17 November 2014

Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 46

Federal

Fish & Wildlife endangered species listing could further delay permitting for oil and gas development on federal lands in western U.S. The U.S. Fish & Wildlife Service (FWS) formally listed the Gunnison sage grouse as a threatened species under the Endangered Species Act. The decision established a 1.4 million acre area of critical habitat for the ground-dwelling bird in southwest Colorado and southeast Utah. Federal agencies must consult with FWS before authorizing any activity that could “adversely modify” critical habitat, meaning potentially more delays for oil and gas companies seeking permits on federal lands. The “threatened” listing decision drew criticism both from environmental groups, who were pushing for an “endangered” designation, and by effected states and industry, who believe that voluntary conservation measures have stabilized the grouse’s population. FWS stated that it would issue a Section 4(d) rule that provided additional flexibility to oil and gas operations that previously implemented approved voluntary conservation plans. WildEarth Guardians has already announced it would file suit to overturn the “threatened” listing decision and force an “endangered” designation. An “endangered” designation, which FWS previously proposed in January 2013, would impose even more restrictions on oil and gas operations within Colorado and Utah.

States

North Dakota delays railway safety regulations. North Dakota’s Industrial Commission stated that it will reopen the public comment period on proposed regulations governing the shipment of crude oil by railway. As proposed, the regulations would require shippers to lower the Reid vapor pressure of oil transported by railroad tanker to 13.7 psi. Compliance would likely require companies to heat the crude in order to flash off and capture volatile organic compounds like propane and butane. A spokesman for the Department of Mineral Resources stated that there were concerns with the accuracy of some of the vapor pressure testing data but that these concerns would not likely change the content of the regulations. The Industrial Commission scheduled a December 11, 2014 meeting to consider the draft regulations.

Suit seeks to block Illinois hydraulic fracturing permits. Environmental groups filed suit in state court seeking an injunction against the publication of new regulations that would allow the Illinois Department of Natural Resources to issue hydraulic fracturing permits. The regulations were recently adopted on November 6, 2014, more than a year after the legislature passed the Hydraulic Fracturing Regulatory Act. The suit raises various procedural claims, including that the state allegedly failed to provide 20 days’ notice for public hearings, did not consider certain studies when developing the regulations, and failed to respond to public questions during a public hearing.

NGOs challenge California hydraulic fracturing permits. A group of environmental groups filed suit challenging 214 permits issued by the Division of Oil, Gas, and Geothermal Resources (DOGGR) authorizing the use of hydraulic fracturing, alleging DOGGR failed to comply with the California Environmental Quality Act before issuing the permits. DOGGR is in the process of conducting an overall environmental assessment of hydraulic fracturing, as required by California’s recent hydraulic fracturing legislation, S.B.4, however, the plaintiffs claim the agency should have performed an environmental review of each individual well site and the cumulative impacts of drilling in California. The complaint asserts hydraulic fracturing uses significant amounts of water at a time where water supplies in California are strained, and that DOGGR did not conduct the requisite analysis of potential air impacts. The plaintiffs seek an injunction barring drilling until DOGGR performs the individual well site reviews.

Business

Halliburton to purchase Baker Hughes. Halliburton Co., the world’s second-biggest provider of oilfield services, has agreed to buy Baker Hughes Inc. According to a joint statement, Baker Hughes’ shareholders will receive 1.12 Halliburton shares plus $19 in cash for each share they own. Halliburton announced plans to finance the deal through a combination of cash on hand and debt financing. The combined companies would control approximately 40 percent of the market for hydraulic fracturing services. The purchase remains subject to review by the U.S. Department of Justice.

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