07 July 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 27

States

Colorado: Supreme Court allows ballot initiatives to proceed. The Colorado Supreme Court rejected challenges to state-wide ballot measures that would seek to amend the state constitution to allow local governments to ban or restrict hydraulic fracturing. The measures also would seek to block regulatory taking lawsuits by owners of mineral rights if local municipalities were to enact drilling bans. Industry groups had challenged the initiatives, arguing that they were misleading and improperly addressed multiple subjects in a single initiative, in violation of Colorado law, but the court rejected their arguments and allowed the measures to move forward. The ruling clears a path for these initiatives to appear on the ballot in November, but only if supporters collect 86,000 signatures.

International

German energy and environmental ministers seek ban on shale oil and gas drilling. Germany’s departments of energy and environment proposed regulations this week that would ban drilling for shale oil and gas over the next seven years, citing concerns that drilling could damage water supplies and the environment. The proposed legislation would curtail Chancellor Angela Merkel’s original plans to end the country’s de facto moratorium by introducing legislation to regulate hydraulic fracturing this fall. Instead, the proposal upholds bans on the use of hydraulic fracturing, but would allow conventional drilling and drilling for exploration. Shale oil and gas development is a hotly debated topic in Germany; many Germans oppose the use of hydraulic fracturing, but are also concerned about Germany’s continued dependence on imported natural gas. Experts estimate that Germany sits on approximate 81 trillion cubic feet of shale gas.

Litigation

Federal court dismisses drilling disclosure case. The U.S. District Court for the Middle District of Pennsylvania dismissed a doctor’s complaint for lack of standing, finding that he had not suffered any injury from a state rule limiting doctors’ access to drilling operations’ chemical lists. Pennsylvania’s 2012 oil and gas law allows doctors, and other health professionals, to obtain a list of hydraulic fracturing chemicals used during drilling operations as long as they sign a confidentiality agreement. The complaint alleged that the law hinders doctors’ medical practices by preventing professionals from consulting with one another. The district court decision deviates from a similar lawsuit pending in state court that found a doctor did have standing to challenge the law. The state case is currently being reconsidered by a lower court.

Research

Report links Oklahoma earthquakes to wastewater injection wells. Researchers from the University of Colorado and Cornell University recently concluded that four high-rate disposal wells in Oklahoma City likely induced a group of earthquakes known as the Jones swarm, accounting for 20% of the seismic activity in the central and eastern United States between 2008 and 2013. According to the report, seismicity can be induced up to 19 miles away from a disposal well. The researchers, who reviewed 89 of the over 4,500 wastewater injection wells in Oklahoma, believe the vast majority of wells in Oklahoma are operating without effect. Oil and gas industry representatives responded to the report with skepticism, noting this report is just one part of continuing research into the increase of seismic activity in Oklahoma. Government regulators and researchers have likewise been looking into the issue, but to date have not recommended any regulatory changes.

Business

Black Hills sand may be suitable for Bakken shale drilling. In spite of an earlier state report that could not locate suitable sand in South Dakota to be used for hydraulic fracturing in North Dakota’s Bakken shale, South Dakota Proppants (“SDP”) recently located sand that has the properties necessary for drilling operations. SDP plans to build South Dakota’s first frac sand mine near Hill City. The proposed mine could employ up to 300 workers and make $65 million a year in revenue. Before proceeding, SDP will need to obtain permission from the Board of Minerals and Environment and secure water permits through the Water Management Board, processes that could take up to two years to complete.

Companies market new biocides for use in hydraulic fracturing operations. Two companies, Integrated Environmental Technologies (“IET”) and Universal Bacteria Specialist (“UBS”), have begun to develop environmental friendly biocides to use during hydraulic fracturing operations. Biocides, compounds used to kill organisms and bacteria that interfere with oil and gas extraction, are regularly used but often made with harsh chemical materials. IET’s product, Excelite, is made with hypochlorous acid, a nontoxic compound first discovered inside humans. UBS’s biocide, Envirolyte, converts water and sodium chloride into biodegradable materials that can be used in hydraulic fracturing fluid. More eco-friendly biocides will likely be developed by competitors as the market for these products is expected to grow along with the increased production of shale oil and gas.

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