22 November 2016

Sidley Shale and Hydraulic Fracturing Report

Vol. 5, No. 47

Topics discussed in this week’s Report include:

  • BLM oil and gas rules challenged.
  • Environmental groups sued to block hydraulic fracturing in Pacific Ocean.
  • Interior Department cancelled oil and gas leases in Montana.
  • BLM canceled Colorado leases.
  • Ballot measures won in California and Ohio, failed elsewhere.
  • Permian oil drilling outpaced rest of U.S.

Federal

BLM oil and gas rules challenged. Oil and gas industry trade associations sued to vacate new U.S. Bureau of Land Management (BLM) rules on venting and flaring from wells and associated equipment on federal and Indian lands. The groups’ suit, filed in the U.S. District Court for the District of Wyoming, argues that the Clean Air Act provides the Environmental Protection Agency, not BLM, with exclusive authority over reducing air emissions from the oil and gas sector. The rules require, among other things, limits on the amount of gas that may be flared, waste minimization plans, the detection and repair of leaking equipment and the use of low- or no-bleed equipment. Environmental groups, which have promised to intervene in the challenge, praised the rules as reducing greenhouse gas-trapping methane and reducing lost royalties. Industry groups criticized the new rules as both expensive and unnecessary. The industry groups say the rules are especially onerous at a time where venting, flaring and leaks have declined without federal regulations and when low oil and gas prices have squeezed the industry. BLM determined that the estimated $110 million to $279 million annual compliance costs would be largely offset by the capture and sale of natural gas that would otherwise be lost. These rules are among those that face an uncertain future in the next administration, based on campaign statements by President-elect Trump.

Environmental groups sue to block hydraulic fracturing in Pacific Ocean. Four environmental groups filed suit asking a federal court to enjoin the Interior Department from permitting hydraulic fracturing off the California coast. Environmental groups previously sued two years ago to stop hydraulic fracturing on offshore oil rigs.  The federal government settled the suit by agreeing to impose a moratorium on the practice while the Interior Department performed an Environmental Assessment (EA) under the National Environmental Policy Act. The Interior Department finished its EA earlier this year, finding that hydraulic fracturing in the Pacific would not involve significant impacts to the environment and lifted the moratorium. The environmental groups’ suit argues the EA ignored data showing that marine wildlife, including endangered or threatened species such as whales, sea otters and fur seals, would be harmed, that submerged tribal artifacts and fishing grounds would be threatened, and that the Interior Department failed to consult with other government agencies regarding Endangered Species Act compliance. They are asking the court to compel the Interior Department’s Bureau of Ocean Energy Management and Bureau of Safety and Environmental Enforcement to undertake a more detailed Environmental Impact Statement before they can issue permits for hydraulic fracturing. The groups are separately requesting that President Obama bar federal leasing off the California coast under the Outer Continental Shelf Lands Act.

Interior Department cancels oil and gas leases in Montana. The Interior Department cancelled 15 oil and gas leases in northwestern Montana’s Lewis and Clark National Forest, an area the Blackfeet Nation claims to be sacred. Interior Secretary Sally Jewell stated that the cancellations were part of a new policy giving greater priority to land use issues affecting Indian tribes. According to the Interior Department, the decision to lease the parcels in 1982 was made without the appropriate environmental and cultural review. The cancelled leases were in a 130,000 acre-area known as Badger-Two Medicine. The $200,000 fee for the leases, which were never developed and had already been suspended for many years, was refunded to the leaseholder.

BLM cancels Colorado leases. The BLM rescinded 25 leases in Colorado’s Thompson Divide, a section of the White River National Forest. Originally issued in 2003, the leases were later suspended without any development after BLM acknowledged that the original environmental analysis was deficient. After releasing the final version of an Environmental Impact Statement, BLM determined that oil and gas development would harm wildlife, particularly calving grounds for elk and deer and cutthroat trout habitat. A coalition of environmental groups, ranchers and the area’s agricultural tourism industry vigorously opposed the oil and gas leases. Industry groups blasted the decision, noting that BLM’s recent propensity for cancelling validly issued leases undermines the agency’s credibility and introduces uncertainty into oil and gas development.

States

Ballot measures win in California and Ohio, fail elsewhere. Measure Z, a Monterey County, California ballot measure to ban hydraulic fracturing and any new oil and gas wells in the county, passed by a wide margin. More than 1,000 conventional oil wells already operate in Monterey County, but the measure will not be affect them. Environmental groups backing the measure promised to propose similar ballot initiatives throughout California. A “community bill of rights” ballot measure that would block an interstate pipeline and compressor station passed in Watertown, Ohio, a town of 5,500 southeast of Toledo. The Watertown board of trustees did not comment on whether it will attempt to enforce the purported ban. Elsewhere in Ohio, a similar “community bill of rights” measure that would have banned hydraulic fracturing failed in Youngstown — the sixth time Youngstown voters have rejected the measure. The Community Environmental Legal Defense Fund, which has pushed “community bill of rights” ballot measures in dozens of municipalities, vowed to continue its Youngstown campaign. In Colorado, state voters passed a constitutional amendment to increase the number of signatures required for ballot measures. The amendment was strongly opposed by environmental groups that intended to submit ballot measures for state-wide bans on hydraulic fracturing and to authorize municipalities to ban oil and gas activities in their jurisdictions.

Studies

Permian oil drilling outpaces rest of U.S. A report by the U.S. Energy Information Agency (EIA) states that West Texas’ Permian shale basin is now producing 2 million barrels of oil per day, approximately double those of all other major oil-producing shale plays combined. According to the EIA, nearly half as many rigs are currently active in the Permian (220) as in the rest of the country (450), including offshore drilling rigs. A recent U.S. Geological Survey (USGS) assessment shows that the Permian could be developed for decades to come; it estimated that the Wolfcamp Shale, an area within the Permian’s Midland Basin, could hold some 20 billion barrels of undiscovered technically recoverable oil. This would make the Wolfcamp three times larger than the Bakken and the largest source of tight oil in the nation. The USGS also estimated that the Wolfcamp holds 16 trillion cubic feet of associated natural gas and 1.6 billion barrels of natural gas liquids. Due to increased drilling activity in the Permian Basin over the last five years, the USGS is continuing to study the formation. Its report on tight oil in the Permian’s Delaware Basin will be released in 2017.

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