23 April 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 16

Federal

EPA releases white papers on methane and VOC emissions from oil and gas sector. On April 15, the Environmental Protection Agency (EPA) released five white papers describing emissions of methane and volatile organic compounds (VOCs) from the oil and gas sector as well as EPA suggestions for ways reducing such emissions. The white papers, which were mandated as part of President Obama’s strategy on methane reduction address methane emission from natural gas compressors, hydraulically fractured wells, pneumatic devices, well liquids unloading, and leaks from the gas production and transmission sector. EPA will obtain peer review of the white papers and also accept public comments until June 16. EPA intends to use this process to determine whether to propose to regulate methane emissions from the oil and gas sector. Environmental groups have argued that the white papers demonstrate that new regulations are needed, while industry representatives urged EPA to consider the cost effectiveness of potential controls as well as the voluntary measures already taken by the sector.

CRS Report: Oil and gas production on federal lands lags behind production on state and private lands. A recent Congressional Research Service (CRS) report showed that oil and gas production on federal land is falling further behind development on state and private lands, which are subject only to state regulation. According to the CRS, oil production on federal lands has declined to 23% of domestic production, and while production on federal land has been flat over the past five years, production on state and private land increased by 50%. Even more dramatic has been the change in natural gas production – on state and private lands it has increased by 33%, while production on federal lands has decreased by 28%. The CRS report suggested the results are due to the disparity between the quality of shale reserves; however, other organizations, such as the Western Energy Alliance, have suggested that complicated and costly federal policies are to blame.

States

Ohio: State officials claim link between hydraulic fracturing and seismic activity, adds regulations for seismic activity. For the first time, the Ohio Department of Natural Resources (DNR) has concluded that seismic activity was likely caused by hydraulic fracturing operations. State officials had previously ruled out any connection between the earthquake activity and wastewater disposal wells associated with hydraulic fracturing. In response, Ohio DNR suspended further operations at the Poland, Ohio site and imposed a series of new regulations for hydraulic fracturing operations near known faults or prior seismic activity. Under the new rules, well development within three miles of a known fault will require installation of a seismic monitor. If a monitor detects an earthquake with a magnitude larger than 1.0 on the Richter scale, operations at the well site will be temporarily halted while the state investigates the cause of the seismic activity. If hydraulic fracturing is deemed to be the cause of the seismic activity, well completion operations will be suspended.

Litigation

Jury decides nuisance suit and Colorado Supreme Court to consider “Lone Pine” Order. Two important recent developments have occurred in influential fracturing litigation jurisdictions. First, a Dallas jury awarded a Texas family $2.9 million in damages in a “nuisance suit” against Aruba Petroleum, Inc. (Parr, et al. v. Aruba Petroleum Inc., CC-11-01650-E, in the County Court at Law No. 5 of Dallas County). Second, Colorado’s Supreme Court just announced its review of an appellate court’s ruling forbidding the use of a Lone Pine order in a tort case in which the plaintiffs claim damages due to the use of hydraulic fracturing. To learn more about these two developments, please access the following link: Important Developments from Two Influential Fracturing Litigation Jurisdictions.

International

Argentina: Chevron and YPF reach agreement to develop shale resources. On April 10, Chevron and Argentina’s YPF SA announced an agreement to form a $1.6 billion joint venture to develop oil and gas resources in Argentina’s Vaca Muerta Shale. The joint venture agreement follows a previous $1.2 billion agreement between the two companies to develop oil and gas resources in the same area that began operation in 2013. The companies intend to drill 170 wells this year, and have targeted a total of 1,500 wells. Argentina has significant shale resources and YPF estimates that the plays can produce as much as 50,000 barrels of oil and three billion cubic meters of natural gas per day.

Studies

Study finds high methane emissions in pre-production wells. A recent study in the Proceedings of the National Academy of Sciences found methane emissions that exceeded emission estimates in a small fraction of pre-production wells in Pennsylvania. The research team used airplanes to measure methane emissions and tracked high measurements back to their sources. The higher-emitting wells, which were still in the development phase and had not yet been subjected to hydraulic fracturing operations, had emissions of more than 100 times previous estimates of 0.3-0.4 grams of methane per second per well. Such readings were found in less than one percent of the wells surveyed, although they accounted for 30% of total methane emissions measured.

Navigant study projects growth in natural gas vehicles. A recent study by Navigant projected that 400,000 medium and heavy-duty natural gas vehicles will be produced worldwide by 2022, with approximately 75% of sales coming in the Asia-Pacific region. North America and Eastern Europe will account for the most of the remaining sales. Larger natural gas vehicles will offer significant fuel savings, particularly for large fleets such as transit buses, and such vehicles are projected to account for approximately 70% of all fuel consumed by natural gas vehicles. While natural gas infrastructure will present a challenge, the Navigant study projected a 45% increase in natural gas refueling stations by 2022.

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