27 October 2014

Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 43

Federal

NGOs seek rulemaking to reduce hydraulic fracturing emissions. Over 100 environmental groups signed a petition to the Environmental Protection Agency (“EPA”) and Department of the Interior seeking a rulemaking that would address emissions of air pollutants from hydraulic fracturing operations. According to the groups, hydraulic fracturing emits methane, a greenhouse gas, as well as volatile organic compounds and other hazardous air pollutants that the petition alleges are threatening the health of those living near drilling operations. The petition states that EPA has the power to regulate these emissions under the Clean Air Act, and Interior could regulate emissions on public lands, but did not suggest any specific methods, emission limitations or control technologies.

Railroads protest STB disclosure requirements. Several railroads criticized a U.S. Surface Transportation Board (“STB”) decision requiring the companies to publicly disclose weekly updates on delays, including several categories of data such as the number of trains delayed by more than six hours, and system-wide train speeds. The STB ordered the weekly updates after an April hearing where North Dakota farmers complained that crude oil shipments were receiving priority over agricultural shipments, delaying the delivery of grain commodities for weeks. The first round of disclosures showed more grain cars sitting idle for at least 48 hours more than oil tankers. Spokesmen for the railroads, however, said that the weekly disclosures imposed significant burdens on the companies without doing anything to improve service. They also noted that cars may frequently be idled for several days but still reach their destinations on time.

States

New York requests that North Dakota reduce crude volatility. The Commissioners of New York’s State Department of Environmental Conservation and Department of Transportation issued a letter to North Dakota requesting that the state require companies to remove volatile gases from Bakken crude oil before being loaded into rail tankers for shipments. The Commissioners claim the regulations are necessary to protect residents living near railroad tracks, citing last year’s explosion and fire in Quebec. New York has seen an increase in crude oil rail traffic as Bakken crude is shipped to refineries in Canada and the Mid-Atlantic. The request came after a New York investigation into the safety of crude oil shipments recommended the removal of dissolved gases in light crude. In response, a spokesman for the North Dakota Petroleum Council stated that oil companies have already invested between $2.5 and $5 billion on facilities to condition the oil for shipment and that the oil meets all regulatory requirements. The Council also noted that the Pipeline and Hazardous Materials Safety Administration has declined to require the kinds of measures sought by New York.

New York decision may come in late 2014. New York Governor Andrew Cuomo stated during a gubernatorial debate that he could make a decision on whether to lift the state’s moratorium on hydraulic fracturing by the end of the year. His statement gave no indication of what that decision would be, as Governor Cuomo stated that he was still waiting on an opinion from the Departments of Health and Environmental Conservation. Those departments are scheduled to complete their review and issue a report on the potential impacts of using hydraulic fracturing to produce oil and gas from shale resources by the end of 2014. Governor Cuomo’s opponent in the upcoming election, Westchester County Executive Rob Astorino, has promised to end the moratorium within 90 days of taking office.

Business

Tesoro Logistics buys into natural gas market. Tesoro Logistics, a master limited partnership with crude oil and refined product assets, announced that it will buy QEP Resources’ natural gas business for $2.5 billion. The QEP Resources acquisition will be Tesoro Logistics’ first foray into natural gas since it was spun off from Tesoro Corporation in 2011. The deal will add 2,000 miles of natural gas pipeline with 2.9 million cubic feet of natural gas throughput capacity per day, as well natural gas gathering and processing assets held by QEP Field Services and QEP Midstream Partners.

Shell Midstream issues initial public offering. Shell Midstream Partners, a master limited partnership, launched its IPO, offering 37.5 million shares on the New York Stock exchange. The shares, estimated to sell for between $19 and $21 per share, represent just over 27% of the company with Royal Dutch Shell subsidiaries owning the remainder. The company’s assets include two crude and two refined products pipelines in the Gulf Coast.

Weatherford announces further divestitures to cut costs. Oil field service company, Weatherford International, announced that it will likely divest two more non-core business units before the end of the year. The company is in the midst of shedding non-core businesses to pay down over $7 billion in debt. Weatherford previously sold off its land drilling and work-over operations in Venezuela and Russia to Rosneft, as well as its pipelines and specialty services business to Baker Hughes earlier this year. The sales come on top of cutting nearly 9,300 jobs over the past two years and closing 64 worldwide offices. At the end of the turnaround, planned for the end of 2015, Weatherford will focus on four core areas: formation evaluation, well construction, well completion and production.

Studies

Researchers claim to track fracturing fluids in the environment. A group of U.S. and French scientists believe they found a way to track hydraulic fracturing fluid that remains underground using two chemical tracers. After well stimulation, only about 40% of the fracturing fluid returns to the surface. The fate of the remaining fluid is not well known. Researchers, however, published the results of a field study in Environmental Science & Technology showing that the fluids can be tracked through boron and lithium released from shale formations during fracturing. The researchers claim that the tracers could be used to determine whether sources of drinking water been influenced by fracturing fluid.

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