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California Releases Hydraulic Fracturing Proposed RegulationsJanuary 8, 2014 | Energy, Natural Resources & Utilities
In September of this year, California’s legislature and governor approved Senate Bill 4 (“SB 4”), enacting health, safety, and environmental safeguards for “fracking” operations. (See OMM Client Alert, “California Adopts Strict New Law Regarding Fracking,” October 1, 2013, available here).
The new law required California’s Division of Oil, Gas, and Geothermal Resources (the “Division”) to prepare regulations, which were released on November 15, 2013, starting a 60-day comment period. The proposal sets extensive requirements for the integrity of wells and well casings; the geologic and hydrologic isolation of oil and gas formations during and following well stimulation (fracking) treatments; disclosure of the composition and disposition of well stimulation fluids (including hydraulic fracturing fluids, acid well stimulation fluids, and flowback fluids); a permit program for well stimulation (including public disclosure and neighbor notification) and water well testing.
Key provisions of the proposed regulations (or SB 4 requirements) are summarized here:
1. Evaluation Prior to a Well Stimulation Treatment.
Because the integrity of the well and well casing is essential to preventing leakage of fracturing fluids, the proposed regulations require an operator to evaluate the cement outside of the production casing. If adequate cement coverage and bonding cannot be demonstrated, then the operator must develop a plan for remediation before a well stimulation treatment is performed. Certain exemptions apply, where the existing cement is greater than currently required, or if the Division is satisfied from past experience with drilling and production in the particular geographical area, that the well’s construction and cementing are adequate to ensure the well’s integrity.
A well stimulation treatment radius analysis must also be performed, demonstrating that there is no potential conduit for fluid to migrate out of the hydrocarbon zone where the well stimulation treatment will occur. Based on modeling approved by the Division, the operator is required to review a three-dimensional area that is twice the anticipated distance of the well treatment, to verify that there is no well or fault in that area that could act as a conduit for fluid to contaminate protected water. A demonstration may be required showing that adjacent geological formations will contain the well stimulation treatment in certain situations.
2. Well Stimulation Permit Application.
SB 4 requires the operator to obtain a permit from the Division in advance of performing a well stimulation treatment. The application requires the identification and location of the well; the time period during which the well stimulation treatment is planned to occur; a water management plan; the identification of well stimulation treatment fluids the operator plans to use and the concentration of each; modeling of the well stimulation treatment and identification of plugged and abandoned wells and geologic faults within the modeled treatment area; a groundwater-monitoring plan meeting the criteria of the applicable Regional Water Quality Control Board; an estimate of treatment-generated waste materials that are not addressed in the water management plan; identification and contact information of the operator; the depth of the base of fresh water; and the results of the evaluations and modeling.
The proposed regulations require that well stimulation be performed in accordance with the conditions on the permit.
3. Notification to Neighbors
SB 4 requires operators to hire an independent entity or person to provide notification to neighboring properties at least 30 days prior to commencing the well stimulation treatment. Notified property owners may request baseline and follow-up water quality testing at the operator’s expense.
4. Pressure Testing
The proposed regulations require operators to pressure test the well and the equipment to be used for hydraulic fracturing prior to commencing a well stimulation treatment. Pressure testing must be performed to a pressure equal to 125 percent of the pressure anticipated during the well stimulation treatment. If there is a pressure drop of 10 percent or more, then the casing or tubing cannot be used unless the problem is corrected and there has been a successful pressure test. The operator must give the Division at least 24-hours’ notice before pressure testing so that the Division will have an opportunity to witness the testing.
5. Monitoring Requirements Before Fracking
The proposed regulations require the operator to monitor the surface injection pressure, the slurry rate, the proppant concentration (proppant refers to solid materials, typically treated sand or man-made ceramic materials, designed to keep an induced hydraulic fracture open, during or following a fracturing treatment), the fluid rate, and the pressure of each annuli of the well during a well stimulation treatment for indications that a well breach may have occurred or that fluid is not confined to the intended zone. The proposed regulations specify two thresholds at which the operator must terminate the well stimulation treatment, report the incident to the Division, and conduct diagnostics. The Division must be notified when diagnostics are conducted so that Division staff has an opportunity to witness the diagnostics. If diagnostics indicate that a well breach did occur during well stimulation treatment, then the operator must immediately shut-in the well and isolate the perforated section. In addition, the operator must provide essential information about the event to the Division and the local Regional Water Quality Control Board to facilitate incident response. The information that the operator must provide includes a description of events leading up to the well breach, an exact description of the chemical composition of the fluids in the well at the time of the well breach, an estimate of the volume of fluid lost during the well breach, and available data about the protected water closest to the well breach.
6. Monitoring Requirements After Fracking
The proposed regulations require operators to perform ongoing monitoring of a well that has had a well stimulation treatment to determine if there is any indication of a well breach and, if there is such indication, immediately inform the Division and the local Regional Water Quality Control Board, conduct diagnostics, and take all appropriate measures to prevent contamination of protected water or loss of hydrocarbon resources. The required monitoring includes monitoring of production pressures and monitoring the oil, gas, and water produced from the well, including the volume of well stimulation treatment fluid flowback. This monitoring must occur at least once every two days for the first thirty days after well stimulation and monthly after that. The proposed regulations provide criteria by which the monitoring may be terminated, and include additional annual pressure reporting requirements
SB 4 requires an operator to post, within 60 days following the cessation of a well stimulation treatment, specified information regarding the composition and disposition of well stimulation fluids, including, but not limited to, hydraulic-fracturing fluids, acid well stimulation fluids, and flowback fluids, to a web site designated or maintained by the Division, and accessible to the public. The proposed regulations reiterate the disclosures specified in the statute.
8. Trade Secrets
SB 4 requires that the composition of well stimulation fluids must be disclosed to the Division, whether or not the information is claimed as trade secret. The Division is then required to make a determination of whether or not the information is a protected trade secret. After the determination, SB 4 sets forth a process by which the information can be obtained, how the trade secret information would be disclosed, and how the supplier may seek to obtain a preliminary injunction prohibiting disclosure of the information to the public if it disagrees with the trade secret determination of the Division.
9. Storage and Handling of Well Stimulation Fluids
The proposed regulations clarify that well stimulation fluids are subject to existing reporting, response, and clean-up requirements, including provisions governing notification, response, and clean-up of spills in the oil field environment. The proposed regulations specify that well stimulation fluids may not be stored at any time in unlined sumps or pits. Further, in the event of a release or spill, operators will be required to provide a report to the Division detailing activities that led to the release, types and volumes released, cause of release, actions taken to stop, control, and report the release, and steps taken to prevent future releases.
10. Follow-up Reports
Within sixty days after a well stimulation treatment, the operator is required to report to the Division on the results, what pressures were encountered, and how the operations differed from what was anticipated in the treatment design. In addition, the operator is required to review data available from the U.S. Geological Survey and indicate to the Division if there have been any seismic events of magnitude 2.0 or greater in the area of the well stimulation treatment.
SB 4 requires that the implementing regulations be approved and go into effect by January 1, 2015. The formal rulemaking process is anticipated to take a year to complete. The public will have a 60-day period (until January 14, 2014) to submit comments on the implementing regulations. Written comments about the implementing regulations can be submitted to this email address: DOGGRRegulations@conservation.ca.gov.
SB 4 includes a streamlined interim procedure to be used for a one-year period beginning in January 2014, in which owners or operators may proceed with well stimulation treatments without a permit if they comply with specified provisions of the Act. The interim regulations will require an operator to submit to the Division a signed Interim Well Stimulation Treatment Notice (“WST Notice”) prior to commencing a well stimulation treatment. The WST Notice must include detailed information about the fluids to be used, a ground water monitoring plan, and a water management plan. Copies of an approved WST Notice must be sent to neighboring property owners and tenants, and water well and surface testing must be provided upon request. The operator will be required to perform certain pressure tests prior to treatment and provide a certification to the Division regarding well integrity. Certain disclosures related to hydraulic fracturing fluids, acid well stimulation fluids, and flowback fluids, are required within 60 days following cessation of well treatment.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Eric Rothenberg, an O'Melveny partner licensed to practice law in Missouri and New York, Kelly McTigue, an O'Melveny partner licensed to practice law in California, and Bob Nicksin, an O'Melveny counsel licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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