24 August 2015

Sidley Shale and Hydraulic Fracturing Report

Vol. 4, No. 34

Topics discussed in this week’s Report include:

  • EPA Proposes to Extend Its Regulation of Oil and Gas Operations.
  • EPA Issues Oil and Gas Ozone Control Techniques Guidelines.
  • EPA Proposes New Interpretation of “Aggregation” for Oil and Gas.
  • Court Rejects Bid to Block New Mexico Permitting.
  • Moab Master Leasing Plan Would Limit Oil and Gas Development.
  • Federal Court Finds Crude Tanker Shipment Information Is Not Confidential.
  • Colorado: State Court of Appeals Passes on Challenges to Municipal Laws.
  • Pennsylvania: Governor Wants New Regulations for Crude Oil Rail Transport.
  • New York: Second Circuit Affirms Moratorium Was Not a Force Majeure for New York Leases.
  • Ohio: Activists File Suit to Get Municipal Bans Back on Ballots.
  • American Energy Partners Eyes Australia.
  • Schlumberger Sells Consulting Business.

Federal

EPA Proposes to Extend Its Regulation of Oil and Gas Operations. In a proposed New Source Performance Standard (NSPS) issued under the Clean Air Act, the Environmental Protection Agency (EPA) outlines new regulations that the agency asserts would reduce 45 percent of the methane emissions from the oil and gas sector by 2025. Under the proposal, various new and modified sources in the sector would be required to implement leak detection and repair programs using optical gas imaging, capture natural gas from hydraulically fractured oil wells through reduced emission completions and a combustion device, and limit emissions from a variety of equipment, including pneumatic pumps, compressor stations and pneumatic controllers. Exploratory and site delineation wells would require a combustion device but not reduced emission completions. Unlike EPA’s 2012 NSPS, the agency is now proposing to explicitly require methane reductions and to cover certain midstream processing and transmission equipment. Existing wells, however, would not be covered by the proposed rule, unless those wells are re-fractured. Liquids unloading would also be exempt, but EPA is taking comment on whether the final rule should cover emissions from that activity. EPA plans to finalize the rule in 2016. For additional information, consult our recent Sidley Update.

EPA Issues Oil and Gas Ozone Control Techniques Guidelines. Although the proposed NSPS does not apply to existing sources, based on the NSPS, EPA also issued draft Control Techniques Guidelines (CTGs) to be used by states for existing oil and gas sources in ozone non-attainment areas and 11 states in the Ozone Transport Region. The CTGs help state and local air agencies establish reasonably available control technologies (RACT) to reduce volatile organic compound (VOC) emissions from existing oil and gas production and processing equipment. The CTGs include recommended control technology for storage tanks, pneumatic controllers and pumps, compressors and natural gas processing plants. Although the CTGs are not directly binding, state implementation plans must include RACT standards for categories of VOC-emitting equipment until an area is in attainment with ozone National Ambient Air Quality Standards (NAAQS). The CTGs thus will be very important when EPA issues a revised ozone NAAQS (expected in October 2015), a move anticipated to push many areas into non-attainment.

EPA Proposes New Interpretation of “Aggregation” for Oil and Gas. After losing two court battles over how it interprets the Clean Air Act for permitting oil and gas wells and processing equipment, EPA issued a proposal that could limit when the sector would be subject to the Act’s Prevention of Significant Deterioration (PSD) and Title V permit requirements. EPA’s Clean Air Act regulations allow permitting agencies to consider “adjacent” emission points, such as an oil or gas well, tank batteries, dehydrators or other processing equipment to be a single source with combined emissions when determining whether a PSD or Title V permit is required. For years, EPA interpreted “adjacent” to include emission points that were “functionally interrelated” even when they were several miles apart until a pair of court decisions blocked that approach. Now, EPA has proposed to limit the term “adjacent” to mean two or more emission points within a quarter mile of each other, regardless of whether or not they may have some functional relationship. EPA is, however, still asking for comments on re-instating its more expansive interpretation of “adjacent” or whether it should use a greater geographic scope, such as aggregating emission points within a half mile or more into a single source.

Court Rejects Bid to Block New Mexico Permitting. A federal judge denied a motion to enjoin the U.S. Bureau of Land Management (BLM) from issuing permits for hydraulic fracturing in New Mexico’s Mancos Shale. Two environmental groups sought to stop all ongoing drilling activities and prohibit future permits, alleging that hydraulic fracturing is destroying tribal artifacts in the area. The groups argued BLM is issuing permits under an outdated Environmental Impact Statement and Resource Management Plan, and have asked the court to invalidate over 100 permits already issued. The court, however, found the group failed to offer sufficient evidence that they were likely to succeed at trial. The groups have appealed to the Tenth Circuit.

Moab Master Leasing Plan Would Limit Oil and Gas Development. BLM issued its Moab Master Leasing Plan (MLP), a plan governing multiple uses on over one million acres of federal land in Utah. The plan drew sharp criticisms from both energy companies and municipal government officials. BLM will close approximately 145,000 acres to oil and gas leasing and double the extent where surface occupancy is prohibited, to 306,000 acres. Where surface occupancy is prohibited, energy companies will have to place a well pad in authorized areas and drill horizontally under restricted lands. Industry groups estimate that the lands covered by the Moab MLP contain 145 billion cubic feet of natural gas and 32.5 million barrels of oil. BLM concluded that the new restrictions were needed to create a buffer around popular recreation areas. A draft Environmental Impact Statement for the MLP will be subject to a 90-day public comment period. The Moab MLP is one of several new MLPs that BLM will be releasing in the future for federal lands in Utah, Wyoming and Colorado.

Federal Court Finds Crude Tanker Shipment Information Is Not Confidential. A Maryland federal district court ruled that information on the shipment of crude oil by rail, such as the train routes and type of crude being hauled, is not confidential. A U.S. Department of Transportation emergency order had required all railroads to provide information to state emergency response agencies, and two railroads sued to block the Maryland Department of Environment from providing that information to the public in response to a state public records request. The railroads claimed the information was subject to exemptions for trade secrets and confidential business information, but the court found that basic shipment information was not exempt.

States

Colorado: State Court of Appeals Passes on Challenges to Municipal Laws. Decisions by Colorado trial courts overturning a ban on hydraulic fracturing in Longmont and a five-year moratorium in Fort Collins may go directly to the Colorado Supreme Court. The Colorado Court of Appeals declined to hear the cities’ appeal, reasoning that the issue of local versus state regulation of oil and gas operations would eventually be heard by the Colorado Supreme Court. Appeal to the Colorado Supreme Court, however, is discretionary and there is no guarantee that it will actually review the trial court decisions. Both the environmental groups that backed the municipal laws and the Colorado Oil and Gas Association that successfully challenged them, supported having the Colorado Supreme Court take up these issues.

Pennsylvania: Governor Wants New Regulations for Crude Oil Rail Transport. Governor Tom Wolf is endorsing a report recommending that trains hauling crude oil through Pennsylvania inspect their tracks more frequently and with ultrasonic equipment, inspect wheels and bearings, lower their speeds and implement new technology to reduce the risks of derailments, fires and explosions. These recommendations, just some of 27 from the report, come from a University of Delaware professor commissioned by Governor Wolf to analyze accident data. Although the report acknowledges that railroad companies have already implemented many of the recommendations to some degree, the high volume of crude oil rail shipments to Pennsylvania refineries necessitate further precautions, according to the report’s author. Despite calls from activists to re-route trains around major population centers, the report acknowledged that this is not always possible given that Philadelphia is home to refineries receiving crude oil shipments.

New York: Second Circuit Affirms Moratorium Was Not a Force Majeure for New York Leases. Energy companies again lost their bid to extend expiring oil and gas leases in Tioga County, New York. The companies had argued that New York’s moratorium on hydraulic fracturing, which recently became an outright ban, was a force majeure event which extended leases that would have otherwise expired. The district court found for the landowners and the companies appealed to the Second Circuit, which in turn certified the question to the New York Court of Appeals. After the New York Court of Appeals ruled that the moratorium was not a force majeure under state contract law, the Second Circuit issued its ruling, finding that even if the moratorium was a force majeure it did not allow the companies to extend the leases unilaterally. Landowners praised the decision, noting they had problems selling or refinancing their properties so long as the lease issue remained unsettled.

Ohio: Activists File Suit to Get Municipal Bans Back on Ballots. After the Ohio Secretary of State blocked three ballot initiatives on oil and gas regulation, environmental groups filed suit in the state’s Supreme Court to reinstate them. The Secretary of State ruled the initiatives would violate a recent state Supreme Court decision holding that municipal governments lacked the power to regulate oil and gas operations. The initiatives at issue would ban hydraulic fracturing, prohibit the disposal of oil and gas wastes and bar the construction of a planned gas pipeline to Michigan. The groups allege that the Secretary of State lacks the power to peremptorily invalidate proposed ballot initiatives due to “quibbles over their content and legality.” Defenders of the Secretary of State’s decision note that blocking the ballot initiatives would save municipalities extensive legal fees if they are passed as they would only be subsequently litigated and invalidated.

Business

American Energy Partners Eyes Australia. American Energy Partners signed a letter of intent for a $100 million deal to buy into Australia’s Armour Energy Ltd., which would give the U.S.-based energy company a stake in drilling rights for 21.5 million acres of the McArthur Basin. Although several larger companies have considered Australian shale projects, Armour has consistently pursued development of the Northern Territory shale basin, believing it could hold significant recoverable oil and gas resources. The deal between American Energy Partners and Armour is expected to be completed by May 2016.

Schlumberger Sells Consulting Business. Consulting firm Accenture will buy the consulting arm of oil and gas well service firm Schlumberger. The deal, involving 250 employees at nine global locations, is intended to expand Accenture’s upstream oil and gas consulting business, while helping Schlumberger reduce costs at a time of low oil and gas prices. The price of the deal was not disclosed and will require regulatory approval.

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