20 November 2013

This Week in Hydraulic Fracturing

Federal

BLM issues new compromise policy on lease nominations. The U.S. Bureau of Land Management (“BLM”) issued new guidance on how it will handle nominations of federal land for oil and gas leasing. According to BLM, the Expression of Interest forms will be published on-line for the public to access, but will exclude the name and address of the company nominating land, as well as other information the company claims as proprietary. Environmental NGOs oppose the policy, arguing the public has a right to know who is interested in drilling on public land. BLM characterized the policy as a compromise, since it previously disclosed only the location of parcels planned for lease auctions. The policy responds to a February 2013 federal court ruling requiring BLM to disclose the entity that nominated federal lands for leasing in Colorado. Industry groups argue the areas that companies hope to develop is confidential business information and that further disclosure would mean less competition for lease sales.

U.S. Manufacturers: No more LNG export approvals. America’s Energy Advantage, a trade association of U.S. businesses and organizations, urged the U.S. Department of Energy (“DOE”) to stop approving liquefied natural gas (“LNG”) exports to countries without a free trade agreement, arguing the country is now in a “danger zone” where natural gas price increases could cause economic harm. In a letter to DOE Secretary Moniz, the group urged DOE to establish clear standards for any future LNG export approvals and to drop its economic study in support of LNG exports, arguing the study is out of date due to changes in the market. The group’s proposal found some support from Sen. Ron Wyden (D-Ore.), Chair of the Senate Energy and Natural Resources Committee, who suggested that DOE may want to “pause” processing LNG export applications to re-assess the potential economic impacts of additional LNG exports.

BLM defers leasing federal land in Utah. After environmental NGOs protested the leasing of federal lands in Utah for oil and gas development, BLM announced it will defer leasing 100,000 acres identified as having wilderness characteristics even though the lands were classified as open for multiple uses. The groups withdrew their formal protests and praised the decision, claiming it spares sensitive lands from development. Industry group, the Western Energy Alliance, criticized the decision as being inconsistent with the area’s resource management plan. BLM stated the deferred acreage will be the subject of additional environmental reviews to determine if oil and gas development is consistent with the area’s cultural resources, species habitat, and potential impacts on the Old Spanish Trail.

States

California issues new draft hydraulic fracturing regulations. The California Department of Conservation has proposed regulations for hydraulic fracturing that it claims are the most stringent in the U.S. The regulations would implement SB 4 enacted last September. The proposal would require well operators to obtain permits to drill and notify the public before they use hydraulic fracturing, as well as to disclose the chemicals used in the hydraulic fracturing fluids (with protections for trade secrets), the amount of water used, and the source of that water. The rules would also address well construction and cementing standards, pressure-testing, seismic analysis, and monitoring procedures. The public comment period will last for 60 days. The Department of Conservation anticipates that final rules will be issued by early 2015, after the Department’s Division of Oil, Gas & Geothermal Resources and the Natural Resources Agency complete a study of hydraulic fracturing.

Landowners, trade association challenge municipal ban in New Mexico. A group of landowners and the Independent Petroleum Association of New Mexico filed suit in federal court seeking to overturn Mora County’s ban on hydraulic fracturing. Entitled, “The Mora County Community Water Rights and Local Self-Government Ordinance,” the law not only bans hydraulic fracturing but prohibits extracting water from anywhere within the county for use in hydraulic fracturing anywhere, forbids the construction of pipelines through the county, and bans the storage of wastewater within or transportation of wastewater through the county. The ordinance further purports to eliminate all legal rights from companies that extract hydrocarbons, including the right to challenge the ordinance in court. It also provides that the town will refuse to recognize any court decision invalidating the ordinance. The plaintiffs argue the ordinance is unconstitutional and a regulatory taking of the landowners’ mineral estates.

Wyoming approves new water testing regulations. The Wyoming Oil & Gas Conservation Commission approved final regulations that require well operators to test at least four streams or private wells within a half-mile before and after well drilling and completion. Baseline sampling must be conducted before drilling begins with additional testing within one to two years after a production well’s casing is installed and once again within three to four years. Operators must test for a specified set of parameters that include benzene, toluene, and dissolved methane. The rule prohibits courts from using the test results to create a presumption for or against liability in any future lawsuit over water contamination, although the sampling may be used as evidence. Industry groups generally supported the rule but raised concerns about distinguishing naturally occurring compounds from those caused by drilling. Environmental groups praised the rule as a model for other states. The rule takes effect on March 1, 2014.

Alaska proposes revised regulations to protect trade secrets. The Alaska Oil & Gas Conservation Commission is proposing changes to its existing regulations which would protect the identity of hydraulic fracturing fluid chemicals that companies deem to be trade secrets. Existing regulations failed to provide such protections, requiring the disclosure of all chemicals. Under the proposed rules, parties may challenge trade secret designations in state court. Industry groups support the revision but are also seeking additional changes. They object to Alaska’s requirement that companies notify property owners and test all water wells within one-half mile of a proposed well site. Other states that require pre-drilling water well sampling limit the radius to one-quarter mile.

After recount, Broomfield ban passes. Broomfield became the fourth Colorado municipality to block hydraulic fracturing within city limits through a ballot initiative, imposing a five-year moratorium. Although initiative opponents had a 13 vote lead going into the recount, the initiative passed by 17 votes out of over 20,000 cast. Fort Collins and Boulder also approved a five-year ban, while Lafayette, Colorado imposed a permanent ban on hydraulic fracturing.

Landowner group plans suit seeking to end New York’s moratorium on hydraulic fracturing. A coalition of landowners is preparing to file suit alleging the state’s continued moratorium on hydraulic fracturing is illegal. The group argues oil and gas is regulated by the Department of Environmental Conservation (“DEC”), making the state’s slow-moving study on hydraulic fracturing by the Department of Health irrelevant to DEC regulations. The complaint will also allege the state’s Environmental Quality Review Act does not permit Governor Cuomo to interfere with DEC’s decision and that he has delayed a decision on hydraulic fracturing for political reasons, violating the law’s requirement that reviews take place with “minimum procedural and administrative delay.” The landowners are seeking damages, alleging a regulatory taking of their mineral rights without compensation. A spokeswoman for Riverkeeper, Inc., which opposes any use of hydraulic fracturing, denied there is any legal barrier to developing shale in New York, and asserted that companies want to avoid performing an environmental impact statement for each planned well.

New Ohio reporting requirements will provide information on Utica Shale play. As part of Ohio’s new budget law, shale developers must report oil, gas, and natural gas liquids production volumes to the state every three months. Until now, production numbers were provided publicly on a voluntary basis, and the state produced annual production numbers. The state is hoping that the requirements will provide better information on the productivity of the Utica Shale to the public, including potential investors.

Business

Investors putting money into tankers. As the U.S. gears up to be a major exporter of refined petroleum products, investors and asset managers are making significant investments in tanker ships. A spokesman for Blackstone’s Tactical Opportunities Fund stated the company invested significantly in shipping assets since 2011, with the fund acquiring portions in nine gasoline tankers and a company that owns liquefied petroleum gas (“LPG”) tankers. Navigator Holdings, a LPG shipping company, announced an initial public offering and market analysts report that companies that ship petroleum products, LNG, and other chemicals have become attractive investments. Increased demands for the tankers, which can haul propane, butane, gasoline, and other refined products, have caused charter rates to climb steadily since 2008 and London’s Baltic Exchange predicts that they will soon reach all-time highs.

Analysts anticipate increase in oil and gas deals. Financial services company EY (formerly Ernst & Young) released the results of its survey of oil and gas industry executives, finding that 39% expect to be involved in mergers and acquisitions over the next 12 months. This is an increase from last year’s survey, which only found 28% of executives giving serious consideration to oil and gas deals. Although the survey shows less enthusiasm than in 2011, those surveyed showed increasing confidence in the global economy. They cited reductions in economic and regulatory uncertainty and greater confidence in stock market valuations for other oil and gas companies. Nearly half of survey respondents anticipate asset prices to increase in the next 12 months, attracting more potential buyers, but more are looking to purchase in cash than in previous years due to many companies’ high debt loads.

Carlyle Group reveals plans to invest $7 billion in energy assets. The Carlyle Group informed investors that it will look to add $7 billion in new energy assets for its global energy funds by 2015. The investments are planned to include $4 billion in North American energy projects, $1.5 billion in North American power projects, and $1.5 billion in international energy holdings. Most of the investment will be in shale exploration and production companies.

Research

IEA: U.S. won’t reign as the world’s top oil producer for long. The International Energy Agency (“IEA”) predicts the United States will be the world’s largest oil producer by 2015, at 11 billion barrels per day, but that the Middle East will soon take back the title. IEA expects U.S. oil production to decline in the next decade, while Middle East production will increase, in part in order to satisfy its own energy needs. The IEA’s annual World Energy Outlook predicted the Middle East will consume as much oil as China by 2020 and use more gas than the EU. Increasing oil consumption in the Middle East, Asia, and India are expected to keep global oil prices well above $100 per barrel for many years.

If you have any questions regarding this Report, please contact us.

SHARE
EmailShare