Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 17


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.


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.


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.

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 16


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.


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.


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.


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.


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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Important Developments from Two Influential Fracturing Litigation Jurisdictions

Over the past two years, an increasing deluge of stories has flooded our lay media and popular culture concerning hydraulic fracturing. Indeed, barely a day now passes without at least one widely-distributed article debating the various scientific and economic issues related to fracturing, which then echoes throughout all manner of social media. To date, most discussions address state-wide or local regulatory efforts to either encourage or restrict fracturing as well as varied scientific studies concerning the practice — both “pro” and “con.” Most articles about fracturing from the litigation perspective have centered on outlining theories of recovery, corresponding defenses as well as tracking the filing of the ever-expanding universe of cases. However, two important events from fracturing “hot-beds” will soon create reverberations across the national litigation landscape.

Texas Trial

A Dallas jury is now being asked to award a Texas family $9 million in a “nuisance suit” against one remaining defendant – 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). The Parr family alleges that Aruba’s fracturing of the Barnett Shale Deposit exposed them to hazardous gases, chemicals and industrial waste – causing various illnesses. The Parrs settled with other defendants while Halliburton won summary judgment before trial. Aruba obtained the dismissal of the Parrs’ negligence claims, also via summary judgment. As such, the jury will now focus upon theories of trespass and nuisance to determine potential liability. In another important pre-trial holding, Judge Mark Greenberg ruled that the Parrs could not recover any damages for personal injury claims requiring expert witness testimony.

What is perhaps most interesting for those watching this early trial from a key fracturing jurisdiction is how the jury approaches claimed damages, assuming Aruba is even found liable. For example, the Parrs must prove not only that their claimed injuries did not pre-exist Aruba’s drilling, but also that they were caused by Aruba’s wells and not other companies’ wells which also surround the Parrs’ property. The Parrs must carry these significant burdens not only without the aid of expert testimony as to the causation of injuries, but also in the face of Aruba’s argument that their wells’ emissions were within the applicable air quality limits. While most other jurisdictions would permit, if not require, litigants to carry their specific medical causation burden with the support of expert testimony, the following two issues will likely be important considerations in future cases throughout the country: (1) how does a litigant prove claimed damages are from a particular defendants’ wells when litigants’ properties tend to be situated in an area surrounded by other companies’ active wells; and (2) how much protection, if any, will compliance with local environmental regulations afford defendants, at least within the context of trespass and nuisance theories of liability (as opposed to negligence where they would be admitted as evidence of but not per se compliance with reasonable care).

By the time of our next report (UPDATE), we should know the answers to these two questions, and perhaps begin to see how this particular Texas jury’s answers might affect other future cases.

Colorado Constraint

Over the past several years, defendants in toxic tort and product liability lawsuits have achieved increasing success in convincing courts to enter Lone Pine orders as a case management tool to cull significant numbers of cases before undertaking time-consuming and expensive pre-trial fact and expert discovery. A Lone Pine order, named after a leading New Jersey case, typically requires a plaintiff to put forward prima facie evidence of specific causation for claimed injuries before full-blown discovery from a defendant is permitted. If a plaintiff fails to comply, the case is dismissed. In contrast, if sufficient evidence is proffered “normal” discovery activities take place, although plaintiff still carries his or her evidentiary burden as to causation. Defendants have a better chance of persuading courts to employ this tool in cases which would involve drawn-out and expensive discovery typically involving complicated and unsettled scientific and medical issues. As such, fracturing defendants have understandably pursued Lone Pine orders with great vigor.

Colorado’s Supreme Court just announced that it would review an appellate court’s ruling in a fracturing case forbidding the use of a Lone Pine order. The underlying case involved claims by Mr. William Strudley that several defendants caused him and his family to become sick from their drilling activities near his property. The trial court entered a Lone Pine order which led to the eventual dismissal of the case after the Strudleys were unable to comply with its requirement that they proffer sufficient prima facie evidence that their claimed injuries were caused by defendants’ fracturing. The appellate court resurrected the case in July of 2013 by ruling that the trial court erred when it entered the Lone Pine order.

Defendants convinced the Supreme Court to hear this matter by arguing that the appellate court’s ruling not only impermissibly inhibited trial courts’ abilities to tailor discovery to individual cases, but also was inconsistent with the Supreme Court’s general endorsement of trial courts’ use of early and active case management strategies. In accepting the matter for its consideration, the Supreme Court announced it address two issues: (1) whether a trial court is barred as a matter of law from entering case management orders requiring a plaintiff to produce evidence essential to his or her claims after initial disclosures but before further discovery (i.e., a Lone Pine order); and (2) assuming such an order is not barred as a matter of law, whether the trial court in this case acted within its discretion in entering and enforcing the order at issue.

Along with Texas and Pennsylvania, Colorado is one of the most influential fracturing jurisdictions. As such, the Supreme Court’s eventual holding on these important issues will not only affect Colorado’s future docket, but will likely have a significant extra-jurisdictional impact. We will report the Court’s eventual ruling and provide our analyses of its impact for Colorado and other jurisdictions.

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 15


Environmental groups will challenge prairie chicken listing. Arguing that the lesser prairie chicken requires more protection from oil and gas operations and other development, environmental groups announced they intend to sue the U.S. Fish & Wildlife Service to overturn its determination that the bird is “threatened” under the Endangered Species Act. The groups claim that the lesser prairie chicken should be classified as “endangered,” which would impose more stringent restrictions on actions that could result in bird deaths or the loss of its habitat. The groups assert a series of voluntary state action plans that protect 3.6 million acres of habitat are insufficient to allow the lesser prairie chicken population to recover. The lesser prairie chicken’s habitat runs through portions of Colorado, Kansas, New Mexico, Oklahoma, and Texas. The states and industry groups that created the voluntary conservation measures in hopes of avoiding any listing for the bird have not announced any plans to challenge the designation.

Federal Railroad Commission to require two-man crews. The Federal Railroad Administration (FRA), in response to the train derailment and explosion in Lac Mégantic, Canada, announced it will issue a proposed rulemaking requiring two-man crews on regional and short-line trains carrying crude oil. The Association of American Railroads (AAR) opposes the rule, stating there is no evidence that a two-man crew would prevent train derailments and arguing the proposal is not based on FRA data or studies. AAR also noted that the Railroad Safety Advisory Committee, which advises the FRA, did not adopt a subcommittee recommendation to require the use of two crew members. Other aspects of the proposal would prohibit unattended or standing freight trains in certain circumstances and require railroads to obtain advance approval for leaving cars or equipment unattended.


Alaska: Commission finalizes hydraulic fracturing rules. The Alaska Oil & Gas Conservation Commission (OGCC) issued a final version of its controversial regulations governing hydraulic fracturing. For more than a year, environmental groups and industry have negotiated with OGCC over its initial draft that prohibited the use of trade secret protections for chemicals in hydraulic fracturing fluids. The final rules allow companies to submit the names of propriety chemicals to OGCC confidentially. Members of the public would then be allowed to challenge those confidentiality designations in court. The rules also require developers to perform baseline water-well sampling for all wells within one-half mile of a drill site, with the possibility of a waiver when groundwater is too frozen to use as drinking water.

California: Senate committee passes moratorium on hydraulic fracturing. A bill that would impose an indefinite moratorium on all unconventional well stimulation techniques, including hydraulic fracturing and well acidization, passed the California Senate’s Natural Resources and Water Committee by a 5-2 vote. The bill, S.B. 1132, would halt all hydraulic fracturing in the state until a study of environmental, public health and economic impacts is completed, and the Department of Conservation conclusively determines that the practice is safe. The Department would also have to consult with several other agencies before sending the study’s conclusions to the Governor to decide whether or not to lift the moratorium. Under the bill, if not persuaded, the Governor may require new studies. The bill will now move on to the Environmental Quality Committee, although some of the senators that voted for the bill raised several concerns about how it would interact with S.B. 4, which authorized hydraulic fracturing in California after a study is completed. The proposal is strongly supported by over a dozen environmental groups. Governor Brown has not issued a statement on the bill.

Colorado: State Supreme Court Will Hear Lone Pine Case. The Colorado Supreme Court agreed to hear Antero Resources’ appeal of a decision rejecting the use of a Lone Pine case management order in a toxic tort suit alleging that the company’s use of hydraulic fracturing led to the plaintiffs’ illnesses. Lone Pine orders can simplify toxic tort cases, requiring plaintiffs to provide prima facie evidence that their injuries can be attributed to the defendant before discovery begins. The trial court had ordered the plaintiffs to provide expert evidence showing that a specific chemical used in Antero’s operations caused their alleged illnesses. The court of appeals reversed, holding Lone Pine orders should be reserved for unusually complex toxic tort cases. The drilling companies, however, argue the orders are necessary for trial courts to tailor discovery requirements. The Colorado Supreme Court granted certiorari on the questions of whether a trial court is prohibited by law from imposing such a case management order before discovery begins but after initial disclosures were exchanged, and if they are not prohibited, whether the district court abused its discretion in this case.

North Dakota: Department of Mineral Resources issues new rules for filter disposal. After North Dakota investigators found illegal dumps containing wastewater filter socks laced with radioactive wastes, the Department of Mineral Resources announced new rules for disposing of the filters. Beginning in June 2014, filter socks must be stored in covered, leak-proof containers at drilling sites and may only be hauled away by licensed disposal companies. The filters are fabric tubes that strain solids from hydraulic fracturing wastewater. The state estimates that shale oil operations produce nearly 20 tons of filter socks each day.

Ohio: Ohio EPA adopts leak detection rules. The Ohio Environmental Protection Agency (Ohio EPA) promulgated new regulations requiring oil and gas operations to inspect equipment for methane leaks and repair leaking components. Under a revised general permit for oil and gas operations, companies must scan equipment with an infrared camera or other detection devices once per quarter. If leaking valves, pumps, or other equipment are detected, a company will have five days to repair the leak. All leak inspections and repairs will have to be summarized in an annual report to Ohio EPA. Ohio became the third state, after Wyoming and Colorado, to require leak detection and repair programs for methane.


Albany may become oil trading hub. The CME Group, the company that owns the New York Mercantile Exchange, is considering Albany as a new trading hub for crude oil due to changes in the ways that oil is transported to refiners. Tight oil extracted from shale is being shipped by railway from North Dakota to Albany before moving down the Hudson River to New Jersey refineries, bypassing the slew of storage tanks in Cushing, Oklahoma, a major post for oil futures trading and the current settlement point for West Texas Intermediate crude. The plans could be complicated, however, by a recent move by the New York Department of Environmental Conservation to slow the permit process for two proposed expansions of crude-by-rail and oil heating operations. Some oppose the expansions, asserting shipping crude oil by rail endangers small communities along the routes.

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Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 14


FAA approves drilling plan for Pittsburgh airport. On March 27, Consol Energy obtained Federal Aviation Administration (FAA) approval to drill for oil and gas at the Pittsburgh International Airport. The FAA approved the plan after conducting an environmental assessment and issuing a finding of no significant impact. The FAA consulted with the Environmental Protection Agency (EPA), US Fish & Wildlife Service, Federal Housing Administration and the Army Corps of Engineers before making its finding. Consol Energy intends to drill 45 wells across 6 well pads. The company expects the project will generate $1 billion in investment for the region, and royalty payments to Allegheny County could exceed $450 million over the next twenty years.


Alaska issues hydraulic fracturing regulations. On April 1, the Alaska Oil and Gas Conservation Commission issued final regulations governing hydraulic fracturing activities within the state. The Commission first proposed regulations in December 2012 and has revised the draft regulations several times. The regulations require oil and gas developers to share trade secrets with the state, but allow developers to protect confidential information from public disclosure. The regulations also include requirements for background water quality testing and notification of nearby landowners before and after hydraulic fracturing occurs.

Colorado: Report finds proposed statewide ban on hydraulic fracturing would harm economy. An April 1 report by the Leeds School of Business at the University of Colorado-Boulder found that a statewide ban on hydraulic fracturing would have a significant, detrimental effect on the state’s economy. Between 2015 and 2040, such a ban would reduce jobs by 93,000, reduce GDP by $12 billion, and cost state and local governments $985 million in lost tax revenue. The report was issued in response to a ballot initiative by Local Control Colorado, which would allow local governments to ban hydraulic fracturing. The issue has also taken on political overtones, as Republican Senate candidate Cory Gardner is seeking to use his opposition to the ballot initiative to distinguish himself from Democratic incumbent Mark Udall.

Pennsylvania: Local residents challenge EPA UIC permit for failure to consider seismicity. Residents and officials in Brady Township, Pennsylvania are challenging a permit issued by EPA under the Safe Drinking Water Act Underground Injection Control (UIC) program, alleging that the Agency failed to properly consider potential pressure and seismicity issues. The lawsuit, titled In re: Windfall Oil and Gas is pending before the EPA Environmental Appeals Board (EAB). The well at issue is a Class II well intended to inject oil and gas wastewater. While opponents of hydraulic fracturing have repeatedly urged EPA to regulate hydraulic fracturing waste under the UIC programs rules for hazardous waste, this is the first challenge alleging that EPA failed to consider the potential effects of seismicity on underground sources of drinking water.

Texas: Texas Railroad Commission hires seismologist. The Texas Railroad Commission announced that it has hired Dr. David Craig Pearson to serve as its in-house seismologist. The Commission committed to hire a seismologist in response to public concerns that recent seismic activity near Azle, Texas was linked to underground injection wells used to dispose of hydraulic fracturing wastewater. Dr. Pearson earned his Ph.D. from Southern Methodist University and has worked in the oil and gas industry and as a staff member at the Los Alamos National Laboratory.


China increases projections for shale gas development. Recent projections for shale gas development by Hong Kong-based Gavekal Gragonomics show that China is on pace to meet the 2015 target of 6.5 billion cubic meters of gas production. The report cited three primary reasons for increasing its forecast. First, China approved a 40% increase in the price that operators can charge for natural gas, making key markets such as Beijing and Shanghai more profitable. Second, state-owned Sinopec now projects that it will produce 5 billion cubic meters of gas from the Fuling Shale field in 2015 and 10 billion cubic meters by 2017. Third, China’s National Energy Administration announced that it will require pipeline producers to open access to all third-party producers. While Sinopec is expected to produce the majority of China’s shale gas in the term, opportunities for smaller, independent oil and gas development companies are increasing.


Chevron Phillips Chemical begins construction of ethane cracker. Chevron Phillips Chemical, a joint venture between Chevron and Phillips 66, recently broke ground on a new ethane cracker in Baytown, Texas. The facility will convert ethane from natural gas development in ethylene, which will then be converted into polyethylene pellets in a nearby Chevron Phillips Chemical facility. The project, which is estimated to cost $6 billion and create 400 jobs, is expected to be completed by 2017. Increased production of natural gas liquids has decreased the cost of ethane production in the United States when compared to other countries. Approximately 20 companies are taking steps to construct, expand or restart ethane crackers.


FracTracker Alliance launches mapping program for oil and gas wells. The FracTracker Alliance, a foundation-funded non-profit, recently launched an interactive map allowing users to locate 1.1 million oil and gas wells in the United States and Canada. The program allows users to focus specifically on shale extraction wells or on specific shale plays. FracTracker relies on publicly available data and noted that there are significant differences in data availability by state. At present, the program includes 21 states and British Columbia, although Texas is not included in the mapping program due to proprietary issues related to well location.

ICF study highlights benefits of allowing crude oil exports. A recent study commissioned by the American Petroleum Institute has found that permitting crude oil exports will create domestic jobs while reducing the price of gasoline. The study, conducted by ICF International and EnSys Energy found that easing the ban on crude oil exports would create as many as 300,000 jobs while reducing the U.S. trade deficit by $22 billion by 2020. At the same time, consumers could expect to see a 3-4 cent reduction in gasoline prices. Permitting certain crude oil exports would also allow oil producers to better match the demand by U.S. refineries and consumers.

Pennsylvania: Environmental group critical of air pollution monitoring. A recent article published by the Southwest Pennsylvania Environmental Health Project (EHP) concludes current methods of collecting emissions data, as well as the analyses of these data, are not sufficient to accurately assess impacts from hydraulic fracturing. EHP argues the use of EPA’s NAAQS compliance monitoring criteria do not provide sufficient information to assess risks from acute exposure. EHP urges that more localized, continuous monitoring should be used to account for periods of higher emissions and to reflect local weather conditions.

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Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 13


White House issues methane reduction strategy. As part of the President’s Climate Action Plan, the White House has directed the Environmental Protection Agency (EPA) to determine whether it should regulate directly methane emissions from oil and gas production, processing and distribution operations. According to an interagency guidance document, EPA will evaluate whether new regulations are necessary, and if so, finalize them by the end of 2016. EPA issued New Source Performance Standards for natural gas production wells in 2012 that reduced volatile organic chemical emissions that had the co-benefit of also reducing methane emissions. Environmental groups have sought the direct regulation of methane and argued the rules should extend to oil production wells. Industry groups have countered the sector has already made substantial reductions, as it has the financial incentive to capture as much natural gas as possible; additional capture of methane is a matter of creating new infrastructure, such as pipelines, not imposing new regulations. In addition to oil and gas, the guidance calls on the Departments of Agriculture, Energy, Interior, Labor, and Transportation to consider regulations and voluntary measures to reduce GHG emissions in other sectors, such as coal mines, farming and landfills.

Prairie Chicken designated as “threatened.” The U.S. Fish & Wildlife Service (FWS) announced that the prairie chicken will receive protection under the Endangered Species Act as a “threatened” species. The prairie chicken’s habitat spans portions of Colorado, Kansas, New Mexico, Oklahoma and Texas. States, industry, farmers and ranchers had been working to create voluntary conservation measures that would limit the impact of oil and gas drilling, agricultural operations, and wind turbines on the prairie chicken’s habitat in order to avoid an FWS designation. To date, the five states and over 30 companies collectively agreed to protect 3.6 million acres of habitat. The FWS final rule, however, stated that it will allow for special flexibility where those voluntary state programs are in place. A further study is still to be done to delineate the extent of the prairie chicken’s critical habitat.

BLM hydraulic fracturing rule anticipated by year end. Testifying before a House Committee, Secretary of the Interior Sally Jewel stated that the Department of the Interior (DOI) expects the Bureau of Land Management (BLM) will finalize its proposed regulations governing hydraulic fracturing on federal and Indian lands before the end of 2014. Secretary Jewell noted that BLM must review 1.3 million comments received on the proposed rule and that its final regulations will be informed by more recent scientific studies on well integrity and seismic activities.

Wastewater treatment owner pleads guilty. Benedict Lupo, the former owner of Hardrock Excavating, pled guilty to violating the Clean Water Act for ordering employees to illegally discharge hydraulic fracturing wastewater into a storm drain leading to the Mahoning River. The Ohio Environmental Protection Agency had received an anonymous tip about the dumping, leading to a federal indictment. Former employee Michael Guesman admitted to the illegal discharges and received three years’ probation in exchange for his cooperation. Sentencing for Lupo is scheduled for June 16, 2014. Lupo could receive a maximum prison sentence of three years along with $3 million in restitution and $1 million in criminal fines.


California: Culver City considering moratorium. The City Council of Culver City, California, is preparing an ordinance that would impose a moratorium on hydraulic fracturing and other unconventional well development methods within the city. This marks a third city in California to take up the issue publicly, as the City Council of Los Angeles likewise previously voted to prepare an ordinance imposing a ban, and the City of Carson imposed a 45-day moratorium. Culver City council members stated the city would likely look to language developed by Los Angeles. A portion of the Inglewood Oil Field sits in Culver City with 26 active wells within the city’s jurisdiction, but those wells would not be covered by the proposed moratorium.

California: NGOs sue to stop crude oil rail shipments. Earthjustice, representing several environmental groups, filed suit in San Francisco Superior Court seeking to halt shipments of crude oil in the Bay Area by rail, claiming the practice is too dangerous. In their complaint, the groups assert the Bay Area Air Quality Management District allowed Kinder Morgan to transport Bakken crude through the area without public notice and comment or complying with the California Environmental Quality Act. They characterize Bakken crude as dangerous and that the shipments will add to GHG emissions.


China: Sinopec brings China’s first commercial shale gas field on-line. Sinopec announced it had begun commercial operations at its Fuling shale gas field. Companies attempting to develop China’s substantial shale gas reserves have faced challenges, due to difficult geology, limits on water resources and lack of needed infrastructure. Sinopec, however, has begun commercial operations in Fuling ahead of schedule. The company is seeking to produce 10 billion cubic meters of natural gas by 2017.

<strong>gt;South Africa: Government to issue hydraulic fracturing regulations. South Africa’s Mineral Resources Department announced it would issue final regulations to allow for the use of hydraulic fracturing to develop the country’s shale gas resources. Several companies had been planning to apply for permission to drill exploratory wells, but the Parliament passed a law earlier this month claiming 100% ownership of any natural gas recovered. Most companies following South Africa’s regulatory development had planned on 20% government ownership and are now evaluating whether they will move forward. The country’s Karoo region is estimated to hold 40 trillion cubic feet of shale gas.


Oil rig counts hit high. Well field services company Baker Hughes reported that oil rig counts hit 1,473 rigs, the highest number since the company began recording the metric in 1987 and up by nearly 150 since this time last year. The number shows how far energy companies have swung towards producing tight oil – which still trades at around $100 per barrel – and away from shale gas, which totaled only 326 rigs across the country. The Permian Basin continues to dominate shale development with 513 total rigs (oil and gas), more than twice the number working in the next most productive area, the Eagle Ford shale play (219 rigs). Baker Hughes counted 186 rigs in Williston, North Dakota, home of the Bakken Shale play, along with 78 rigs in the Marcellus Shale, 73 in the Mississippian, and 55 off-shore.

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Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 12


EPA seeks advice on addressing recent methane emissions data. EPA has requested public comments on how it can incorporate a series of ongoing studies of methane emissions from natural gas sources into its annual GHG Inventory. In contrast to EPA’s current reliance on emissions estimates, the studies conducted by the Environmental Defense Fund (EDF) and the University of Texas at Austin (UT) provide actual measurements of methane emissions leaks during well development and flowback. The emissions reported by the EDF and UT studies are significantly lower than EPA’s emissions estimates and may undercut calls for EPA to regulate methane emissions from the oil and gas sector.

BLM holds first public forum to discuss methane emissions from oil and gas development. On March 19, 2014 the Bureau of Land Management (BLM) held a public forum in Colorado to discuss options to address methane emissions released during oil and gas development. Developing rules for methane emissions has been on BLM’s regulatory agenda since 2010, and the Administration’s Climate Action Plan has targeted reducing methane emissions as part of its overall efforts to address climate change. In presentations at the forum, BLM explained that it believed existing rules were out of date and provided a range of options that could be considered in a future rulemaking. BLM plans to hold additional listening sessions during May in North Dakota, New Mexico and Washington, D.C.


California: Carson issues temporary moratorium on oil drilling. The city council of Carson, California, which sits above the Dominguez field, unanimously voted to prohibit oil development temporarily. The moratorium is for 45 days, but the council can extend it to last as long as two years. The city council vote marks the first time that a California city with oil reserves has issued such a moratorium. Reportedly, the city council adopted the temporary moratorium to allow it to consider for itself the potential effects associated with using hydraulic fracturing to develop oil resources, as well as the content of the state regulations that are to be issued in response to California’s hydraulic fracturing legislation.

Illinois: Johnson County voters defeat effort to ban hydraulic fracturing. In a March 18, 2014 referendum, voters in Johnson County, Illinois defeated a non-binding ballot measure that would have directed the county commissioners to ban hydraulic fracturing within the county. Proponents had argued that hydraulic fracturing is contrary to Johnson County residents right to a safe and clean environment. The referendum was the first local vote involving a ban on hydraulic fracturing since Illinois passed the Hydraulic Fracturing Regulatory Act in 2013.

Oklahoma: New rules would increase data collection from oil and gas disposal wells. The Oklahoma Corporate Commission has proposed new rules that would require daily recordkeeping of volume and pressure data for oil and gas disposal wells. The rules require approval by the Oklahoma legislature and governor. The Commission believes the increased data will help the state evaluate whether disposal wells are contributing to recent increases in seismic activity in the state. The rules have widespread support, and the Oklahoma Independent Petroleum Association has stated that, while burdensome, additional data would ultimately help to alleviate public concern over hydraulic fracturing.

Minnesota: Minnesota EQB approves silica mining regulations. The Minnesota Environmental Quality Board (EQB) approved model regulations that could be used by local governments seeking to regulate silica mining. While an earlier draft had included some mandatory requirements, such as the enclosure of silica mining operations, the final regulations provide a “toolbox” of standards as guidelines that local governments can consider when developing their own regulations. The EQB was required to issue the guidance under the terms of legislation passed in 2013.

North Dakota: State to issue regulations to track radioactive waste. North Dakota Governor Jack Dalrymple has directed the state’s health department to prepare regulations requiring the tracking of radioactive waste generated during oil and gas development. The directive came after potentially radioactive filter socks were found in Watford City and Noonan, North Dakota earlier this month. Radioactive waste is a natural byproduct of oil and gas development in North Dakota, but the state prohibits in-state disposal. The draft rules are expected to be released for public comment in June.

Texas: City of Denton to hold vote on hydraulic fracturing moratorium. Frack Free Denton, a grassroots organization opposed to hydraulic fracturing, announced that it has collected enough signatures to place its proposal to ban hydraulic fracturing on the November ballot. Landowners in the Denton area recently filed lawsuits regarding alleged emissions from gas wells and royalties from gas production. Last fall, the City of Denton unsuccessfully sought an injunction barring new gas wells within the city limits.


EU excludes shale gas operations from environmental assessment directive. The European Parliament voted recently to strengthen an environmental assessment directive that will apply to approximately 200 types of projects including bridges, ports and landfill sites. Shale gas operations, however, were excluded from the revised directive. Analysts observed that the EU’s decision reflects an increased concern over energy security which has been exacerbated by the ongoing conflict in Ukraine.


ICF: North American oil and gas industry must invest more than $30 billion per year in infrastructure. A recent ICF International study projects that over the next twenty years, the oil and gas industry in the United States and Canada will need to invest $641 billion on midstream infrastructure. The $30 billion per year projection is more than double what ICF projected in 2011 and nearly three times more than current investments. Necessary infrastructure would include new pipelines, pumping stations, gas compressors and other equipment. While natural gas will require the most significant expenditures, oil and natural gas liquids account for a large and growing share of the total costs. ICF found that the necessary investments would create more than 432,000 jobs and generate $300 billion in taxes. ICF also noted that political issues, including U.S. approval of liquefied natural gas exports and international conflicts in places like Ukraine will also influence the market and infrastructure needs for domestic oil and gas.

CATF: Oil and gas industry have cost-effective options to reduce methane emissions. The Clean Air Task Force (CATF) released a report suggesting that new technology would allow the oil and gas industry to cost effectively reduce methane emissions from gas processing plants, compressor stations and well sites. The report highlighted the use of infrared cameras, as opposed to visual inspection, to detect leaks, claiming that the costs to use infrared cameras are low and in 90% of cases, offer a payback period of less than one year by preventing the loss of saleable product. The report focused on annual inspections, finding that the costs associated with more frequent monitoring programs would not be cost effective. CATF is using the study as part of a campaign urging EPA to adopt regulations that include expanded leak detection requirements.

Wood Mackenzie: U.S. is leader in world ethylene market. According to a recent report by Wood MacKenzie, a worldwide shift from oil to natural gas as a feedstock for plastics production has put the United States in the forefront of this field. Shale gas development has produced an abundance of low-cost ethane which has fueled expansion and investment in plastics production in the United States. At the same time, previously strong markets in Europe and East Asia that rely on naphtha for ethylene production are struggling to compete with newly available feedstocks. The Wood MacKenzie report projects strong growth in the ethylene market with worldwide production increasing from 130 million metric tons to 230 million metric tons by 2030.

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