04 August 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 31

Federal
<br&ggt;Eighth LNG export terminal gains approval.
The Department of Energy (“DOE”) authorized LNG Development Company LLC to export up to 1.25 billion cubic feet of gas per day to countries without a free-trade agreement from a planned LNG export terminal in Oregon. The approval, valid for 20 years, is the eighth LNG export license granted by the Department. DOE considered the company’s application under what may be considered the “old rules.” The Department is taking comments on a new process that will give priority to applications for projects that have already completed an environmental review under the National Environmental Policy Act, instead of on the existing first-come, first-served basis, as projects that have completed that review are deemed to be more likely to be constructed. The recently approved LNG Oregon project is expected to cost $12 billion and begin exporting gas in 2017, relying primarily on gas transported from Western Canada.

States

Industry group challenges Compton moratorium. Western States Petroleum Association filed suit in Los Angeles Superior Court arguing that the City of Compton’s moratorium on hydraulic fracturing is preempted by existing Department of Conservation’s Division of Oil, Gas, and Geothermal Resources (“DOGGR”) rules for hydraulic fracturing. Compton claims that DOGGR’s rules are not adequate to protect health, safety and the environment, although the division is currently drafting new regulations.

New York mineral rights owners appeal dismissal of delay suit. Several landowners have appealed a trial court decision rejecting their request to compel Governor Andrew Cuomo to issue regulations that would allow for hydraulic fracturing in New York. The suit charged the delays in determining whether to allow hydraulic fracturing was a regulatory taking of their property interests, but the trial court found the landowners lacked standing to sue. A de facto moratorium has been in place in New York since 2008, when the state began work on a Supplemental Generic Environmental Impact Statement (“SGEIS”) for hydraulic fracturing. Although the New York Department of Environmental Conservation claimed that it would conclude the SGEIS in 2009, the Department has still not issued a final SGEIS. Presently, DEC’s work is on hold as it awaits the completion of a separate New York State Department of Health review of hydraulic fracturing that has been ongoing for two years.

International

U.K. opens shale development licenses for bidding. The U.K.’s Department of Energy and Climate Change is putting up licenses for bids that will allow energy companies to begin exploratory shale drilling. Prime Minister David Cameron said his government is “going all out for shale” in an effort to boost Britain’s energy self-sufficiency. Shale exploration in the U.K. has been subject to a moratorium for the past three years, after drilling by Cuadrilla Resources in northern England allegedly contributed to small scale tremors. The licenses are the first step in the exploration process but do not give outright permission to drill. Oil and gas exploration companies must also obtain planning permission, environmental permits and health and safety approvals before they can receive final go-ahead to drill, a process that means it will be several years before new drilling actually commences. The British Geological Survey has estimated that Britain has substantial shale gas reserves of approximately 1,300 trillion cubic feet, but landowners have little incentive under current law to allow exploration as they are not guaranteed a share of the resources recovered.

European Commission: Poland’s drilling rules violate EU directive. According to the European Commission, Poland violated the European Union’s Environmental Impact Directive by issuing regulations that allow for shale drilling at depths up to 5,000 meters without completing an environmental impact assessment. Recent revisions to Poland’s regulations would exempt most drilling projects from environmental impact assessments, except for those within 500 meters of sensitive areas. The European Commission is threatening legal action in the European Court of Justice, if Poland does not commit to revising its regulations. Poland is seeking to develop shale gas, in part, in an effort to reduce the amount of natural gas it imports from Russia.

Markets

Hess to spinoff Bakken midstream assets. Hess Corporation announced that it would spinoff its Bakken shale midstream assets into a master limited partnership (“MLP”). The new MLP would take interests in Hess’ Bakken crude railway loading terminal, natural gas processing and storage facilities, and pipelines. Industry analysts had been expecting the move for months as the MLP provides significant tax advantages to investors. The MLP’s initial public offering will likely take place in the first quarter of 2015.

Research

Texas: No evidence of Barnett shale cancer cluster. The Texas Department of State Health Services (“DSHS”) re-affirmed its prior 2010 study in failing to find a cluster of blood, brain, breast or lymphatic cancers in Flower Mound, Texas, located in the Barnett Shale. The study was undertaken in response to a March 2014 paper by University of Texas law professor Rachel Rawlins that criticized DSHS’s 2010 survey for using a 99% confidence interval in linking drilling activities to cancer diagnoses, claiming that the standard was too high. The new DSHS study used the 95% confidence interval suggested by Rawlins but reached the same results. Both DSHS studies found slightly higher incidences of breast cancer in Flower Mound but did not conclude that they resulted from shale drilling.

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