31 March 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 13


White House issues methane reduction strategy. As part of the President’s Climate Action Plan, the White House has directed the Environmental Protection Agency (EPA) to determine whether it should regulate directly methane emissions from oil and gas production, processing and distribution operations. According to an interagency guidance document, EPA will evaluate whether new regulations are necessary, and if so, finalize them by the end of 2016. EPA issued New Source Performance Standards for natural gas production wells in 2012 that reduced volatile organic chemical emissions that had the co-benefit of also reducing methane emissions. Environmental groups have sought the direct regulation of methane and argued the rules should extend to oil production wells. Industry groups have countered the sector has already made substantial reductions, as it has the financial incentive to capture as much natural gas as possible; additional capture of methane is a matter of creating new infrastructure, such as pipelines, not imposing new regulations. In addition to oil and gas, the guidance calls on the Departments of Agriculture, Energy, Interior, Labor, and Transportation to consider regulations and voluntary measures to reduce GHG emissions in other sectors, such as coal mines, farming and landfills.

Prairie Chicken designated as “threatened.” The U.S. Fish & Wildlife Service (FWS) announced that the prairie chicken will receive protection under the Endangered Species Act as a “threatened” species. The prairie chicken’s habitat spans portions of Colorado, Kansas, New Mexico, Oklahoma and Texas. States, industry, farmers and ranchers had been working to create voluntary conservation measures that would limit the impact of oil and gas drilling, agricultural operations, and wind turbines on the prairie chicken’s habitat in order to avoid an FWS designation. To date, the five states and over 30 companies collectively agreed to protect 3.6 million acres of habitat. The FWS final rule, however, stated that it will allow for special flexibility where those voluntary state programs are in place. A further study is still to be done to delineate the extent of the prairie chicken’s critical habitat.

BLM hydraulic fracturing rule anticipated by year end. Testifying before a House Committee, Secretary of the Interior Sally Jewel stated that the Department of the Interior (DOI) expects the Bureau of Land Management (BLM) will finalize its proposed regulations governing hydraulic fracturing on federal and Indian lands before the end of 2014. Secretary Jewell noted that BLM must review 1.3 million comments received on the proposed rule and that its final regulations will be informed by more recent scientific studies on well integrity and seismic activities.

Wastewater treatment owner pleads guilty. Benedict Lupo, the former owner of Hardrock Excavating, pled guilty to violating the Clean Water Act for ordering employees to illegally discharge hydraulic fracturing wastewater into a storm drain leading to the Mahoning River. The Ohio Environmental Protection Agency had received an anonymous tip about the dumping, leading to a federal indictment. Former employee Michael Guesman admitted to the illegal discharges and received three years’ probation in exchange for his cooperation. Sentencing for Lupo is scheduled for June 16, 2014. Lupo could receive a maximum prison sentence of three years along with $3 million in restitution and $1 million in criminal fines.


California: Culver City considering moratorium. The City Council of Culver City, California, is preparing an ordinance that would impose a moratorium on hydraulic fracturing and other unconventional well development methods within the city. This marks a third city in California to take up the issue publicly, as the City Council of Los Angeles likewise previously voted to prepare an ordinance imposing a ban, and the City of Carson imposed a 45-day moratorium. Culver City council members stated the city would likely look to language developed by Los Angeles. A portion of the Inglewood Oil Field sits in Culver City with 26 active wells within the city’s jurisdiction, but those wells would not be covered by the proposed moratorium.

California: NGOs sue to stop crude oil rail shipments. Earthjustice, representing several environmental groups, filed suit in San Francisco Superior Court seeking to halt shipments of crude oil in the Bay Area by rail, claiming the practice is too dangerous. In their complaint, the groups assert the Bay Area Air Quality Management District allowed Kinder Morgan to transport Bakken crude through the area without public notice and comment or complying with the California Environmental Quality Act. They characterize Bakken crude as dangerous and that the shipments will add to GHG emissions.


China: Sinopec brings China’s first commercial shale gas field on-line. Sinopec announced it had begun commercial operations at its Fuling shale gas field. Companies attempting to develop China’s substantial shale gas reserves have faced challenges, due to difficult geology, limits on water resources and lack of needed infrastructure. Sinopec, however, has begun commercial operations in Fuling ahead of schedule. The company is seeking to produce 10 billion cubic meters of natural gas by 2017.

<strong>gt;South Africa: Government to issue hydraulic fracturing regulations. South Africa’s Mineral Resources Department announced it would issue final regulations to allow for the use of hydraulic fracturing to develop the country’s shale gas resources. Several companies had been planning to apply for permission to drill exploratory wells, but the Parliament passed a law earlier this month claiming 100% ownership of any natural gas recovered. Most companies following South Africa’s regulatory development had planned on 20% government ownership and are now evaluating whether they will move forward. The country’s Karoo region is estimated to hold 40 trillion cubic feet of shale gas.


Oil rig counts hit high. Well field services company Baker Hughes reported that oil rig counts hit 1,473 rigs, the highest number since the company began recording the metric in 1987 and up by nearly 150 since this time last year. The number shows how far energy companies have swung towards producing tight oil – which still trades at around $100 per barrel – and away from shale gas, which totaled only 326 rigs across the country. The Permian Basin continues to dominate shale development with 513 total rigs (oil and gas), more than twice the number working in the next most productive area, the Eagle Ford shale play (219 rigs). Baker Hughes counted 186 rigs in Williston, North Dakota, home of the Bakken Shale play, along with 78 rigs in the Marcellus Shale, 73 in the Mississippian, and 55 off-shore.

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