13 May 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 19

Federal

EPA announces it is seeking public comment on disclosure of chemicals used in hydraulic fracturing. In an advanced notice of proposed rulemaking (ANPR), the Environmental Protection Agency (EPA) is seeking input from the public on how to provide for broader public disclosure of the chemicals used in hydraulic fracturing fluid. EPA stated that it is open to approaches that would not require new federal regulations, such as voluntary standards and recognition programs to incentivize companies to disclose the information. EPA issued the ANPR in response to a petition by environmental groups seeking regulations mandating public disclosure of chemicals without trade secret protections. Many states already require the disclosure of chemicals used in hydraulic fracturing fluids on FracFocus.org, a website managed by the Groundwater Protection Council and the Interstate Oil and Gas Compact Commission. While some have praised the website, others have criticized it for allowing well service companies to invoke trade secret rights to protect proprietary information. The public will have 90 days to comment on the ANPR, once the notice is published in the Federal Register.

DOT railcar standards expected this summer. U.S. Department of Transportation (DOT) is working on new safety standards for oil tanker cars and announced plans to issue proposed regulations by the summer. Until then, DOT has ordered all railroads with trains shipping more than one million gallons of Bakken crude oil to notify state emergency response authorities for every state in which that train will travel. A failure to do so could result in fines up to $175,000 and ten years in prison. DOT also issued a safety advisory encouraging shippers of Bakken crude oil to avoid using DOT-111 rail cars “to the extent reasonably practicable.” However, the advisory may not impact the way Bakken crude oil is shipped this year, because alternatives to the existing DOT-111 fleet will not be available until 2o15. Opponents of shipping crude oil by rail have criticized state emergency response authorities as being unprepared for derailments and are questioning whether newer safety features would prevent derailments or the release of oil during an accident. Ten of the 13 tanker cars that ruptured during a recent derailment in Lynchburg, Virginia were built after 2011. Some industry groups have likewise criticize DOT’s approach, arguing that DOT assumes without adequate support that Bakken crude is more hazardous than other types of crude oil or refined product.

DOT seeks information on characteristics of Bakken crude oil. DOT recently sent information requests to 37 companies with operations in the Bakken shale, seeking information regarding the characteristics of Bakken crude oil. DOT is seeking information regarding the crude oil’s flash point, initial boiling point, gas content and corrosivity. DOT also asked whether these characteristics change based on temperature, season or transportation mode. This information comes after a January 2014 announcement from DOT that crude oil from the Bakken shale was more flammable than other types of crude oil.

Senators urge new study of LNG export economics. Twenty-two Senators signed a letter to President Obama calling for a new examination of how Liquefied Natural Gas (LNG) exports could impact gas prices for U.S. consumers and manufacturers. The Senators assert that LNG exports could reverse the economic benefits of the past few years’ historically low gas prices. The letter serves as a counter-point to legislation seeking to expedite Department of Energy approval of LNG exports to countries without a free-trade agreement with the United States and a recent push to liberalize gas exports following Russia’s recent incursion into the Ukraine.

States

Connecticut passes moratorium on hydraulic fracturing wastes. Connecticut passed a three year moratorium on the disposal of any waste related to hydraulic fracturing, even though Connecticut has no developed shale plays nor any facilities handling drilling wastes. The bill’s proponents claim that if New York lifts its long-standing moratorium on hydraulic fracturing, drillers could look to Connecticut as a place for disposal. The law requires the Commissioner of Energy & Environmental Protection to perform an environmental impact study and propose regulations to manage hydraulic fracturing waste by June 2017. Those regulations, however, would treat hydraulic fracturing wastes as hazardous wastes under the Resources Conservation and Recovery Act, not “special wastes” as EPA currently classifies them.

Cities push new hydraulic fracturing moratoria and bans. Voters in Denton, Texas, located in the middle of the Barnett Shale play, will see a proposal to ban hydraulic fracturing on their ballot this November. Denton already has a moratorium on hydraulic fracturing in place until September of this year. The Denton Drilling Awareness Group claims it collected more than three times the 600 signatures needed to put the proposal to voters this fall. Oil and gas wells are already located in Denton, and the city unsuccessfully sued to stop EagleRidge Energy from drilling new wells. Likewise, a third initiative this year alone will be on the ballot in Youngstown, Ohio. The group “Frackfree Mahoning Valley” has stated it intends to continue obtaining the signatures needed to put the initiative on every ballot until it passes. Meanwhile, Beverly Hills became the first city in California to pass a ban on hydraulic fracturing, even though there are no proposals to use the method within the city limits.

Pennsylvania moves towards flat fee for hydraulic fracturing. Pennsylvania’s Independent Regulatory Review Commission agreed to a plan for unconventional wells that would replace the state’s existing sliding scale drilling fee with a flat fee that is likely to increase the cost to drilling companies. Pennsylvania currently charges companies based on the length of horizontal well bores. Under the existing fee schedule, the average horizontally drilled well costs approximately $3,200. The same well would require a $5,000 fee under the flat fee schedule. Conventional wells that do not use hydraulic fracturing techniques would still be charged according to the sliding scale. Pennsylvania’s Department of Environmental Protection cited the need for increased fees for staffing to perform permitting and oversight responsibilities, while noting that revenue has decreased since 2010 due to fewer permit applications. The Pennsylvania Attorney General must now review the plan before it could become effective.

International

House of Lords Committee: Hydraulic fracturing “urgently needed” in U.K. The House of Lords Economic Affairs Committee published a report encouraging the government to speed exploratory drilling for shale gas, finding that it could create substantial economic benefits and reduce the country’s dependence on imported gas. As with many European countries, the U.K. relies significantly on Russia for gas supplies, especially as gas production from the North Sea declines. The report branded public concerns over environmental and health risks as mostly “unfounded” and blamed “regulatory uncertainty” for the slow pace of shale development in the U.K. Since lifting its moratorium on hydraulic fracturing, the U.K. Environment Agency has not received any permit applications for exploratory drilling.

Litigation

Group sues to block drilling in Utah national forest. WildEarth Guardians sued to enjoin the Bureau of Land Management (BLM) and the Forest Service from approving oil and gas drilling in Utah’s Ashley National Forest, located within the Uinta Basin. The group claims that drilling will destroy roadless areas in the forest, diminish air quality, and threaten the Greater sage grouse. According to the lawsuit, BLM and the Forest Service failed to adequately review the potential individual and cumulative environmental impacts from the project.

Encana settles antitrust claims. Encana will pay $5 million to the state of Michigan and plead no contest to a misdemeanor charge that it colluded with Chesapeake Energy to avoid bidding up land in the Collingwood Shale formation. Although Encana denied the charges, citing an internal investigation showing no wrongdoing, the allegations led to a management shakeup and the company pared back its plans to drill in Michigan. The federal government previously investigated the claims, brought to light through emails made public by Reuters in 2012, but declined to indict either company.

Business

Encana buys Eagle Ford acreage for $3.1 billion. Encana agreed to buy 45,500 acres in the Eagle Ford Shale play from Freeport-McMoRan Copper & Gold in a deal topping $3 billion. The deal comes with 355 wells producing approximately 53,000 barrels of oil equivalent per day. Encana announced that it intends to drill at least another 400 wells in the area.

Studies

U.S. and Oklahoma Geological Surveys find underground injections “likely” contribute to tremors. The U.S. Geological Survey (USGS) and Oklahoma Geological Survey (OGS) issued a joint statement that the increase in tremors within the state, and the increasing likelihood of a larger earthquake, is “likely” due in part to deep injection wells used to dispose of hydraulic fracturing wastes. A recent report by the Seismological Society of America not considered by the USGS and OGS report, however, cited four injection wells in Oklahoma as being at the center of the increased tremors and did not find that all disposal wells contributed to seismic activity. The state has already recorded more tremors of a magnitude 3.0 or greater in 2014 than it did last year, which set a record for seismic activity. The USGS and OGS have increased the number of monitors in the state and will continue assessing seismic trends.

Canadian report finds gaps in data on potential impacts from hydraulic fracturing. The Council of Canadian Academies released a report arguing that hydraulic fracturing in Canada is continuing to develop rapidly despite gaps in health and safety data. According to the report, more information is required on seismic risks, air pollution and groundwater pathways. It stated that there is a dearth of peer-reviewed studies on health impacts from hydraulic fracturing, the chemicals used in fracturing fluid and fluid behavior in shale formations. The Council drafted the report at the request of Environment Canada.

If you have any questions regarding this Report, please contact us.

SHARE
EmailShare