05 November 2013

This Week in Hydraulic Fracturing

 

Volume 2, No. 44

 

Federal

Coast Guard proposes new policy for shipping wastewater. The U.S. Coast Guard is proposing a new policy that would allow companies to ship hydraulic fracturing wastewater over inland waterways by barge. If finalized, the policy would require companies shipping wastewater to analyze it for hazardous or radioactive materials. Wastewater deemed to be hazardous or radioactive would be subject to requirements for venting, cleaning, and re-using the barges. Although the Coast Guard currently allows some hazardous chemicals to be transported under a general classification known as “listed cargo,” this option will not be available because the composition of wastewater can vary from well to well. The Coast Guard has asked for public comments on its proposal, including specifically regarding the disclosure of proprietary information present in the wastewater and the applicability of certain testing requirements. Comments are due November 29.

Environmental group asks BLM to stop permits in Greater sage grouse area. WildEarth Guardians petitioned the Bureau of Land Management (“BLM”) to stop work on permit applications submitted by Chesapeake Energy to drill on federal lands in the Douglas Core area of eastern Wyoming because it includes habitat for the Greater sage grouse, a candidate for listing under the Endangered Species Act. The group objects to an agreement between Wyoming and Chesapeake allowing the company to drill several hundred oil wells in the area, while imposing well construction and operating restrictions wells. The petition argues that BLM must stop all drilling and construction of new roads or well pads until the Bureau adopts restrictions on work during Greater sage grouse nesting and breeding seasons. BLM stated that it is reviewing the petition and has not yet begun processing Chesapeake’s permit applications.

BLM proposes Greater sage grouse management plans. BLM published new resource management plans covering 31 million acres in California, Idaho, Montana, Nevada, and Utah with the aim of protecting the Greater sage grouse. The Administration has stated that it would amend dozens of management plans in western states to protect priority and general habitat for the animal, including Colorado and North Dakota. Both habitat classifications include land use restrictions, but BLM has declined to propose “Areas of Critical Environmental Concern” that would have virtually prohibited shale resource development.

DOE: Department can revoke LNG export licenses. In a letter to the Senate Energy and Natural Resources Committee, Paula Gant, the deputy assistant secretary for the Department of Energy’s (“DOE”) Office of Oil and Gas, stated that DOE has the power to revoke LNG export licenses over the objections of the license holder. In the past, DOE has only revoked import or export licenses when they went unused and with the consent of the license holder. The letter cautioned that revocation authority without consent would only be used in “extraordinary circumstances” because DOE must protect the “investment-backed expectations of private parties….” Any suspension or revocation of an export license would be subject to an adjudicatory hearing. The letter did provide assurances to both LNG exporters and their customers that “extraordinary circumstances” do not mean that DOE would use revocations as “a price maintenance mechanism.” The letter also noted that the President has the power under the Energy Policy and Conservation Act, to restrict commodities exports “under such terms and conditions as he determines to be appropriate and necessary.” This power has been delegated to the Commerce Department.

House members urge OMB to quickly release diesel guidance. Representatives Henry Waxman, the ranking member of the House Energy & Commerce Committee, and Diana DeGette, the ranking member of the Subcommittee on Oversight and Investigations, are urging the White House Office of Management and Budget (“OMB”) to quickly approve EPA’s proposed guidance on the use of diesel fuels in hydraulic fracturing fluids without weakening the guidance from the proposal. EPA sent the guidance to OMB at the end of September, over a year after the public comment period on the guidance closed. It is not yet known what changes EPA made to the guidance in response to public comments, if any. OMB does not have any deadlines by which it must act on the guidance.

States

Four ballot initiatives on hydraulic fracturing voted on this week. Four municipalities in Colorado’s Front Range will vote this week on ballot initiatives to institute bans or moratoria on hydraulic fracturing. If their initiatives are adopted, Lafayette, Colorado would ban the practice while Boulder, Broomfield, and Fort Collins would stop hydraulic fracturing for some period of years pending further studies. Initiative proponents characterize their efforts as a “community rebellion” against energy companies, while developers have said proponents greatly exaggerate the purported risks from development using hydraulic fracturing and, if passed, the initiatives could deal a significant blow to Colorado’s economy. The Lafayette initiative, which if passed would also bar oil and gas companies from transporting equipment, water, or wastewater through the city on public roads, and would likely face litigation.

ConocoPhillips to explore shale in Northwest Territories. Canada’s National Energy Board announced that it is allowing ConocoPhillips to drill the first exploratory wells in the Northwest Territories’ Canol shale formation. Some have estimated that the Canol shale could hold two to three billion barrels of recoverable light sweet crude oil, but the area imposes unusual challenges on developers. ConocoPhillips’ exploratory wells will be just 100 miles south of the Arctic Circle and well north of the closest major city, Yellowknife, presenting both technological and logistical challenges. Several other major companies have purchased land in the Northwest Territories, including Shell and ExxonMobil.

New Mexico collects information on “frack hits.” The New Mexico Oil Conservation Division is collecting information from companies drilling on New Mexico’s side of the Permian Basin on accidental communication between horizontal well bores. These incidents are referred to by drillers as “frack hits,” cases in which a fracture travels from one well to another well. In late September, a frack hit from a horizontal shale well reportedly caused a conventional oil well to discharge 200 barrels of crude oil and produced water. New practices may be required to minimize the risk of these occurrences, such as additional well spacing requirements and sealing off older perforations.

Environmental group sues wastewater treatment company. Clean Water Action sued Waste Treatment Corporation alleging that its Pennsylvania wastewater treatment plant illegally discharged 200,000 gallons of shale gas wastewater into the Allegheny River per day in violation of the Clean Water Act, Endangered Species Act, and the state Clean Streams Law. The complaint cites a 2012 Pennsylvania Department of Environmental Protection (“PDEP”) study which allegedly found increased salts, metals, and radioactive materials downstream from the facility that reportedly was indicative of drilling wastewater. The plaintiff claims the discharges killed off Northern Riffleshell mussels, an endangered species. PDEP stated that it is negotiating a settlement with the company, but Clean Water Action accused the state of trying to protect the company. Waste Treatment Corporation denied that it processed or discharged shale gas wastewater because PDEP banned wastewater treatment plants from accepting the wastewater in May 2011.

California environmental review of hydraulic fracturing could take 18 months. California Governor Jerry Brown stated that an Environmental Impact Report by the Division of Oil, Gas, and Geothermal Resources (“DOGGR”) should be completed within 18 months. Governor Brown promised that it would be the most comprehensive review of potential environmental, health, and safety risks ever performed. The California legislature passed a law in September regulating how hydraulic fracturing may be conducted in the state, including a provision requiring DOGGR to complete an environmental review under the California Environmental Quality Act by July 1, 2015 before it develops a permitting process. California’s Monterey Shale formation is estimated to hold 15.4 billion barrels of oil – twice as large as estimates for North Dakota’s Bakken Shale play.

Wyoming abandons flaring tax proposal. Citing the potential for lawsuits, the Wyoming legislature will not pass a tax on flared gas. The legislature’s Joint Revenue Committee estimated that a 6% tax on the value of flared gas could raise $300,000 per year and reduce flaring emissions. The Petroleum Association of Wyoming argued that the Wyoming Constitution prohibited taxes on products that are not processed or sold and that a tax on flared waste gas would violate that prohibition.

International

Russia may end Gazprom’s monopoly on LNG exports. Citing increased competition, a bill in Russia’s Federal Assembly would end the monopoly on exporting natural gas currently held by state-controlled OAO Gazprom. President Vladimir Putin has announced he supports the bill. The bill would allow privately-owned gas company OAO Novatek, as well as another government-controlled company, OAO Rosneft, to construct their own LNG export terminals. Gazprom currently owns one LNG export terminal, Sakhalin-2, which exports oil and gas to Japan and Korea. Currently planning an Arctic LNG export terminal, Novatek believes the bill would give it regulatory certainty, as well as a series of tax breaks. Rosneft is partnering with Exxon Mobil to design its own LNG export terminal that it hopes to begin operations in 2018.

Sinopec looking for Western Canadian shale play investors. Chinese state-owned oil company Sinopec announced that it intends to sell a share in approximately half of its 500,000 acres in Western Canada’s Montney and Duvernay shale plays, which it acquired in 2011 for over $2 billion. A company spokesman characterized the sales as seeking joint venture partners to help Sinopec develop the assets.

Business

Louisiana well service company declares bankruptcy. Lafayette, Louisiana’s Green Field Energy Services, which marketed energy-efficient drilling equipment that partially operated on natural gas, is declaring Chapter 11 bankruptcy. The firm’s failure is significant given that many industry experts saw gas-fired field equipment as providing a substantial savings and environmental benefit over diesel-fueled equipment. A company spokesman cited Green Field’s rapid expansion followed by a nationwide drop in rig counts as the cause for it missing a loan payment in September, leading investor services firm Moody’s to downgrade its credit rating. Larger well service companies, such as Halliburton and Baker Hughes, have used some gas-fired or bi-fueled equipment (running on a mix of natural gas and diesel), but most equipment still run exclusively on diesel fuel.

Research

U.K.: Hydraulic fracturing poses a low risk to public health. Public Health England (“PHE”) released its review of hydraulic fracturing, concluding that the practice carries a low risk to public health if it is properly regulated. Since hydraulic fracturing has yet to begin in the U.K., PHE examined practices in the United States. It found that good construction, operation, and maintenance standards can preclude groundwater contamination, the most prominent concern cited by British environmental groups opposing the practice.

Oklahoma continues to study tremors but recommends earthquake insurance. The Oklahoma Geological Survey (“OGS”) will study a wastewater injection well that will soon resume operations to determine if it triggers seismic activity. The study is part of ongoing effort by Oklahoma to determine if shale gas wastewater injection, including injections at the studied well, caused a series of tremors in September 2013. The state is expected to shut down the well if it is linked to tremors reaching a magnitude of 1.8 on the Richter scale. Although Oklahoma has thousands of injection wells, OGS believes this particular well may have led to a magnitude 3.4 earthquake that damaged nearby buildings. Fears that both natural and man-made factors have caused a recent increase in seismic activity prompted the Oklahoma Insurance Commissioner to recommend that state residents buy earthquake insurance for the homes and businesses.

NGO report: Shale gas more water-intensive than previously estimated. Citing public databases documenting water withdrawals, fluid injections, and waste recovery and disposal, a report prepared for Earthworks concludes that Marcellus Shale gas drilling consumes more water for every thousand cubic feet of gas produced in West Virginia and Pennsylvania than previously reported. Among other things, the authors recommend that states expand reporting requirements, enforce new rules governing surface water withdrawals, and increase oversight of those activities. Regulators in both states responded that new laws require companies to file water use plans before they begin drilling and that neither state is facing a shortage of water.

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