measures to reduce the environmental impacts associated with shale gas development. Among the mitigation measures that the government intends to implement are programs to monitor and capture GHG emissions, and to minimize GHG emissions, water demands and vehicle movements. The United Kingdom has significant shale gas resources and recent reports suggest that the shale gas industry could generate more than $50 million (USD) of investments over the next 18 years.

Sinopec purchases share of Canadian LNG project. The China Petroleum & Chemical Corp. (Sinopec) agreed to acquire a 15% interest in Canadian liquefied natural gas (LNG) project headed by Malaysian oil company Petronas. Under the agreement, Sinopec will receive 1.8 million tons of LNG per year and can purchase an additional 3 million tons per year from Petronas. Other shareholders in the project are Japex Montney Ltd., Petroleum Brunei, and Indian Oil Corp. The LNG facility is expected to be fully operational by 2019 and will create 650 permanent jobs, along with as many as 45,000 construction jobs.

Studies

Study asserts that seismic activity is caused by oil and gas wastewater disposal. In a presentation at the Seismological Society of America’s annual meeting in Anchorage, Alaska, researchers claimed to have identified a correlation between oil and gas wastewater disposal wells and seismic activity in Oklahoma. The researchers stopped short of claiming a definitive between seismic activity and the injection wells, calling correlation “likely.” While the study did not specifically name injection wells under review, the description appears to match a cluster of wells in southeastern Oklahoma. The Oklahoma Geological Survey had previously studied the same wells and found no direct link between oil and gas activity and increased seismic activity.

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Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 17

States

Act 13 opponents argue the Pennsylvania PUC should end its review of municipal laws related to oil and gas development. Although the Pennsylvania Supreme Court struck down Act 13, the state’s law setting uniform rules for oil and gas development, the commonwealth’s Public Utility Commission (PUC) is still required by that law to review local zoning ordinances. If those ordinances conflict with Act 13’s requirements, the PUC will withhold some or all of the impact fee revenue paid out to local governments. Even though the review provision was not directly challenged, the Commonwealth Court must now determine which portions of Act 13 survived the Pennsylvania Supreme Court’s decision. Opponents of Act 13 argued in briefing last week that the PUC review provision must be invalidated, arguing that the reviews constitute a backdoor method to enforce an unconstitutional law. The PUC has not conducted reviews of local ordinances since August 2012 due to the ongoing Act 13 litigation.

Minnesota Governor rejects petition to impose moratorium on frac sand mining. Minnesota Governor Mark Dayton declared he lacks the power to impose a moratorium on frac sand mining. Mining opponents presented the Governor with a moratorium petition during an Earth Day rally. The Land Stewardship Project claimed the state’s Critical Areas Act allows the Governor to order the Minnesota Environmental Quality Board to impose a two-year moratorium on mining without legislation, asserting further mining threatens ecologically sensitive areas in southeastern Minnesota. Minnesota state agencies are now developing new regulations for frac sand mining, including new air quality and mine reclamation standards. Frac sand is used as a proppant in hydraulic fracturing fluid.

Markets

Baker Hughes will disclose chemicals in hydraulic fracturing fluid. Well services company Baker Hughes declared that it will begin disclosing the chemicals it uses in hydraulic fracturing fluid, declining to rely upon trade secret rights that may otherwise be available to protect against disclosure. It is the first well services company to take this step and is consistent with a recent Department of Energy advisory board recommendation that chemicals in fracturing fluids not receive protection under federal regulations. Baker Hughes has concluded that it could disclose the identity of the chemicals without compromising how it creates its proprietary blends of fluids. This position differs from most of its competitors, who have defended their right to protect the composition of fracturing fluids as confidential trade secrets. A Department of Energy spokesman supported the decision, stating that it would help build public trust in hydraulic fracturing.

International

Canada bars 5,000 crude tank cars. Canada’s Ministry of Transport is pulling approximately 5,000 DOT-111 crude oil tank cars out of circulation, citing the lack of continuous reinforcement on their bottom shells. Railroads have 30 days to phase out the cars. The order also required companies to phase out 65,000 other DOT-111 tanker cars within three years unless they are retrofitted with additional reinforcements, imposed new emergency response plan requirements and imposed lower speed limits for trains carrying hazardous materials.

Mexico’s Eagle Ford Shale up for bid next year. Mexico’s National Hydrocarbons Commission announced that its portion of the Eagle Ford Shale formation that is located just over the U.S. border, will be one of the first assets up for bidding next year when the country begins allowing the entry of foreign companies to develop Mexico’s oil and gas. The Commission is working with the state-owned oil company, Pemex, to determine which assets will be opened to bidding by foreign companies. As Mexico’s oil and gas production has declined over the years, the Congress amended the constitution to allow foreign companies with superior technological expertise to partner with Pemex in developing shale plays and offshore oil fields.

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Jury issues Verdict in Texas Trial

In one of the first hydraulic fracturing lawsuits to go to verdict, a Dallas jury awarded a Texas family $2.925 million against Aruba Petroleum, Inc. (Parr, et al. v. Aruba Petroleum Inc., CC-11-01650-E, in the County Court at Law No. 5 of Dallas County). As we noted in our previus posting, the Parr family, which had actually sought $9 million, alleged that Aruba’s fracturing of the Barnett Shale Deposit exposed them to hazardous gases, chemicals and industrial waste – causing various illnesses. With other parties having settled or been dismissed and the Parr’s other claims dismissed, at trial the jury was left to decide the Parr’s trespass and nuisance claims.

The jury, in a 5 to 1 vote, held that Aruba intentionally created a private nuisance. Interestingly, it neither found that Aruba’s conduct was abnormal or out-of-place with surrounding activities, nor that any exemplary damages were justified. The total damages award was reportedly divided as follows: (a) loss of market value to the subject property ($275,000); (b) past physical pain and suffering ($2,000,000); (c) future physical pain and suffering ($250,000); and (d) past mental anguish ($400,000). What will be perhaps most interesting for those watching this early case from a key fracturing jurisdiction is whether the verdict actually holds up after likely post-trial motions and appeal. Will the Parrs defeat challenges that insufficient evidence existed proving their claimed injuries did not pre-exist Aruba’s drilling? Are the future damages too speculative as a matter of law? Can the physical pain and suffering award be legally sustained without the support of adequate expert testimony? Will the liability finding stand given the jury’s holding that Aruba’s conduct was neither abnormal nor out-of-place — especially as Aruba’s wells’ emissions were reportedly within applicable air quality limits?

By the time of our next report, we hope to know the answers to some of these questions, and perhaps begin to see whether this particular verdict, and any post-trial alterations, affect future cases.

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Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 16

Federal

EPA releases white papers on methane and VOC emissions from oil and gas sector. On April 15, the Environmental Protection Agency (EPA) released five white papers describing emissions of methane and volatile organic compounds (VOCs) from the oil and gas sector as well as EPA suggestions for ways reducing such emissions. The white papers, which were mandated as part of President Obama’s strategy on methane reduction address methane emission from natural gas compressors, hydraulically fractured wells, pneumatic devices, well liquids unloading, and leaks from the gas production and transmission sector. EPA will obtain peer review of the white papers and also accept public comments until June 16. EPA intends to use this process to determine whether to propose to regulate methane emissions from the oil and gas sector. Environmental groups have argued that the white papers demonstrate that new regulations are needed, while industry representatives urged EPA to consider the cost effectiveness of potential controls as well as the voluntary measures already taken by the sector.

CRS Report: Oil and gas production on federal lands lags behind production on state and private lands. A recent Congressional Research Service (CRS) report showed that oil and gas production on federal land is falling further behind development on state and private lands, which are subject only to state regulation. According to the CRS, oil production on federal lands has declined to 23% of domestic production, and while production on federal land has been flat over the past five years, production on state and private land increased by 50%. Even more dramatic has been the change in natural gas production – on state and private lands it has increased by 33%, while production on federal lands has decreased by 28%. The CRS report suggested the results are due to the disparity between the quality of shale reserves; however, other organizations, such as the Western Energy Alliance, have suggested that complicated and costly federal policies are to blame.

States

Ohio: State officials claim link between hydraulic fracturing and seismic activity, adds regulations for seismic activity. For the first time, the Ohio Department of Natural Resources (DNR) has concluded that seismic activity was likely caused by hydraulic fracturing operations. State officials had previously ruled out any connection between the earthquake activity and wastewater disposal wells associated with hydraulic fracturing. In response, Ohio DNR suspended further operations at the Poland, Ohio site and imposed a series of new regulations for hydraulic fracturing operations near known faults or prior seismic activity. Under the new rules, well development within three miles of a known fault will require installation of a seismic monitor. If a monitor detects an earthquake with a magnitude larger than 1.0 on the Richter scale, operations at the well site will be temporarily halted while the state investigates the cause of the seismic activity. If hydraulic fracturing is deemed to be the cause of the seismic activity, well completion operations will be suspended.

Litigation

Jury decides nuisance suit and Colorado Supreme Court to consider “Lone Pine” Order. Two important recent developments have occurred in influential fracturing litigation jurisdictions. First, a Dallas jury awarded a Texas family $2.9 million in damages in a “nuisance suit” against Aruba Petroleum, Inc. (Parr, et al. v. Aruba Petroleum Inc., CC-11-01650-E, in the County Court at Law No. 5 of Dallas County). Second, Colorado’s Supreme Court just announced its review of an appellate court’s ruling forbidding the use of a Lone Pine order in a tort case in which the plaintiffs claim damages due to the use of hydraulic fracturing. To learn more about these two developments, please access the following link: Important Developments from Two Influential Fracturing Litigation Jurisdictions.

International

Argentina: Chevron and YPF reach agreement to develop shale resources. On April 10, Chevron and Argentina’s YPF SA announced an agreement to form a $1.6 billion joint venture to develop oil and gas resources in Argentina’s Vaca Muerta Shale. The joint venture agreement follows a previous $1.2 billion agreement between the two companies to develop oil and gas resources in the same area that began operation in 2013. The companies intend to drill 170 wells this year, and have targeted a total of 1,500 wells. Argentina has significant shale resources and YPF estimates that the plays can produce as much as 50,000 barrels of oil and three billion cubic meters of natural gas per day.

Studies

Study finds high methane emissions in pre-production wells. A recent study in the Proceedings of the National Academy of Sciences found methane emissions that exceeded emission estimates in a small fraction of pre-production wells in Pennsylvania. The research team used airplanes to measure methane emissions and tracked high measurements back to their sources. The higher-emitting wells, which were still in the development phase and had not yet been subjected to hydraulic fracturing operations, had emissions of more than 100 times previous estimates of 0.3-0.4 grams of methane per second per well. Such readings were found in less than one percent of the wells surveyed, although they accounted for 30% of total methane emissions measured.

Navigant study projects growth in natural gas vehicles. A recent study by Navigant projected that 400,000 medium and heavy-duty natural gas vehicles will be produced worldwide by 2022, with approximately 75% of sales coming in the Asia-Pacific region. North America and Eastern Europe will account for the most of the remaining sales. Larger natural gas vehicles will offer significant fuel savings, particularly for large fleets such as transit buses, and such vehicles are projected to account for approximately 70% of all fuel consumed by natural gas vehicles. While natural gas infrastructure will present a challenge, the Navigant study projected a 45% increase in natural gas refueling stations by 2022.

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