09 June 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 23

Federal

EPA seeks comment on air permitting for oil and gas production facilities on tribal lands. The oil and gas industry is growing rapidly in many tribal areas, particularly in the North Dakota Bakken Shale play. In an advanced notice of proposed rulemaking, the U.S. Environmental Protection Agency (EPA) is seeking public comment on options to streamline air quality permitting for new and modified oil and gas production facilities on tribal lands. Specifically, in response to concerns about permitting delays, the agency is considering three options for facilities to demonstrate compliance with the Clean Air Act’s minor new source review requirements, including a simpler general permit, a “permit by rule” that would not require a formal application and a directly applicable Federal Implementation Plan. The notice follows a 2011 EPA final rule setting requirements for new minor sources on tribal lands that allowed tribes flexibility to issue permits. The June 6 notice triggered a forty-five day public comment period.

NGO and local government challenge planned oil and gas lease sale on federal land. The Center for Biological Diversity (CBD) and Nevada’s Lander County filed separate administrative challenges this week protesting a planned oil and gas lease sale by the Bureau of Land Management (BLM). The sale would open nearly 300 square miles of public land to oil and gas development using hydraulic fracturing. CBD seeks cancellation of the sale in favor of alternative energy sources that CBD asserts are more protective of water supplies and wildlife. Lander County filed a challenge on behalf of local farmers and ranchers concerned that hydraulic fracturing may divert water away from their operations. BLM is reviewing the challenges and reported that a final decision on the sale may not be reached until closer to the sale date of July 17, 2014.

States

New York: Court of Appeals hears landmark cases on local bans. The New York State Court of Appeals recently heard two cases regarding a local government’s ability to ban hydraulic fracturing through the use of zoning and land use laws. The main issue in both cases is whether the state’s Oil, Gas and Solution Mining Law (OGSML) preempts local regulation that may impact oil and gas development. Developers argued the legislature expressly preempted zoning regulations that ban all drilling operations, while the municipal governments argued the OGSML only preempted local regulation of the oil and gas industry but did not prevent local governments from enacting zoning and land use regulations. The New York Supreme Court Appellate Division upheld the local bans in the two cases in 2013. The Court of Appeals is expected to rule by July 4.

North Carolina: Governor signs hydraulic fracturing bill. North Carolina Governor Pat McCrory signed a bill that will allow for hydraulic fracturing in the state. Under the bill, drilling permits could be issued by early 2015, lifting a moratorium that has been in place since 2012. The North Carolina Mining and Energy Commission still must finalize regulations and the legislature retains the ability to block those rules. The bill includes additional protections for landowners, addresses the relationship between local zoning and state law, and provides for a severance tax. The law also provides for further study of “forced pooling” of gas from beneath neighboring properties, as well as making it a misdemeanor to improperly disclose confidential chemicals used in hydraulic fracturing fluids.

Virginia: Advisory panel reviews state hydraulic fracturing regulations. An advisory panel of the Virginia Department of Mines, Minerals and Energy held its inaugural meeting in Richmond to discuss hydraulic fracturing developments in Virginia. The nine-member panel, comprised of state, local and industry representatives, was created in response to increased interest in natural gas drilling near Fredericksburg, in the Taylorsville Basin and along the Chesapeake Bay. The panel discussed what companies should be required to disclose when proposing to use hydraulic fracturing. Panel members will also discuss best industry practices and whether additional requirements are necessary for drilling in different parts of the state.

International

Germany: Government considering hydraulic fracturing guidelines. German Chancellor Merkel’s administration is considering guidelines to allow energy companies to extract oil and natural gas through hydraulic fracturing in Germany. The government is responding to concerns that Germany is too dependent on foreign gas—nearly ninety percent of Germany’s gas is imported, while Germany has an estimated 2.3 trillion cubic meters of shale gas that could supply domestic consumption. The recoverability of Germany’s shale gas resources has not been studied extensively, and thus it could take up to a decade before Germany has a significant oil and gas production industry. Germany also faces strong opposition to hydraulic fracturing. Last year, an attempt to pass a law failed when opponents raised the threat of potential drinking water contamination. The guidelines under consideration would require independent environmental audits and ban drilling on areas requiring water protection. The guidelines are expected to be developed before the summer recess and sent to Parliament for a vote by the end of 2014.

Litigation

Michigan AG accuses Chesapeake of fraudulent leasing practices. Michigan Attorney General Bill Schuette is pursuing nine felony charges against Chesapeake Energy Corporation (Chesapeake) alleging the company leased property in Michigan’s Antrim Shale formation under false pretenses. The complaint alleges Chesapeake misled property owners by representing that holding mortgages was not an obstacle to signing a lease allowing the company to drill for gas and then used the mortgages as a reason to cancel the lease. The complaint further alleges Chesapeake entered over 700 leases but honored fewer than 30 in the state. These charges come amidst a separate misdemeanor antitrust suit in which Michigan claims Chesapeake conspired with rival Encana Corporation to rig leasing bids in order to avoid driving up prices. Chesapeake plans to contest all allegations.

Studies

West Virginia University faculty to study shale gas development. Six professors at West Virginia University received $10,000 grants to study a range of shale gas development issues including particle emissions, prediction of fracture patterns, Chinese and Argentine shale gas development and the use of natural gas as a raw material. The group of professors received the first research grants from the Shale Gas Network, a research network funded by the National Research Center for Coal and Energy and the university’s research office established to promote collaboration and research in shale gas issues. Results from the faculty research are expected to be presented at the final 2014 meeting of the Shale Gas Network later this year.

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