02 January 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 1

Federal

EPA Inspector General: Questions remain in Parker County drilling case. The Environmental Protection Agency (“EPA”) Inspector General released a report stating that EPA was justified in placing restrictions on using drinking water wells in Parker County, Texas but that more information is needed to determine if risks still exist. EPA initially ordered Range Resources to investigate and remediate water contamination in the area but later withdrew its order when Range challenged EPA’s evidence linking the company’s shale drilling operations to the contamination. The EPA Inspector General agrees that the residents’ drinking water does not present a current health risk, but that the Agency should continue long-term testing and do more to share its findings with area residents. The report criticized the Texas Railroad Commission for not ordering Range to remediate residents’ well water, but the Commission has stated that the aquifer had a long history of methane contamination and that evidence showed that Range’s wells were not the source.

USGS to document induced seismicity. The U.S. Geological Survey (“USGS”) is embarking on an “induced seismicity” map to complement its standard earthquake hazard maps. Traditionally, USGS excluded seismicity from industrial activities from its earthquake maps, which are used to project the likelihood and severity of natural earthquakes. These are relied upon in setting building codes, engineering public roadways and bridges, and establishing insurance rates. New attention to seismic activity that some have linked to underground injection wells used to dispose of hydraulic fracturing wastewater, has prompted USGS to create separate maps to help the agency and others study induced seismicity and to have more complete information about seismic activity in the United States.

States

North Dakota to begin oversight of gathering lines. Under new rules, owners of gathering pipelines must now start reporting the locations of those lines to the state. North Dakota estimates that there are 18,000 miles of gathering pipelines in the state, with many more expected to be developed in the near future, but neither the North Dakota Public Service Commission or the U.S. Pipeline and Hazardous Materials Safety Administration had ever compiled a record of their locations. The information will be compiled in a state database, although specific line locations will be protected as confidential business information. Landowners that have an active or abandoned gathering line underneath their property will be notified, however. Abandoned pipelines must be reclaimed, either by the owner or through a $75 million fund if the owner cannot be located.

Court settles disputed Bakken shore zone. The North Dakota Supreme Court ruled against a group of land owners claiming that they owned the “shore zone,” a 25,000 acre area between the high- and low-water marks of the Missouri River that runs through the Bakken Shale play. Instead, the court held that the state owned the shore zone and the accompanying mineral rights. The decision will provide some certainty to drilling companies that have paid over $140 million in disputed royalties into an escrow account. That money will now go to the state. The ruling will not end disputes over all of these mineral rights, as it is still unclear whether the State owns the shore zone on the Fort Berthold Indian Reservation and some private parties may be able to demonstrate that the state previously sold or granted portions of the shore zone to private landowners.

International

Hydraulic fracturing projects excluded from E.U. environmental impact assessments. In a victory for European oil and gas companies seeking to develop shale formations, the European Union’s environmental impact assessment rules will not require assessments before using hydraulic fracturing techniques to complete a well. The European Commission’s revisions, primarily intended to streamline environmental reviews, rejected amendments by the European Parliament that would have made assessments mandatory for all projects using hydraulic fracturing. The European Commission is already scheduled to release new rules governing the environmental integrity of shale gas development in January 2014.

Business

Kinder Morgan buys into tankers. Midstream operator Kinder Morgan acquired shipping companies American Petroleum Tankers and State Class Tankers for $962 million in cash. The companies provide a fleet of five vessels, with four under construction, that haul crude oil, condensate, and chemicals for domestic trade. Each tanker holds approximately 330,000 barrels of cargo. A Kinder Morgan spokesman stated that shale development has increased demand for alternative shipping methods. The deal will close in the first quarter of 2014.

Berkshire Hathaway buys into midstream. Berkshire Hathaway announced that it will acquire Phillips 66’s specialty products subsidiary that creates polymers to improve flow through pipelines. Although the companies did not disclose the price of the sale, Reuters estimated the value of the business at approximately $1.4 billion. The deal is expected to close near the middle of the year. Phillips 66 stated that the sale allows it to focus on its core oil and gas transportation and processing businesses.

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