15 April 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 15

Federal

Environmental groups will challenge prairie chicken listing. Arguing that the lesser prairie chicken requires more protection from oil and gas operations and other development, environmental groups announced they intend to sue the U.S. Fish & Wildlife Service to overturn its determination that the bird is “threatened” under the Endangered Species Act. The groups claim that the lesser prairie chicken should be classified as “endangered,” which would impose more stringent restrictions on actions that could result in bird deaths or the loss of its habitat. The groups assert a series of voluntary state action plans that protect 3.6 million acres of habitat are insufficient to allow the lesser prairie chicken population to recover. The lesser prairie chicken’s habitat runs through portions of Colorado, Kansas, New Mexico, Oklahoma, and Texas. The states and industry groups that created the voluntary conservation measures in hopes of avoiding any listing for the bird have not announced any plans to challenge the designation.

Federal Railroad Commission to require two-man crews. The Federal Railroad Administration (FRA), in response to the train derailment and explosion in Lac Mégantic, Canada, announced it will issue a proposed rulemaking requiring two-man crews on regional and short-line trains carrying crude oil. The Association of American Railroads (AAR) opposes the rule, stating there is no evidence that a two-man crew would prevent train derailments and arguing the proposal is not based on FRA data or studies. AAR also noted that the Railroad Safety Advisory Committee, which advises the FRA, did not adopt a subcommittee recommendation to require the use of two crew members. Other aspects of the proposal would prohibit unattended or standing freight trains in certain circumstances and require railroads to obtain advance approval for leaving cars or equipment unattended.

States

Alaska: Commission finalizes hydraulic fracturing rules. The Alaska Oil & Gas Conservation Commission (OGCC) issued a final version of its controversial regulations governing hydraulic fracturing. For more than a year, environmental groups and industry have negotiated with OGCC over its initial draft that prohibited the use of trade secret protections for chemicals in hydraulic fracturing fluids. The final rules allow companies to submit the names of propriety chemicals to OGCC confidentially. Members of the public would then be allowed to challenge those confidentiality designations in court. The rules also require developers to perform baseline water-well sampling for all wells within one-half mile of a drill site, with the possibility of a waiver when groundwater is too frozen to use as drinking water.

California: Senate committee passes moratorium on hydraulic fracturing. A bill that would impose an indefinite moratorium on all unconventional well stimulation techniques, including hydraulic fracturing and well acidization, passed the California Senate’s Natural Resources and Water Committee by a 5-2 vote. The bill, S.B. 1132, would halt all hydraulic fracturing in the state until a study of environmental, public health and economic impacts is completed, and the Department of Conservation conclusively determines that the practice is safe. The Department would also have to consult with several other agencies before sending the study’s conclusions to the Governor to decide whether or not to lift the moratorium. Under the bill, if not persuaded, the Governor may require new studies. The bill will now move on to the Environmental Quality Committee, although some of the senators that voted for the bill raised several concerns about how it would interact with S.B. 4, which authorized hydraulic fracturing in California after a study is completed. The proposal is strongly supported by over a dozen environmental groups. Governor Brown has not issued a statement on the bill.

Colorado: State Supreme Court Will Hear Lone Pine Case. The Colorado Supreme Court agreed to hear Antero Resources’ appeal of a decision rejecting the use of a Lone Pine case management order in a toxic tort suit alleging that the company’s use of hydraulic fracturing led to the plaintiffs’ illnesses. Lone Pine orders can simplify toxic tort cases, requiring plaintiffs to provide prima facie evidence that their injuries can be attributed to the defendant before discovery begins. The trial court had ordered the plaintiffs to provide expert evidence showing that a specific chemical used in Antero’s operations caused their alleged illnesses. The court of appeals reversed, holding Lone Pine orders should be reserved for unusually complex toxic tort cases. The drilling companies, however, argue the orders are necessary for trial courts to tailor discovery requirements. The Colorado Supreme Court granted certiorari on the questions of whether a trial court is prohibited by law from imposing such a case management order before discovery begins but after initial disclosures were exchanged, and if they are not prohibited, whether the district court abused its discretion in this case.

North Dakota: Department of Mineral Resources issues new rules for filter disposal. After North Dakota investigators found illegal dumps containing wastewater filter socks laced with radioactive wastes, the Department of Mineral Resources announced new rules for disposing of the filters. Beginning in June 2014, filter socks must be stored in covered, leak-proof containers at drilling sites and may only be hauled away by licensed disposal companies. The filters are fabric tubes that strain solids from hydraulic fracturing wastewater. The state estimates that shale oil operations produce nearly 20 tons of filter socks each day.

Ohio: Ohio EPA adopts leak detection rules. The Ohio Environmental Protection Agency (Ohio EPA) promulgated new regulations requiring oil and gas operations to inspect equipment for methane leaks and repair leaking components. Under a revised general permit for oil and gas operations, companies must scan equipment with an infrared camera or other detection devices once per quarter. If leaking valves, pumps, or other equipment are detected, a company will have five days to repair the leak. All leak inspections and repairs will have to be summarized in an annual report to Ohio EPA. Ohio became the third state, after Wyoming and Colorado, to require leak detection and repair programs for methane.

Markets

Albany may become oil trading hub. The CME Group, the company that owns the New York Mercantile Exchange, is considering Albany as a new trading hub for crude oil due to changes in the ways that oil is transported to refiners. Tight oil extracted from shale is being shipped by railway from North Dakota to Albany before moving down the Hudson River to New Jersey refineries, bypassing the slew of storage tanks in Cushing, Oklahoma, a major post for oil futures trading and the current settlement point for West Texas Intermediate crude. The plans could be complicated, however, by a recent move by the New York Department of Environmental Conservation to slow the permit process for two proposed expansions of crude-by-rail and oil heating operations. Some oppose the expansions, asserting shipping crude oil by rail endangers small communities along the routes.

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