04 February 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 5

Federal

President Proposes “Shale Zones.” A White House fact sheet released for the State of the Union included a proposal for “Sustainable Shale Gas Growth Zones.” According to the proposal, which was not part of the State of the Union speech, the federal government would provide technical assistance and planning for shale-producing regions to avoid “boom-bust” cycles that can occur when an area becomes too dependent on a single industry. A White House official stated that details would be fleshed out in the near future.

NTSB Suggests More Stringent Crude Oil Rail Standards. The National Transportation Safety Board (“NTSB”), issued recommendations to the U.S. Department of Transportation (“DOT”) to avoid crude oil spills from trains. Among the recommendations are that railways adopt hazardous materials route planning that would take trains around populated or environmentally sensitive areas, ensure adequate spill response capabilities that could handle worst-case spill scenarios, and have DOT institute audits to ensure that crude oil is being properly classified and subject to appropriate safety and security plans. The suggestions came shortly after the Federal Railroad Administration issued final rules strengthening railroad inspection standards.

NGOs Seek Uinta Basin Non-Attainment Designation. The Uinta Basin in Colorado and Utah is home to extensive conventional and unconventional gas drilling operations. Environmental groups claim that these activities are responsible for violations of federal ozone ambient air quality standards and have filed a petition asking the Environmental Protection Agency (“EPA”) to designate the Uinta Basin as a non-attainment area. If EPA grants the designation, it could significantly restrict new drilling in the area. Colorado has already proposed new regulations to reduce fugitive emissions that contribute to ozone formation, estimating that the proposed changes could cut those emissions by one-third. The groups previously lost a challenge to EPA’s refusal to designate the Uinta Basin as being non-attainment after finding that the air quality data cited by the environmental groups was unreliable.

States

NGO Suit to Block Hydraulic Fracturing in California Dismissed. A California state court dismissed claims by the Center for Biological Diversity and other NGOs alleging that the Department of Oil Gas & Geothermal Resources (“DOGGR”) unlawfully authorized the use of hydraulic fracturing without performing an environmental impact review under the California Environmental Quality Act. The court held that the case was moot, citing passage of S.B.4 which requires DOGGR to issue permits for hydraulic fracturing until it completes a study of potential environmental impacts by January 1, 2015.

Hydraulic Fracturing Decision in New York Delayed Until 2015. New York’s Environmental Department Commissioner announced that the state’s 2014 budget includes no funding for hydraulic fracturing rulemaking or enforcement. This means that the New York Department of Environmental Conservation cannot lift the current de facto ban until April 2015, when a new fiscal year begins.

New York Assessing Crude Rail Shipments. Citing recent train derailments in Quebec and North Dakota, Governor Andrew Cuomo signed an executive order requiring state agencies to assess the safety practices of railroads shipping crude oil through the state and submit the results of the assessment by April 30, 2014. Approximately 65,000 barrels of oil move through Albany per day en route to east coast refineries. Environmental group Hudson Riverkeeper is urging the Governor to impose a moratorium on shipping crude oil through the state.

Colorado ballot initiative seeks authorization for local bans. The Colorado Community Rights Network filed a proposed state-wide ballot amendment that would allow local governments to impose moratoria or bans on the use of hydraulic fracturing techniques to develop shale oil and gas. Although several towns have already imposed moratoria and bans, some are being challenged in court where the state and industry groups argue that local laws on oil and gas operations are preempted by state law. The proposed ballot initiative would amend Colorado’s constitution to allow for local control over industrial activities, including shale oil and gas development. The proponents must collect over 86,000 signatures to get the question put on the state ballot.

Landowner Suit Delays Drilling in Michigan. A landowner near Pere Marquette State Forest in Cadillac, Michigan, obtained a temporary judicial stay of drilling by Encana Oil & Gas in the Forest. Citing a published report, the landowner claimed the possibility of “frack hits,” a phenomenon where fracturing from one well may breach the integrity of another well, creates an environmental risk and threatens mineral rights of adjacent owners. The landowner has also petitioned the Michigan Department of Environmental Quality to require companies to determine how far well fractures will travel before drilling. Encana has already drilled exploratory wells in the forest, seeking to tap into the Utica-Collingwood shale formation, and is seeking permits for 16 more. Under current Michigan law, Encana is required to survey the area within 1,320 feet of the well pads to determine if any abandoned wells are present.

International

Spain Challenges Provincial Ban on Hydraulic Fracturing. The Spanish government filed suit against the province of Cantabria, arguing that its ban on the use of hydraulic fracturing ban is illegal. Cantabria is home to Spain’s most promising shale formation, but the provincial government banned shale development in April 2013, citing the threat of adverse impacts to local scenery and the potential for groundwater contamination. The national government, however, argues that the ban is inconsistent with new rules requiring environmental reviews that will speed up permitting for hydraulic fracturing.

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