18 January 2017

Sidley Shale and Hydraulic Fracturing Report

Vol. 6, No. 3

Topics discussed in this week’s Report include:

  • Court rejected stay of BLM methane rule.
  • Proposed resolution would block EPA oil and gas methane regulations.
  • EPA proposed release disclosures for gas processing plants.
  • PHMSA to evaluate crude oil shipping rules.
  • EIA expects higher U.S. oil production.
  • Pennsylvania court disallowed daily penalties for Clean Streams Law.
  • Environmental groups called for ban on new Louisiana pipelines.
  • Landowners alleged fraud over Dakota Access Pipeline.


Court rejects stay of BLM methane rule. A federal judge denied a motion for preliminary injunction to block U.S. Bureau of Land Management (BLM) regulations establishing methane emission limits for oil and gas operations on federal and tribal lands. Two industry groups and three states challenged the rule in the U.S. District Court for the District of Wyoming, arguing that BLM lacks the authority to regulate air emissions and that the rule duplicates existing state laws and is unnecessarily costly. The court held that the challengers did not meet the high standards for a preliminary injunction with respect to how likely they were to succeed on the merits and irreparable harm, although the opinion was somewhat skeptical that the rule would ultimately survive judicial review. With the motion for a preliminary injunction denied, the rule, published in November 2016, became effective Jan. 17.

Proposed resolution would block EPA oil and gas methane regulations. Congress will take up H.J. Res. 22, a proposed resolution to block EPA’s new source performance standards for new and modified oil and gas facilities. The rule, introduced June 3, imposes new methane emission limitations and work practice standards. Under the Congressional Review Act, Congress can block the rule with a simple majority vote on the resolution and the signature of the President. Opponents, however, argue that the rule was published too long ago to be repealed through the Congressional Review Act. The Act allows for the repeal of rules within only 60 “work days” of publication, prompting debate over what constitutes a “work day” under the Act. The Office of the Parliamentarian may initially decide such a question. The question could ultimately be decided in court, but there is no precedent for judicial review of actions under the Congressional Review Act.

EPA proposes release disclosures for gas processing plants. The U.S. Environmental Protection Agency (EPA) proposed to apply the Toxic Release Inventory (TRI) reporting requirements to natural gas processing plants, forcing the public disclosure of chemical and waste releases. Environmental groups petitioned EPA to include natural gas processing plants under the TRI program in 2012. When EPA did not act, the groups sued the agency and EPA agreed to respond to the petition in a 2015 settlement agreement. EPA estimated that the proposed rule covers between 282 and 444 natural gas plants that manufacture or process at least one TRI-eligible chemical, such as xylene, formaldehyde or benzene, in excess of threshold quantities. The TRI program already includes natural gas processing plants that primarily recover sulfur.

PHMSA to evaluate crude oil shipping rules. The Pipeline and Hazardous Materials Safety Administration (PHMSA) issued a draft advance notice of proposed rulemaking (ANPR) seeking comment on whether new rules on crude oil chemical composition could reduce the risk of railcar tank explosions. The ANPR responds to a 2015 petition for rulemaking by New York. The petition had sought a rulemaking to address crude oil from the Bakken Shale play, which the petition characterized as highly volatile and the cause of explosions. The ANPR discusses potential restrictions on vapor pressure, citing stakeholder support and noting that prior PHMSA rulemakings deferred consideration of vapor pressure restrictions to a later date. The petition requested a nine-pound-per-square-inch (psi) limit on vapor pressure, well below the North Dakota Industrial Commission’s existing 13.7 psi threshold. Industry groups have objected to requiring vapor pressures below the Commission’s standard, arguing that there is no evidence of a safety benefit. PHMSA will take comments on a potential vapor pressure limit, including any potential safety benefits, until 60 days after the ANPR is published in the Federal Register.

EIA expects higher U.S. oil production. The latest Short Term Energy Outlook report from the U.S. Energy Information Administration (EIA) predicts that U.S. oil production has reached bottom, leading to production increases in the near future. Declining oil prices over the last two years led to declining U.S. production; however, EIA noted that as Brent crude prices began topping $50 per barrel, production increased in the last quarter of 2016 from an average of 8.7 million barrels per day to 8.9 million barrels per day. EIA forecasts that U.S. production will increase slightly in 2017 to 9.0 million barrels per day and in 2018 to 9.3 million barrels per day. The federal forecast appears to be corroborated by reports of increased hiring by oil field service companies and a slight uptick in oil and gas drilling rig utility.


Pennsylvania court disallows daily penalties for Clean Streams Law. The Pennsylvania Commonwealth Court reversed a $1.27 million penalty assessed by the Pennsylvania Department of Environmental Protection (PADEP) against EQT Production Company for a 2012 hydraulic fracturing wastewater release. The Pennsylvania Clean Streams Law allows PADEP to assess civil penalties for a discharge of pollutants into state water bodies, but the Commonwealth Court rejected PADEP’s “continuing violation” theory, where it could assess a separate penalty for each day the discharged pollutants were present in a water body. Instead, the Commonwealth Court limited PADEP to assessing one civil penalty of $10,000 per “release” of a pollutant into waters of the state, finding that PADEP’s “continuing violation” theory would allow massive civil penalties to accrue even as a violator remediated the discharge. PADEP asserted that, under its reading of the law, it could have assessed a penalty as high as $157 million even though EQT already spent $11 million to clean up the spill. PADEP announced that it will appeal to the Pennsylvania Supreme Court.

Environmental groups call for ban on new Louisiana pipelines. The Louisiana Bucket Brigade and DisasterMap.net released an analysis of what it characterized as “catastrophic” oil and gas pipeline leaks throughout the state. The report asserts that there were 144 pipeline accidents in Louisiana just in 2014, largely resulting from corrosion. The groups claim that the health risks from oil and gas infrastructure, as well as coastal erosion and climate change concerns, require the state to deny approvals for any new pipelines. They released the report in advance of the Department of Environmental Quality’s public hearing on the proposed Bayou Bridge project. The 162-mile, $670 million oil pipeline would transport Bakken shale oil to Louisiana refineries and has generated significant opposition from environmental groups.


Landowners allege fraud over Dakota Access Pipeline. A group of nearly 20 Morton County, North Dakota landowners sued Dakota Access LLC alleging that they were defrauded by the company in negotiating easements across their properties. According to the complaint, Dakota Access LLC used false statements to convince the plaintiffs to accept less for the easements than what other landowners received in the same county. Among the alleged false statements was that a payment of $216 per rod (a 16½-foot segment of pipeline) was a high price for the easements. They also allege that the company would withdraw a 20 percent signing bonus and that the land could be taken by eminent domain if the offers were not accepted quickly. The plaintiffs then claimed to discover that other landowners were offered between $660 and $2,000 per rod. The complaint demands $4 million in damages for the landowners and a request for punitive damages.