01 March 2016

Sidley Shale and Hydraulic Fracturing Report

Vol. 5, No. 9

Topics discussed in this week’s Report include:

  • Department of the Interior (DOI) issues draft programmatic environmental assessment (EA) regarding the use of hydraulic fracturing on the Southern California Outer Continental Shelf.
  • Tenth Circuit will allow appeal of preliminary injunction staying Bureau of Land Management (BLM) hydraulic fracturing regulations but declines to expedited schedule.
  • North Dakota proposes new regulations for gathering pipelines.
  • Kansas considering expansion of disposal restrictions for oil and gas wastewater.
  • Colorado House committee votes down bill that would have compensated mineral royalty owners who lose their development rights due to local bans on hydraulic fracturing.

Federal

Department of the Interior (DOI) issues draft programmatic environmental assessment (EA) regarding the use of hydraulic fracturing on the Southern California Outer Continental Shelf. On February 22, DOI issued a draft EA that evaluates the potential environmental effects associated with offshore hydraulic fracturing on the Outer Continental Shelf off the coast of Southern California. The draft EA was required as part of two recently settled National Environmental Policy Act (NEPA) lawsuits in which several nongovernmental organizations (NGOs) alleged that DOI had failed to consider the environmental effects of offshore hydraulic fracturing. DOI agreed to suspend further permitting of hydraulically fractured wells until the NEPA review is complete. In the draft EA, DOI evaluates potential effects on air quality, water quality, wildlife and the likelihood of accidents associated with well stimulation and fluid handling. The draft EA concludes that the potential environmental effects are not significant enough to require an environmental impact statement. The draft EA identifies continued permitting of hydraulically fractured wells as the preferred option, but also considers three other options, including prohibiting the use of hydraulic fracturing on existing leases. DOI will accept comments on the draft EA until March 23.

Tenth Circuit will allow appeal of preliminary injunction staying Bureau of Land Management (BLM) hydraulic fracturing regulations but declines to expedited schedule. In a February 24 order, the Tenth Circuit denied an industry motion to dismiss the appeal of a district court’s preliminary injunction staying implementation of BLM’s hydraulic fracturing regulations. The BLM rules, which would have taken effect in June 2015, expanded the regulations applicable to the use of hydraulic fracturing to develop oil and gas resources on federal and tribal lands. Industry groups had argued that the appeal would become moot before the Tenth Circuit’s judgment because the district court that issued the preliminary injunction would first issue a final decision on the merits. However, while the court declined to rule on those groups’ alternative motion for a stay pending the district court’s ruling on a permanent injunction, it did request further briefing on that issue. At the same time, the court denied a motion by BLM and environmental NGOs to expedite briefing of their appeal to obtain an accelerated decision.

States

North Dakota proposes new regulations for gathering pipelines. The North Dakota Department of Mineral Resources recently proposed new rules for gathering pipelines containing oil, natural gas and wastewater associated with oil and gas production. Gathering pipelines are smaller pipelines that collect and transport products from the wellhead to a processing facility, refinery or larger transmission line. Under the proposal, owners of an estimated 12,000 miles of gathering pipelines constructed before 2011 would have to register with the state. (Similar requirements are in place for newly constructed pipelines.) In addition, all gathering pipeline operators would be required to post a bond to cover potential cleanup costs associated with spills and notify the state if any changes in ownership occur. Hearings on the proposed regulations will occur in April, and the regulations may be finalized by the end of 2016 or early 2017.

Kansas considering expansion of disposal restrictions for oil and gas wastewater. Kansas Corporation Commission (KCC) staff recently recommended that KCC expand the area subject to disposal restrictions for underground injection of oil and gas wastewater. The proposal would expand five current areas with disposal restrictions into a single 1,356-square-mile region where disposal volume would be limited to 8,000 barrels per day. Kansas had issued prior disposal restrictions in response to seismicity concerns. While seismic activity decreased after the restrictions were put in place, KCC staff noted that 62 percent of the earthquakes reported in the second half of 2015 were located outside of the current restricted areas. The KCC will review its staff’s recommendations before issuing an official proposal.

Colorado House committee votes down bill that would have compensated mineral royalty owners who lose their development rights due to local bans on hydraulic fracturing. On February 24, the Colorado State House Veterans and Military Affairs Committee declined to report out a bill that would have been expected to limit local bans on hydraulic fracturing. The bill would have required municipalities to compensate mineral royalty owners when local bans on the use of hydraulic fracturing prevented owners from developing their oil and gas resources. The bill was proposed in response to a number of local bans on hydraulic fracturing in Colorado. The legality of such bans has been challenged, and the Colorado Supreme Court is considering whether local bans on hydraulic fracturing are permitted under Colorado law.

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