09 February 2015

Sidley Shale Gas and Hydraulic Fracturing Report

Vol. 4. No. 6

North Dakota: Bakken Shale Production Slows in Response to Drop in Oil Prices. Drilling companies in North Dakota’s Bakken Shale formation are responding to the drop in oil prices by cutting worker hours and reducing the overall number of drilling rigs. Among the initial signs of a slow-down in production has been a reduction in work hours and overtime and smaller housing allowances. Drilling plans have also been cut back, with 40 rigs having closed over the past six weeks, leaving 146 operating rigs. Each rig employs more than 120 workers and some have predicted that as many as 100 more rigs may be closed by summer unless oil prices rebound. Others suggest a more modest slowdown, leaving approximately 120 active oil rigs in the Bakken play.

Colorado: Oil and Gas Task Force Makes Initial Recommendations Focused on Local Control over Drilling. Following a recent two-day meeting in Denver, the Colorado Oil and Gas Task Force developed a list of approximately 40 working recommendations, several of which focused on opportunities for increased local government oversight of oil and gas development in Colorado. The Task Force was created by Gov. Hickenlooper (D) in a compromise that removed several ballot initiatives related to local control over oil and gas development. Other topics addressed by the working recommendations include additional staff and resources for state agencies with oversight of oil and gas activities, expanded setbacks for large, multi-well sites, chemical disclosure issues and a third-party health study. The Task Force is continuing to revise the working recommendations and is expected to submit final recommendations to the governor by end of the month.

Pennsylvania: Legislature Introduces Bipartisan Bill to Impose Severance Tax on Natural Gas. A bipartisan group of Pennsylvania state legislators introduced legislation that would impose a 3.2 percent severance tax on natural gas development. Pennsylvania is currently the only significant producer of natural gas that does not impose a severance tax. If enacted, the tax would be expected to raise between $500 and $600 million per year that would be earmarked for education (40 percent), pensions (35 percent), human services (15 percent) and environmental programs (10 percent). The severance tax, a tax based on the quantity of natural gas produced, would be in addition to the impact fee currently assessed, a fee which is based on the number of wells drilled and which is used primarily to help fund local governments in areas where drilling is conducted. When combined, the severance tax and impact fee would result in an effective tax rate of approximately five percent.

New York: Report Alleges that New York Landfills Accept Out-of-State Hydraulic Fracturing Waste. In a recent report, Environmental Advocates of New York claimed that New York state landfills have accepted 460,000 tons of hydraulic fracturing waste from out of state, despite the fact that New York currently prohibits hydraulic fracturing. The report alleges that a loophole in existing state regulations allows hydraulic fracturing waste to be classified as construction debris. The New York Department of Environmental Conservation disputed the findings of the report. The Agency stated that landfills may accept rock and soil fragments from drill cuttings and dewatered drilling mud from hydraulic fracturing sites, but stated that those materials did not contain hazardous waste.

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