11 August 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 32

Federal

Second Circuit asks NY court to analyze state moratorium’s impact on oil and gas leases. On July 31, the Second Circuit Court of Appeals asked the New York State Court of Appeals to determine whether the state’s fracking moratorium constitutes a force majeure for purposes of oil and gas lease contracts. If it does, it may operate to extend the terms of several dozen leases that energy companies executed with Marcellus Shale landowners. The Second Circuit said it needs the state court’s input because the case involves significant and novel state issues that will have a significant impact of the state’s economy and environment.

States

California hydraulic fracturing study and regulations delayed six months. In 2013, Senate Bill 4 passed in California, establishing the state’s first regulations specific to the use hydraulic fracturing, including additional permit requirements, neighbor notification, pressure-testing and water quality standards. The bill additionally requires the state to perform an independent, peer-reviewed study to evaluate the health and environmental risks associated with well operations. The California Council on Science and Technology and the Lawrence Berkeley National Laboratory are currently conducting the study but the majority of their report will be delayed from its original January deadline to July 2015. In June, state legislators also approved a delay for the corresponding regulations as well. The effective date for the regulations will not be July 1, 2015, but the Department of Conservation is expected to finalize them by the end of the year.

Colorado Oil and Gas Commission withdraws from lawsuit over local regulation. The Colorado Oil and Gas Conservation Commission agreed to dismiss a lawsuit against Longmont that addressed whether the city had the authority to implement local oil and gas regulations. The decision to drop the lawsuit was part of a compromise arranged for by Governor John Hickenlooper and U.S. Representative Jared Polis (D-Colo.) to avoid the placement of two anti-fracking and two pro-industry measures on the November ballot. The anti-fracking measures would have established substantial additional well setbacks, provided substantial authority to local governments to restrict hydraulic fracturing, and instituted an environmental bill of rights. The industry initiatives would have required economic analyses for ballot measures and barred cities that ban hydraulic fracturing from receiving state oil and gas tax revenues. All four initiatives have been shelved to allow a task force to consider options and make recommendations to the state legislature.

Colorado court strikes down local fracking ban. On August 7, the Colorado District Court of Larimer County struck down Fort Collins’ five-year fracking moratorium, holding that the Colorado Oil and Gas Conservation Act pre-empted the local ban. Voters approved the local ordinance banning hydraulic fracturing in November 2013. Despite the narrow scope of the ordinance, the court found it effectively eliminated all oil and gas development due to the prevalence of hydraulic fracturing in Colorado wells. The Fort Collins decision was the second decision in a month to overturn a local ordinance—a court overturned Longmont’s ban (in a case separate from the lawsuit involving Longmont’s regulations, discussed above) two weeks earlier. Lafayette, Boulder and Broomfield counties continue to have voter-passed bans in effect.

NGOs and property owners challenge PA natural gas drilling permits. A coalition of environmental groups and property owners are appealing the Pennsylvania Department of Environmental Protection’s (DEP) decision to grant XTO Energy Inc. permits for natural gas drilling in Western Pennsylvania. The coalition is concerned that the permitted complex will impact the Shannon Run and Mulligan Run watersheds and argues that the watersheds could be protected by moving the well pad to an alternate location at the site. The coalition also alleges that the permits violate state law that prohibits unconventional gas well sites within 1,000 feet of existing water supplies and that DEP’s permitting process did not properly account for water contamination risks. The case will be heard by the Environmental Hearing Board.

Litigation

Ohio man fined and sentenced to prison after illegally dumping wastewater from gas drilling operations. Benedict Lupo, the owner of Hardrock Excavating LLC in Youngstown, OH, was sentenced to more than two years in prison and fined $25,000 after directing employees to dump storage tanks containing wastewater flowback from hydraulic fracturing into a storm drain that leads to the Mahoning River. The Department of Justice reported that Lupo instructed employees to dump the wastewater on more than thirty occasions between November 2012 and January 2013, in violation of the Clean Water Act. The dumped waste contained hazardous pollutants such as benzene and toluene and contributed to an aquatic dead zone in a nearby creek.

Studies

Report concludes more research necessary on effects of hydraulic fracturing. The Frontier in Ecology and the Environment recently published a report that concluded there are gaps in knowledge and quantifiable research surrounding the environmental and health impacts associated with the rapid development of hydraulic fracturing. The report observes that the use of hydraulic fracturing has surged by over 700 percent since 2007 and advocates that additional research is necessary to understand the potential impacts. Supporters of hydraulic fracturing have noted that the technique has been safely used on literally millions of wells over the course of many decades without any demonstrable impact.

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