02 September 2014

Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 35

Federal

BLM sends federal rules governing use of hydraulic fracturing on federal and Indian lands to OMB. On August 29, the Bureau of Land Management (BLM) sent revised final regulations governing hydraulic fracturing on federal and Indian lands to the White House Office of Management and Budget (OMB) for review. BLM initially published a proposed rule in 2012, and after receiving public comment, published a revised proposal the following year. The rules are expected to address a spectrum of issues including well integrity, chemical disclosure and the storage and disposal of flowback water, but the details of the final rule sent to OMB remain undisclosed at this time. BLM has indicated that a final rule could be issued later this fall.

Independent scientific review on potential environmental impacts of hydraulic fracturing released. The California Council on Science and Technology, a non-partisan scientific research organization, issued an independent scientific review of California’s oil and gas development operations using hydraulic fracturing. Commissioned by BLM and peer-reviewed by the U.S. Geological Survey, the report found that overall, the direct environmental impacts from hydraulic fracturing operations in California were relatively limited. The report concluded that fracking itself does not result in an increased seismic hazard in the state, and that the main potential impacts on the environment would come from related activities such as increased traffic and wastewater disposal. The researchers also found no reported instances of potable water contamination, while noting certain data limitations on its work, including insufficient groundwater quality data near certain hydraulic fracturing operations. Based on the results of the study, BLM plans to resume oil and gas leasing in California for the first time since late 2012. The agency anticipates holding an oil and gas lease sale by the summer of 2015, after it takes time to evaluate nominated land parcels, solicit public comment and conduct additional environmental review.

States

Colorado court strikes down third local ban. For the third time this summer, a Colorado district court has decided to strike down a local ban on hydraulic fracturing. On August 27, the Boulder County District Court overturned Lafayette’s local ban, holding that the Colorado Oil and Gas Conservation Act pre-empted the local law. Lafayette, Colorado passed a “Community Bill of Rights” via ballot initiative in 2013 that, among other things, prohibits hydraulic fracturing within city limits, purports to strip corporations of any right to challenge the ban, and declares that any state or federal laws inconsistent with the ban are null and void in Lafayette. In its decision, the court found that the local law clearly conflicted with the statewide law regulating oil and gas development. The Lafayette decision follows similar decisions overturning bans in Fort Collins and Longmont, Colorado earlier this summer.

&llt;STRONG>Illinois issues long-anticipated rules governing use of hydraulic fracturing. On August 29, the Illinois Department of Natural Resources (IDNR) published revised rules that, if approved, will allow fracking to move forward within the state. IDNR originally issued proposed regulations in 2013 triggering a record-level of public participation during the rulemaking process after the agency received 31,000 comments on the draft rules. The revised regulations address these comments and make several substantive changes, including expanding public participation requirements, broadening the rules governing chemical disclosure and increasing enforcement penalties. Industry representatives believe that the revised rules, considered to be some of the strictest in the country, may dissuade companies from investing in the development of hydraulic fracturing within the state. The Illinois General Assembly’s Joint Committee on Administrative Rules has forty-five days to consider the proposed regulations. If approved, companies will be able to apply for high-volume hydraulic fracturing permits for the first time in Illinois.

Litigation

Pennsylvania contractor admits falsifying well reports. A Pennsylvania contractor, Ronald Wright, pleaded guilty in federal court, admitting that he prepared false certifications regarding the plugging of abandoned oil wells near a proposed injection well, as required by the Safe Drinking Water Act. The misconduct occurred on multiple occasions between 2009 and 2011. Environmental regulators relied upon the false certifications to approve an injection well nearby, and discovered the falsifications only after EPA conducted a mechanical integrity test of the injection well and discovered leaking fluid from an abandoned well. Based on the false reports, nearly 95 wells in Pennsylvania will likely require re-inspection and re-plugging.

International

Brazil weighs five-year ban on hydraulic fracturing. The Brazilian legislature is considering a bill that would ban hydraulic fracturing for five years while the government studies the potential environmental impacts of the practice. The legislation was originally introduced in December 2013 following the National Oil Agency’s (ANP) sale of land in the five onshore oil and gas basins to domestic and international bidders, but has gained momentum in recent weeks. ANP estimates that the Brazilian basins may hold up to 515 trillion cubic feet of oil and gas reserves. Government officials anticipate the legislature will vote on the bill in 2015.

Report signals Nova Scotia is hesitant to accept hydraulic fracturing. An independent review report indicates that the public is reluctant to accept hydraulic fracturing in Nova Scotia, with only forty percent of the public favoring its use, even accompanied by strict regulation. The Nova Scotia provincial government commissioned the report in August 2013 during a two-year moratorium on development that began in 2012. The report estimates around 4,000 wells could be developed within Nova Scotia, providing the government with approximately $138 million in revenue each year. The report recommends a significant period of public education and dialogue and further research into the potential impacts before revisiting the issue.

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