24 June 2015

Sidley Shale Gas and Hydraulic Fracturing Report

Vol. 4, No. 25

Topics discussed in this week’s Report include:

  • Texas: Denton Repeals Hydraulic Fracturing Ban but May Challenge State Law.
  • Florida: Utility Can Recover Cost of Shale Exploration.
  • Ohio: Tax on Oil and Gas Production Stalled.
  • UK: Cuadrilla to Receive Drilling Approval.
  • Texas Commission Finds No Conclusive Evidence Injection Wells Caused Quakes.
  • Researchers Attribute Volatile Organic Compounds Found in Barnett Area Water Wells to Hydraulic Fracturing.

Vol. 4, No. 25

States

Texas: Denton Repeals Hydraulic Fracturing Ban but May Challenge State Law. The City Council of Denton, Texas officially repealed its ordinance prohibiting hydraulic fracturing, following the enactment of Texas H.B. 40. Council members stated that their hand was forced by the new state law which prohibits a municipality from banning oil and gas development within its borders, as well as by other legal challenges to the ordinance by the Texas General Land Office and Texas Oil and Gas Association. Voters had approved the ban in a November 2014 ballot initiative. Citizen groups in Denton are urging the city council to work with other cities that imposed bans to challenge H.B. 40 in court or lobby the state legislature to repeal it.

Florida: Utility Can Recover Cost of Shale Exploration. The Florida Public Service Commission (PSC) approved a request by Florida Power & Light (FP&L) to recover up to $500 million from ratepayers to explore for shale gas in Oklahoma. Under the approval, FP&L can impose an annual fuel charge and invest that money in shale gas projects without individual approval for each project. The PSC agreed with FP&L that the projects could provide ratepayers a secure supply of natural gas, a hedge against natural gas price volatility and a net reduction in fuel costs for customers. The PSC rejected the arguments of the Florida Office of Public Counsel who had opposed the application, claiming the project placed the risk of loss on the ratepayers while guaranteeing FP&L a 10.5 percent rate of return. FP&L has partnered with PetroQuest Energy to develop up to 38 natural gas wells in the Woodford Shale.

Ohio: Tax on Oil and Gas Production Stalled. An Ohio budget bill that would impose a new tax on oil and gas production stalled when the state’s Senate and House of Representatives failed to find common ground. The leadership of each House will appoint representatives to continue negotiations by an October 1, 2015 deadline allowing for an amendment to the State’s June budget. Governor John Kasich has sought higher oil and gas taxes since 2011. He is seeking a 6.5 percent tax on oil with a lower rate on natural gas and natural gas liquids. The state currently imposes a 20 cent tax on each barrel of oil and a 3 cent tax per thousand cubic feet of gas. Industry groups have opposed the tax increase, citing the potential for job losses and members of the House stated that any tax increase will have to be part of broader changes to the state’s tax code.

International

UK: Cuadrilla to Receive Drilling Approval. The Lancashire County council recommended the approval of a shale gas test well to be drilled by Cuadrilla Resources. The proposed Preston New Road site in Northwest England could see drilling begin by the end of 2015. The council rejected Cuadrilla’s proposal to drill at a second site, citing the project’s noise and traffic impacts. Although the U.K. government lifted its ban on hydraulic fracturing in 2013, Cuadrilla Resources has struggled to overcome local opposition to proposed projects. The environmental activist group Greenpeace opposed both of these projects, claiming that development would threaten local water supplies and air quality.

Studies

Texas Commission Finds No Conclusive Evidence Injection Wells Caused Quakes. A month after a magnitude-4 earthquake near Venus, Texas sparked an investigation into underground injection wells, the Texas Railroad Commission stated that it found no conclusive evidence that the wells triggered seismic activity. The town of Venus lies over the Barnett Shale play, an area with both natural gas wells developed using hydraulic fracturing and underground injection wells used to dispose of hydraulic fracturing wastewater. Shortly after the May 2015 quake, five injection wells voluntarily closed while the Railroad Commission’s seismology staff began pressure testing to determine if underground faults are in the area. Although the Commission’s work is continuing, researchers from Southern Methodist University, who previously claimed to have found a link between underground injection wells and seismic activity near Azle, Texas, are starting their own investigation.

Researchers Attribute Volatile Organic Compounds Found in Barnett Area Water Wells to Hydraulic Fracturing. Researchers from the University of Texas-Arlington and Inform Environmental LLC assert in an article published in Environmental Science & Technology that hydraulic fracturing operations in the Barnett Shale play are responsible for volatile organic compounds (VOCs) found in area water wells. The researchers sampled 550 public and private water wells, finding at least one benzene, toluene, ethylbenzene and xylene (BTEX) compound in 381 of the samples. The authors attributed the VOCs to hydraulic fracturing, because the chemicals can be used in hydraulic fracturing fluids and most samples were taken within one kilometer of a hydraulically fractured well. The article acknowledges that the VOC contamination could also be due to other factors, such as faulty well casings, improper wastewater disposal and general rust and scale in drinking water wells.

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