24 February 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 8

Federal

EIA increases projections for crude oil production from shale formations. Citing the increased adoption of cutting edge technologies and processes, the Energy Information Administration (EIA) increased its projections for productivity in shale oil plays. EIA projects that producers will exceed the agency’s prior projections of 5.7 million barrels per day (bpd) for 2013 and increased its 2015 projections to 7.1 bpd. However, the EIA reduced its overall crude oil production forecast by 100,000 bpd to account for projected weather-related production delays.

States

California: Coastal Commission seeks additional oversight of outer continental shelf permits. The California Coastal Commission has requested additional authority to review federal applications for drilling permits in the outer continental shelf. Currently the commission reviews initial outer continental shelf permits submitted to the Bureau of Safety and Environmental Enforcement for consistency with state law, but has no oversight of the subsequent drilling permits. Asserting a need for more transparency and a lack of information about hydraulic activities off of California’s coast, the commission is requesting that existing review programs be extended to the drilling permits.

Colorado: Opponents of hydraulic fracturing seek to intervene in challenges to Fort Collins moratorium. In a motion filed by the University of Denver Environmental Law Clinic, the Sierra Club, Earthworks, and Citizens for a Healthy Fort Collins are seeking to intervene in a lawsuit challenging the legality of Fort Collins’ 5-year moratorium on hydraulic fracturing. The moratorium was enacted last year through a general election. The groups assert that the City of Fort Collins cannot adequately represent their interest in upholding the moratorium because the city council opposed the moratorium during the election and has since raised concerns regarding the costs of defending the lawsuit. The groups argue that the moratorium should be left in place so that additional studies of hydraulic fracturing can be completed before any drilling occurs.

New York: Landowners file lawsuit to compel New York to end moratorium on hydraulic fracturing. On February 14, 2014 the Joint Landowners Coalition of New York sued the state of New York in an effort to compel the state to complete its review of high volume hydraulic fracturing and end the effective moratorium on hydraulic fracturing in the state. Until New York completes an environmental review that was begun in 2008 and a health review that was begun in 2012, the state will not issue a permit to allow the use of high volume hydraulic fracturing to produce natural gas. The complaint alleges that Governor Cuomo has unlawfully placed himself in the middle of the environmental review process and has delayed it for political reasons. The complaint requests that the court order the state to complete the reviews or, alternatively, to hold a hearing and jury trial where state officials can testify as to the reasons for the delay.

Kansas: Task force to study cause of earthquakes. A governmental task force in Kansas announced plans to study the cause of earthquakes occurring along the Kansas Oklahoma border. The task force will include representatives from the Kansas Geological Survey, the Kansas Corporation Commission, and the Department of Health. Over the past six months, Kansas has experienced several earthquakes strong enough to be felt. Drilling activities in the Mississippi Lime field have expanded recently, leading some to question whether the earthquakes are linked to hydraulic fracturing and the underground injection of wastewater.

Louisiana: Research projects increased demand for natural gas in Louisiana. A recent white paper released by consulting firm ICF International projects that Louisiana’s demand for natural gas could nearly double by 2020. The white paper concludes that the primary demand drivers will be an expansion of LNG export facilities, construction of new petrochemical facilities, and increased demand throughout the Southeast. At the same time, ICF projects that natural gas supplies from Texas and the Gulf of Mexico will decrease, resulting in an increased reliance on the Marcellus Shale to keep pace with demand.

Michigan: Court of Appeals affirms decision excluding hydraulic fracturing from injection well regulations. A Michigan Court of Appeals affirmed the state Department of Environmental Quality’s (DEQ) decision to exclude hydraulic fracturing activities from regulations governing underground injection wells. The Court agreed with DEQ’s reasoning that differentiates between well injection for “initial stimulation” of oil and gas well injections for disposal, storage, or secondary recovery. One of the Plaintiffs in the case, Ban Michigan Fracking, is also pursuing a ballot initiative to prohibit hydraulic fracturing in the state.

Wyoming: Former regulator reverses position on cause of pollution in Pavillion. Robert Johnson, a former employee of the Wyoming State Engineer’s Office is no longer asserting that groundwater contamination was caused by the use of hydraulic fracturing techniques. Johnson had previously asserted that the contamination was caused by the use of unlined pits to hold hydraulic fracturing flowback. Johnson explained that the Wyoming Oil and Gas Conservation Supervisor convinced him that his prior conclusions were incorrect. State officials in Wyoming have consistently rejected claims that any groundwater contamination in Pavillion is related to hydraulic fracturing.

Governors form bipartisan group to promote state regulation of hydraulic fracturing. In a bipartisan effort to promote states as the primary regulators of oil and gas drilling, the governors of Alabama, Alaska, Colorado, Kentucky, Montana, Mississippi, Nevada, North Dakota, Oklahoma, Pennsylvania, Texas, and Utah have formed the States First Initiative in conjunction with the Interstate Oil & Gas Compact Commission and the Groundwater Protection Council. In a press release, the States First Initiative asserts that states are “the primary and appropriate regulators of oil and gas development.” While no formal lobbying activities are currently planned, the Initiative is expected to advocate against a new federal regulations in the field.

International

Russia: Siberian shale reserves could fuel hydraulic fracturing boom. The discovery of significant shale reserves in Siberia could allow Russia to rival the United States for shale oil and gas production. Recent estimates for the Bazhenov formation in western Siberia range up to 2 trillion barrels, with 22-360 billion barrels potentially recoverable using hydraulic fracturing. While some concerns regarding the geology of the Bazhenov formation remain, the plentiful water and existing pipeline and processing infrastructure are expected to aid in development. Further, Russia’s decision last year to eliminate its mineral tax for the Bazhenov formation for the next 15 years has resulted in investments by international producers such as Exxon and Shell, along with Russian producers. If estimates prove correct, the Bazhenov formation would rival the Bakken formation for productivity.

Business

Occidental announces plan to spin off California business. On February 14, 2014 Occidental Petroleum Corp. announced that it would spin off its California business unit, which includes assets in California’s Monterey Shale. The decision follows a number of recent shareholder friendly actions that included selling $1.4 billion in shale assets in the central United States, raising dividends, and announcing a plan to stock purchase plan. Occidental projects that the new California business will be the state’s largest gas producer and the largest holder of oil and gas mineral acreage.

Research

Study finds that methane leakage exceeds EPA estimates. A recent study published in Science entitled “Methane Leaks from North American Natural Gas Systems” reported that methane leakage from natural gas lines could exceed EPA estimates by as much as 50%. The study found that a significant portion of the leakage may come from locations at conventional well sites, gas processing plants, storage tanks, and distribution facilities. The study did not find any increase in methane leakage as a result of hydraulic fracturing. In a second phase of the study, researchers are seeking to identify automated sensing technologies to pinpoint methane leaks.

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