09 March 2015

Sidley Shale Gas and Hydraulic Fracturing Report

Vol. 4. No. 10


Federal Railroad Administration Issues Proposed Rule on Disaster Planning. In a notice of proposed rulemaking, the Federal Railroad Administration (FRA) outlined new regulations for risk reduction programs (RRPs) that include scenarios involving derailments and the release of hazardous materials. Although the proposed rulemaking was required under the Rail Safety Improvement Act of 2008, recent concerns over releases of Bakken crude oil are reflected in the proposed RRPs. Each plan would be required to include a risk analysis and technology implementation plan submitted to and approved by the FRA. Implementation plans would be subject to both internal and external audits. Previously, industry groups have expressed significant concerns about publicizing crude oil train routes and planning for a worst case scenario, citing security concerns. Under the proposed rule, the RRPs would be exempt from disclosure under the Freedom of Information Act as well as from discovery or admission into evidence in any state or federal court lawsuit. The FRA will take comments on the proposed rule until April 28, 2015. The move is one of several the Department of Transportation (DOT) and its subsidiary agencies could take with respect to crude oil rail shipments. On Capitol Hill, Sen. Charles Schumer (D-NY) called for the DOT to create procedures to “stabilize” Bakken crude, and Senator Maria Cantwell (D-Wash.) announced she is developing a bill that would accelerate the phase out of existing DOT-111 tank cars and increase the minimum hull thickness for railcars that carry oil and petroleum products.


Citadel Exploration Challenges San Benito Ban. In a complaint filed in California Superior Court, Citadel Exploration alleges that a ban San Benito County, California’s ban on hydraulic fracturing and other well stimulation methods is illegal. According to Citadel, the Department of Conservation’s Division of Oil, Gas and Geothermal Resources has the sole power to regulate oil and gas operations, precluding local bans like the San Benito prohibition passed by ballot initiative in November 2014. Citadel has about 20 active wells in the county, however, they are stimulated by cyclic steam injection which is prohibited under the ordinance. According to the complaint, San Benito county authorized cyclic steam injection at the wells in 2013, just a year before the ban passed. The company is seeking $1.2 billion in damages from the diminished value of its property rights unless it is granted an exemption.

California Shuts Down Kern County Injection Wells. California’s Division of Oil, Gas and Geothermal Resources (DOGGR) shut down 12 underground injection wells operated by six different companies. DOGGR stated that it ordered the Kern County wells shut down and the operators to sample water supply wells within a one-mile radius of their operations. The agency did not comment on whether there were data showing the injection wells have actually impacted groundwater. DOGGR has been evaluating the state’s nearly 50,000 underground injection wells since the summer of 2014, after the state discovered that it granted permits to wells operating near potentially non-exempt aquifers. An EPA review of California’s Safe Drinking Water Act program found “serious deficiencies” in its oversight of underground injection wells, requiring the state to produce a compliance plan by February 2017.

La Habra Heights, California Votes Down Hydraulic Fracturing Ban. Voters in La Habra Heights, California, a Los Angeles County community with approximately 5,000 residents, rejected a ballot measure that would have prohibited new oil and gas wells that would use hydraulic fracturing. The Heights Oil Watch, which pushed the ballot initiative, said that the ban was necessary to protect water supplies and air quality. Oil companies operating in the city, however, along with noting the economic benefits of oil and gas development, said that any ban would be challenged in court, leading to significant litigation expenses.

Colorado Finalizes Flood Mitigation Rules. The Colorado Oil & Gas Conservation Commission finalized standards for shutting-in new and existing oil and gas wells operating in floodplains. The standards consist of best management practices, such as the replacement of earthen berms around storage tanks with steel barriers, anchoring critical equipment, the elimination of production waste pits and remote shut-in capabilities. Operators must also register all wells and equipment with the Oil & Gas Conservation Commission by April 1, 2016. The best management practices become effective on June 1, 2015 for new wells and equipment, and on April 1, 2016 for the retrofit of existing wells and equipment. The Oil & Gas Conservation Commission estimated that approximately 2,650 wells and related equipment were impacted by 2013 floods, and the new standards are intended to prevent releases in future flood events.

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