11 May 2015

Sidley Shale Gas and Hydraulic Fracturing Report

Vol. 4, No. 19

Topics discussed in this week’s Report include:

  • Cove Point LNG Approvals Challenged.
  • Audit Hits BLM for Wasting Gas Royalties.
  • Texas Passes Prohibition on Local Hydraulic Fracturing Bans.
  • NGOs Sue to Stop California Emergency Wastewater Rules.
  • Researchers Testify on Texas Quakes.
  • Oil Rallies to $60 While Companies Write-down Assets.
  • Study: Marcellus Shale Development Linked to Water Contamination.


Cove Point LNG Approvals Challenged. Environmental group Earthjustice filed suit to block Dominion Resources’ Cove Point LNG terminal. The U.S. Department of Energy granted Dominion approval to export liquefied natural gas from its existing export terminal in Maryland to non-free-trade countries, the last approval the $3.8 billion project needed to begin operations in 2017. Earthjustice filed suit on behalf of several environmental groups claiming that approvals violated the National Environmental Policy Act by failing to analyze the potential impacts from the purported expansion of hydraulic fracturing in the Marcellus Shale play to supply the project with gas for export. Earthjustice did not seek a preliminary injunction to stop construction while its appeal is being heard, but the group’s lawyer stated that it is considering that option.

Audit Hits BLM for Wasting Gas Royalties. The Government Accountability Office (GAO) issued an audit report finding that the Bureau of Land Management (BLM) failed to inspect production at high-priority oil and gas wells on federal lands, costing the government tens of millions of dollars in annual royalties. It also criticized BLM for failing to update its guidelines on venting and flaring gas that could be captured economically and sold. The United States does not collect royalties on gas when it is vented or flared. In response to the audit, three members of Congress demanded that BLM update its venting and flaring policy, noting that the GAO first identified the wasting of marketable gas 10 years ago, but the agency has failed to take action in response. BLM announced that it will soon release a proposed rulemaking that would be designed to reduce venting and flaring by federal lessees.


Texas Passes Prohibition on Local Hydraulic Fracturing Bans. The Texas Senate voted 24-7 to pass a House bill to prohibit local governments from imposing their own regulations or bans on hydraulic fracturing. H.B. 40 expressly preempts local rules on oil and gas activities with the exception of “commercially reasonable” regulations on surface activities incidental to oil and gas operations. The bill was passed in response to the city of Denton’s ban on hydraulic fracturing within its jurisdictional limits. Texas Governor Greg Abbott is expected to sign the bill.

NGOs Sue to Stop California Emergency Wastewater Rules. The Sierra Club, Center for Biological Diversity, and Earthjustice filed suit in California state court to block emergency rules issued by the state’s Division of Oil, Gas & Geothermal Resources (DOGGR) addressing illegal wastewater disposal. An audit discovered that DOGGR mistakenly allowed thousands of underground injection wells to dispose of oil production wastewater into Kern County aquifers that should have been protected under the federal Safe Drinking Water Act. In April, DOGGR required the oil companies operating those wells to apply for exemptions from federal regulations by October 2015 if they want to continue operating. The plaintiffs claim that the emergency regulations violate the Safe Drinking Water Act and various state laws by allowing too much time for the companies to come into compliance. They argue that underground injections should be immediately prohibited because they allow millions of gallons of wastewater containing industrial chemicals to enter sources of drinking water. In addition, they claim that DOGGR has not shown that an actual emergency exists, as required under California administrative law.

Researchers Testify on Texas Quakes. Three university researchers told a Texas House Energy Resources Committee that seismic activities near Dallas were not natural phenomena. Instead, they claimed that injection wells used to dispose of hydraulic fracturing wastewater and production water stressed deep underground fault lines. Lead researcher Matthew Hornbach of Southern Methodist University disclaimed well stimulation using hydraulic fracturing as a potential cause of the Dallas quakes. The researchers noted, however, that increased seismic activities began in 2009, at about the same time that oil and gas development in the area dramatically increased. There are thousands of underground injection wells in Texas, but the researchers testified that only a few specific wells near fault lines were likely responsible for the seismic activity. The Texas Railroad Commission is currently reviewing the researchers’ study and has issued orders to some injection well permit holders, directing them to show cause why the permits should not be revoked due to seismic activity.


Oil Rallies to $60 While Companies Write-down Assets. Oil benchmark West Texas Intermediate hit $60 per barrel in New York Mercantile Exchange trading last week, for the first time since December 2014, showing a stronger return than many analysts expected. Analysts generally consider $60 per barrel as the price where most oil companies can turn a profit. Many companies have wells drilled but not completed due to decreases in oil prices and cuts in capital spending. Those wells could come online with oil prices in the $60 to $65 per barrel range. A turnaround could not come soon enough as Apache Corporation announced a $4.7 billion write-down on oil properties due to first quarter losses. Anadarko Petroleum announced a $3.7 billion write-down on the value of a single field in Utah.


Study: Marcellus Shale Development Linked to Water Contamination. A study in the Proceedings of the National Academy of Sciences claims to have established a link between a Marcellus Shale well pad and aquifer contamination. The authors assert this is the first time such a link has been demonstrated. According to the study, poor well bore construction, a leaking wastewater pit, and mistakes in handling hydraulic fracturing fluids led to the contamination of three nearby drinking water wells. As a result of these errors, hydraulic fracturing fluid traveled between one and three kilometers through shallow to intermediate depth fractures to an aquifer. The study is based on data collected from the drinking water wells at the request of nearby homeowners in 2011 and compared to background data. The study’s author noted that the common public perception, that hydraulic fracturing fluid could seep upwards from a horizontal well, is extremely unlikely. Instead, the paper asserted that poor vertical well bore integrity close to the surface would most likely be responsible for any drinking water contamination. Homeowners had previously settled civil claims against the gas operator, who also resolved a state enforcement action by paying a $1.1 million civil penalty to the state.