02 June 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 22

Federal

Energy Department proposes new process for LNG export approval. The U.S. Department of Energy (“DOE”) has proposed to revise its procedures and only consider applications to export liquefied natural gas (“LNG”) to non-free trade countries after the Federal Energy Regulatory Commission (“FERC”) completes all environmental reviews for LNG terminals. If finalized, this change would end DOE’s practice of issuing conditional approvals, as DOE’s Office of Fossil Energy would wait until FERC’s environmental review is finished before deciding whether a proposed project is in the public interest. According to DOE, the change would ensure that the department only reviews projects that have commercially advanced to a significant degree and provide more information upon which DOE can make an informed decision. Unveiled on Capitol Hill, the proposal drew decidedly mixed reactions, with Senate Energy & Natural Resources Committee Chair Mary Landrieu praising the move and House Energy & Commerce Chair Fred Upton arguing that it will increase delays and uncertainty in the “public interest” approval process. The revised procedures are subject to a 45-day public review and comment period.

EAB denies appeal of wastewater injection well. The Environmental Protection Agency’s Environmental Appeals Board (“EAB”) rejected challenges to an injection control permit authorizing Seneca Resources to inject hydraulic fracturing wastewater underground for disposal. The EAB found the petitions for review, filed by the Highland Township (Pennsylvania) Municipal Authority and a local resident raised only generalized fears of water contamination, earthquakes and adverse health impacts which were insufficient to support an appeal. The EAB also found Highland Township’s petition was submitted after the appeal deadline.

States

California: Bill to impose hydraulic fracturing ban dies. California Senate Bill 1132, which would have banned all well stimulation techniques in the state, including hydraulic fracturing and acid stimulation, failed to win a procedural vote in the Senate. Needing 21 votes to pass on to the California Assembly, the bill failed on a 16-16 vote. The bill’s sponsor, Sen. Holly Mitchell, promised to introduce a similar bill in the future. California passed S.B. 4 in 2013, allowing for hydraulic fracturing in California once the Division of Oil, Gas, and Geothermal Resources publishes regulations.

North Carolina: Hydraulic fracturing bill passed. The North Carolina legislature passed the Energy Modernization Act, a bill that would allow for hydraulic fracturing in the state. Governor Pat McCrory is expected to sign the bill. 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, although that appears unlikely. The bill includes additional protections for landowners, addresses the relationship between local zoning and state law and provides for a severance tax. Among other fiercely debated provisions, the law 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. The U.S. Geological Survey has estimated that the Deep River Formation in central North Carolina could contain up to 1.7 trillion cubic feet of gas.

North Dakota: Royalty controversy may go to state commission. A federal court dismissed lawsuits by North Dakota mineral rights owners against 14 oil and gas companies, finding the court had no jurisdiction to hear the cases as the plaintiffs must first exhaust state administrative remedies. The plaintiffs allege that flaring in the Bakken Shale play wastes valuable gas and deprives mineral rights owners of the valuable royalties for that gas. The plaintiffs reportedly will now proceed before the North Dakota Industrial Commission, seeking back royalties and other relief. The Commission has authority over oil and gas drilling in the state, including authority to issue regulations for flaring.

Pennsylvania: Governor lifts moratorium on leasing state lands for shale development. Pennsylvania Governor Tom Corbett signed an executive order rescinding a moratorium that had banned the leasing of state lands for gas drilling since 2010. Under Gov. Corbett’s order, state forests and parks may be leased to gas companies, so long as drilling involves no surface disruptions within the state lands. A spokesman for the governor stated that royalties from the leases will be dedicated to acquiring new state lands.

International

U.K. establishes community payment obligation on shale developers. The United Kingdom’s Department for Energy and Climate Change reached an agreement with potential shale developers that would provide a “community payment” of £20,000 per well. The Department stated that it would prefer the £20,000 payment be made to a “relevant community body” rather than the landowners themselves as it believed the money would be put to better use and ease notification requirements for shale developers. Under the proposal, no compensation would be paid for wells drilled deeper than 300 feet as the government determined that landowners have no interest in the subsurface. The proposed plan is subject to a 12-week public consultation period.

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