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Current Developments Affecting Hydraulic Fracturing Operations (April 2015)

April 28, 2015 | Energy, Natural Resources & Utilities

 

We are providing our quarterly update on laws, regulation, and policy affecting hydraulic fracturing (“fracking”) operations. Our last installment was issued January 13, 2015, and may be found here.

Foremost among current developments is the issuance of a final rule for fracking on federal and Indian lands (and associated litigation), new requirements for oil transport by rail (as discussed extensively in previous alerts), and emerging state efforts to evaluate and regulate seismic risk and water use. In many instances, information provided in our previous updates has been referenced below in order to provide context, and we encourage readers to refer to previous installments (as linked in the text) for a more in-depth analysis.

FEDERAL REGULATORY DEVELOPMENTS

A. BLM Final Rule For Fracking on Federal and Tribal Lands

On March 26, 20151, the U.S. Department of Interior (“Interior Department”) Federal Bureau of Land Management (“BLM”) published its anticipated final rule (“Final Rule”) for fracking on federal and tribal lands, which becomes effective on June 24, 2015 and will be the first collection of federal fracking rules to be implemented. The Final Rule requires (i) public disclosure of chemicals used in fracking operations through FracFocus within 30 days of operations completion (excepting certain trade-secret protected information as outlined in the Final Rule); (ii) confirmation that wells used in fracking operations meet appropriate construction standards (i.e., testing for well integrity and strength of barriers); (iii) plans for managing flowback waters from fracking operations; and (iv) storage of recovered fluids in covered tanks instead of lined pits. The Final Rule also provides that a variance may be granted by BLM to specific regulations within the Final Rule if “state or tribal regulations are demonstrated to be equal to or more protective than the BLM’s rule.” BLM announced that it will identify the specific regulatory variances that will be allowed, prior to the Final Rule becoming effective on June 24, 20152.

On March 20, 2015, the same day as the Final Rule was announced by the Interior Department Secretary, the Independent Petroleum Association of America and Western Energy Alliance filed a lawsuit against the Interior Department, claiming the Final Rule is burdensome to the extent it will “either duplicate state law requirements or improperly curtail the primary jurisdiction of state governments.” On March 26, 2015, the State of Wyoming (North Dakota and Colorado were allowed to join as petitioner-interveners in April 2015) filed a separate lawsuit against the Interior Department claiming the Final Rule “exceeds the agency’s statutory jurisdiction, conflicts with the Safe Drinking Water Act, and unlawfully interferes with the State of Wyoming’s hydraulic fracturing regulations.”

B. Proposed Pretreatment Standards on Fracking Wastewater

On April 7, 2015, the Environmental Protection Agency (“EPA”) published a proposed rule that would require oil and gas companies engaged in the “extraction of oil and natural gas from low permeability, low porosity geologic formations” (referred to in the regulation as unconventional oil and gas resources and including fracking operators) to pretreat wastewater from operations before such wastewater can be sent to publicly owned treatment works (“POTW”). EPA indicates that there will be no added cost to industry in the short term, as no POTW is currently accepting such wastewater (though several instances of direct discharge to POTWs has occurred in the past). EPA states that the rule is meant to “ensure that such current industry best practice is maintained over time,” noting that large volume direct discharges of fracking fluids to POTWs is neither technologically nor economically feasible.

SEISMIC RISK

In both the United States and Canada, regulatory authorities are taking action to reduce the frequency of earthquake events based on mounting evidence that fracking operations are associated with increased risk of seismic events (see OMM January 13, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations).

C. United States

Citing increased seismic activity “correlating with increasing volumes of saltwater injected” in the applicable counties, the Kansas Corporation Commission (“KCC”), on March 19, 2015, issued an order that requires fracking operators in Harper and Sumner Counties to reduce the amount of saltwater being injected into wastewater disposal wells in the area. The order states that the “increased number of recorded earthquakes in Kansas coincides with an increase in the number of injection wells and the amounts of injected saltwater in Harper and Sumner Counties.” Although the report states that “it has not been possible to trace a specific earthquake to a specific injection well based on available data,” the KCC finds the increase in seismic activity justifies the issuance of the order.

On April 21, 2015, researchers from Southern Methodist University released a study finding that that high volumes of wastewater injection combined with saltwater extraction from natural gas wells most likely caused earthquakes occurring from 2013 through 2014 near Azle, Texas. As a result of the study, Texas Regulators warned two fracking operators that it may cancel permits for two injection wells located near Azle, unless the operators appear at hearings scheduled for June 2015 to explain why such action is unnecessary3.

In March 2015, the Oklahoma Corporation Commission (“OCC”) issued a directive to 357 companies operating fracking disposal wells in the Arbuckle formation, requiring them to demonstrate by April 18, 2015 that they have an approved plugging plan in place and are not injecting wastewater below the Arbuckle formation or else such companies will be required to reduce disposed volume by 50 percent. As of the date of publication, it has been reported that up to 25 wells have shut down (at least temporarily) in response to OCC’s directive, although no official information has been released by OCC. The issuance of the directive followed the formation of the Coordinating Council on Seismic Activity in September 2014 and the adoption of the “traffic light” system, which can subject certain wells to heightened scrutiny and, in some cases, shut down pending further investigation after an earthquake with at least a 4.0 magnitude (see OMM January 13, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations). Under the directive, the OCC also expanded its definition of an “area of interest” from 10km around the epicenter of a 4.0 magnitude earthquake to include multiple seismic events that occur in close proximity to earthquakes with a magnitude of 3.0 or greater, which, according to the directive, “is expected to more than double the number of disposal wells with an area of interest.” The Oklahoma Secretary of Energy and Environment recently stated that a number of states, including Oklahoma, are working together to develop best practices in connection with saltwater disposal wells in addition to developing the “traffic light” system throughout several states4.

On April 21, 2015, the Oklahoma Geological Survey released a Statement on Oklahoma Seismicity, finding that “it is very likely that the majority of recent earthquakes, particularly those in central and north-central Oklahoma, are triggered by the injection of produced water in disposal wells,” as the seismicity rate in 2013 was only 70 times greater than such rate in years prior to 2008, but is now 600 times greater than pre-2008 seismicity rates. On April 23, 2015, the U.S. Geological Survey (“USGS”) released a report that discussed modelling for predicting the frequency and locations of seismic activity in connection with fluid injection from oil and gas operations. The report outlines 17 “induced seismicity zones,” including in Colorado, New Mexico, Alabama (on Florida border), Arkansas, Oklahoma, Kansas (on the Oklahoma border), Texas, and Ohio, where increased rates in seismic activity are linked to wastewater injection wells. Some commentators have noted that such research may increase liability risks for fracking operators and provide additional support for landowners filing lawsuits against such companies claiming damages to their property.

D. Canada

In February 2015, the Alberta Energy Regulator (“AER”) announced new seismic event requirements for fracking operations in Fox Creek, Alberta. Operators will be required to cease operations if they detect a tremor exceeding a magnitude of 4.0 or greater on the Richter scale and report such event to AER. Operators cannot resume operations until provided clearance by AER. Fracking operators must also take certain measures for any recorded seismic activity above a magnitude of 2.0 on the Richter scale. AER released the new requirements after 20 earthquakes were recorded in the Fox Creek area between December 2014 and January 2015, with magnitudes as high as 4.4 on the Richter scale.

On January 21, 2015, an announcement was made on behalf of the Induced Seismicity Monitoring Network Consortium, made up of several governmental, industry, and environmental groups, that the consortium had hired a seismologist for a two-year contract to study the impacts of fracking on seismic events in northeast British Columbia, where a recent report found that 231 seismic events had occurred between August 2013 and October 2014, many of which were linked to fracking operations.

RAIL TRANSPORTATION

E. Proposed Rules

On February 27, 2015, the Department of Transportation (“DOT”) Federal Railroad Administration (“FRA”) published a notice of proposed rulemaking titled “Risk Reduction Program,” that would require railroad operators to prepare and submit a risk management plan that identifies “applicable hazards and…plans to mitigate, if not eliminate…risk.” The rule would be applicable to all Class I railroads and any railroad with an “inadequate safety performance” record, as determined by the Secretary of Transportation. On April 17, 2015, DOT issued an Emergency Order to require that trains transporting large amounts of Class 3 flammable liquid through certain highly populated areas adhere to a maximum authorized operating speed limit of 40 miles per hour by April 24, 20155 which was followed by the issuance of an Emergency Directive by the Transportation Safety Board of Canada on April 23, 2015 similarly lowering the speed limit for trains moving through certain highly populated areas and carrying crude oil or other hazardous materials.

On April 17, 2015, FRA also issued a safety advisory making recommendations to enhance the mechanical safety of such trains, including that railroads reduce “the impact threshold levels the industry currently uses for wayside detectors that measure wheel impacts to ensure the wheel integrity of tanks cars.” On the same day, a letter was sent by the FRA to the Association of American Railroads asking that the organization and its members voluntarily make an additional commitment to provide certain relevant information to FRA and emergency responders immediately following a derailment of high-hazard trains, including “information related to the lading, tank cars, and trains involved in the derailment or accident,” and that the group “develop a process for the railroads to gather, organize and store” such information.

On April 23, 2015, two notices were published in the Federal Register in connection with rail transportation of hazardous materials. The Pipeline and Hazardous Materials Safety Administration (“PHMSA”) issued a Notice of Safety Advisory to remind carriers and shippers of hazardous materials of their “responsibility to ensure that current, accurate and timely emergency response information” is both maintained and provided to responders following an incident. FRA and PHMSA jointly published a Notice of Safety Advisory reminding operators of high hazard flammable trains to provide FRA and PHMSA with information “agency personnel need to conduct investigations immediately following an accident or incident,” including origin and destination information, results from any product testing undertaken prior to transportation, the type of liquid being transported, and general information on the train (such as the train number, position of tank cars, and specifications). On April 24, 2015, FRA published a Notification of Modification of Information Collection Requirements, to require the reporting of the number of rail cars carrying crude oil, the number of cars damaged or derailed carrying crude oil, and the number of cars releasing crude oil, after an incident involving a crude-oil train.

The recent actions by DOT and its related agencies follows the publication of two proposed rules by the PHMSA titled “Hazardous Materials: Enhanced Tank Car Standards and Operational Controls for High-Hazard Flammable Trains” and “Hazardous Materials: Oil Spill Response Plans for High-Hazard Flammable Trains,” which set forth stringent requirements for rail shipments of hazardous materials, including crude oil, ethanol, and other flammable materials, and a phase-out of DOT-111 tank cars by 2020. Such tank cars, have been involved in recent major spill events in conjunction with derailments (see OMM September 2, 2014, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations). Various groups have been lobbying the White House prior to issuance of a final rule by PHMSA, (expected in May 2015), including a request by several railroads to exclude electronically controlled pneumatic brake requirements in the final rule6 There has been disagreement over feasibility of the proposed phase-out, the number of tank cars that need to be retrofitted, and as to the cost of meeting deadlines set forth by PHMSA. One group has estimated that it is possible to achieve the phase-out of older tank cars within five to seven years7. Another group projects the modifications would cost $3.9 billion rather than the $2.2 billion estimated by PHMSA8. The number of entities lobbying in connection with crude oil transportation has increased from only one company disclosing such lobbying in 2012, to at least 41 entities in the first quarter of 2015, with a jump of over 100 percent from the first three months of 20149.

On March 30, 2015, in a letter posted on its website, BNSF Railway announced it would be phasing out all DOT-111 tank cars and replacing them with CPC-1232 tank cars modified to meet PHMSA-proposed standards (see discussion above) and reducing speeds to “35 mph for all shale crude trains operated on our tracks through large municipal areas with populations over 100,000 people.”

On April 3, 2015, the National Transportation Safety Board (“NTSB”) sent a letter to PHMSA recommending it implement an “aggressive, intermediate progress milestone schedule…for the replacement and retrofitting of legacy DOT-111 and CPC 1232 tank cars to appropriate tank car performance standards, that includes equipping these tank cars with jackets, thermal protection and appropriately sized pressure relief devices,” and “establish a publicly available reporting mechanism that reports at least annually, progress on retrofitting and replacing tanks cars.” However, NTSB has also stated that volatility is not a key factor in determining the magnitude of a crude-oil train accident, despite that PHMSA is looking at such issues as a factor in such train derailments10.

BANS AND RESTRICTIONS ON FRACKING OPERATIONS

In the absence of federal regulation, state and local authorities continue to evolve an increasingly complex patchwork of regulatory requirements and limitations, including complete or partial bans or moratoriums. Several actions have been brought in state courts to challenge such restrictions. These actions are generally grounded in claims of preemption (based on state-wide regulatory schemes) or constitutional insufficiency (based on either infringement of contract understandings or on takings without due process). Several of these cases have reached state high courts and are at the center of discussions by affected policymakers.

Industry commentators predict a continued increase in suits on behalf of private landowners claiming that fracking bans result in a regulatory taking of the landowners’ mineral rights and that compensation must be paid by the government as a result of such taking. Although unlikely to become law in the current political climate, a bill was introduced in the U.S. House of Representatives that would allow landowners who have the fair market value of their property diminished by at least 20 percent or $20,000, due to a fracking ban implemented by any state or federal agency, to sue the government for compensation (see also discussion of proposed law in Colorado and Oklahoma below). Other legal observers suggest that landowners might shift to bringing lawsuits challenging the permitting of underground injection control wells, claiming that there is inadequate protection against the increased risks from earthquakes (see discussion on seismicity below).

F. Maryland

As previously reported, Maryland proposed fracking regulations (“Proposed Regulations”) in January 2015, following the publication of a report by both the Maryland Department of the Environment (“MDEP”) and the Department of Natural Resources, which set forth best practices to be followed by all gas drillers in the state (see OMM January 13, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations). Thereafter, the General Assembly passed a bill in April 2015 that will not allow fracking permits to be issued in Maryland until October 1, 2017, subsequent to MDEP adopting required fracking regulations by October 1, 2016 (a three-year moratorium was considered, but rejected). The bill was passed by margins that could overcome a potential veto by Governor Larry Hogan11, who has also not moved forward with promulgating or withdrawing the Proposed Regulations, which were published by his predecessor and would impose fines of up to $50,000 for violators of the rules.

G. Ohio

On February 17, 2015, the Ohio Supreme Court ruled in a 4-3 decision that state law supersedes home rule in connection with permitting for oil and gas well operations, thereby overriding certain restrictions imposed by the City of Monroe Falls. The City sought to enjoin operations of Beck Energy Company for failing to comply with certain general, as well as oil-and-gas-specific, zoning restrictions. Beck Energy argued that its state-issued drilling permit preempted the city’s zoning requirements. The Ohio Supreme Court agreed with Beck Energy that Ohio’s Revised Code § 1509.02 gave the Ohio Department of Natural Resources (“ODNR”) “sole and exclusive authority to regulate the permitting, location, and spacing of oil and gas wells and production operations within the State of Ohio,” thereby preempting local ordinances to the extent that they sought to regulate drilling activities.

On March 11, 2015, a lower court, citing the Supreme Court’s decision, struck down the voter-approved “Community Bill of Rights” passed in 2012 that aimed to ban fracking in Broadview Heights, Ohio12. However, a related class-action lawsuit13 remains pending, filed on December 4, 2014 by a local activist group in Ohio state court, seeking to enforce the Broadview Heights “Community Bill of Rights” and asserting that any state preemption of the City Charter violates the residents’ self-governance rights under the state constitution.

On December 23, 2014, the Ohio Oil and Gas Commission (“Commission”) revoked a permit that would allow Cutter Oil Company to drill a new oil and gas well in North Royalton, finding the ODNR failed to take into account the safety concerns of the city when it granted the permit. The ODNR appealed the decision in January 2015, but the Commission has yet to release a decision. In light of the Supreme Court’s recent ruling, it is likely that municipalities may make similar appeals to the Commission based on safety concerns if the Commission’s initial decision becomes precedent.

H. Pennsylvania

On January 29, 2015, Governor Tom Wolf signed an executive order barring fracking operations on state park and state forest lands owned and/or managed by the Department of Conservation and Natural Resources. Wolf’s predecessor had opened state parks and forests to fracking operations in 2014, after the Pennsylvania Supreme Court struck down provisions of Act 13, finding unconstitutional the prohibition on local fracking regulations and the requirement of statewide uniformity among local zoning ordinances with regards to oil and gas resources (see OMM September 2, 2014, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations).

I. California

On March 3, 2015, the town of La Habra Heights rejected a fracking ban, in addition to the drilling of any new oil and gas wells, or reactivation of any old, unused wells. Several California localities have previously passed or considered measures to ban fracking within their jurisdiction (see OMM January 13, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations). The town of La Hambra joins voters in Santa Barbara County who had previously defeated a measure in November 2014 that would have banned “high intensity” oil and gas operations, including fracking (but not conventional drilling operations).

On April 1, 2015, Governor Jerry Brown issued an executive order imposing statewide mandatory water reductions on cities and counties; however, oil and gas operations will not be impacted by such restrictions. On April 2, 2015, the California Department of Justice denied an emergency petition submitted under the state’s Administrative Procedure Act by over 150 community, environmental, and health groups seeking a moratorium on fracking in the state, arguing that fracking posed a threat to both the public and the environment. A recent study released by the California Natural Resources Agency found that about 20 percent of the oil produced in the state over the last decade was recovered through fracking.

On April 2, 2015, the California Department of Conservation released emergency rules to regulate underground oil and gas injection wells after concerns that many were illegally contaminating drinking water aquifers, which prompted the state to implement a mass shutdown. Under the regulations, all injections into non-exempt aquifers, or those where exemption status is unclear, must cease between October 15, 2015 and February 15, 2017, depending on the water quality of the aquifer at issue.

On February 19, 2015, an environmental group filed a lawsuit against the U.S. Interior Department’s Bureau of Ocean Energy Management, challenging approvals of drilling permits for fracking in federal offshore waters, claiming such operations violate the Outer Continental Shelf Land Act14, the Coastal Zone Management Act15 and the National Environmental Policy Act (“NEPA”)16. The action followed the filing of a complaint on December 3, 2014, against the U.S. Interior Department’s Bureau of Safety and Environmental Enforcement, claiming that it violated NEPA by approving 51 permit applications for offshore well stimulation along California’s coastline without requiring applicants to submit environmental impact statements.

J. Colorado

bill introduced in the Colorado Senate would require local governments that impose fracking restrictions to compensate mineral owners “for the full diminution in the fair market value of the owner’s interest caused by the regulatory impairment of the local government,” if the regulations reduce the value of their property by at least 60 percent. Courts in Colorado have recently overturned fracking bans in Fort Collins, Lafayette and Longmont (see OMM September 2, 2014, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations); however, Longmont’s ban remains in effect while on appeal and Boulder County recently extended its moratorium on fracking until July 1, 2018 (no legal challenges were filed against the Boulder restrictions and there are currently no active wells within the city’s limits).

In February 2015, the U.S. Forest Service executed a record of decision (“ROD”) after completing a Final Environmental Impact Statement (“FEIS”) for the Pawnee National Grassland in Weld County, Colorado. The ROD allows for oil and gas leasing on 100,000 acres of the national forest, but will prohibit wells and well pads on the land in order to avoid surface disturbance and other environmental impacts identified in the FEIS. However, the “no-surface occupancy stipulation” that will be required in any future oil and gas lease in the Pawnee National Grassland will allow for extraction of oil and gas through horizontal drilling and hydraulic fracturing.

K. New York

On March 31, 2015, the New York Court of Appeals (“NY Court”) (New York’s highest court) ruled on one of two questions certified to the Court in July 2014 by the U.S. Court of Appeals for the Second Circuit (see OMM January 13, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations). The NY Court ruled that a force majeure clause does not modify the primary term of the lease, thereby extending the lease for the amount of time the moratorium is in place. As described in a previous alert (see OMM January 13, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations), on December 17, 2014, New York Governor Andrew Cuomo announced a ban on fracking throughout New York State, which followed a decision in June 2014 by the NY Court upholding bans by the towns of Dryden and Middlefield under home-rule doctrine, finding that the New York Oil, Gas, and Solution Mining Law does not preempt such home-rule authority.

L. New Mexico

On January 19, 2015, a federal district court in New Mexico overturned an ordinance passed on April 29, 2013, banning fracking within the Mora County limits17. The court ruled that the Mora County ordinance violated the Supremacy Clause of the U.S. Constitution, stating that it “does more than deter or chill First Amendment rights; it prohibits them” by stating that corporations do not “have the rights of persons afforded by the United States and New Mexico Constitutions.” The Mora County Commission repealed the ordinance in March 2015. Commentators have noted, however, that the district court ruling did not hold that local governments are prohibited from regulating oil and gas operations, stating that New Mexico law “does not preempt the entire oil and gas field” and that there is “room for concurrent regulation with local governments.”

M. North Carolina

Fracking regulations for oil and gas development, approved in December 2014 by the North Carolina Rules Review Commission, took effect on March 17, 2015 (see OMM January 13, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations). One day later, legislation was signed into law eliminating a requirement that the North Carolina Environmental Management Commission establish regulations governing toxic air emissions caused by fracking operations, instead only requiring such action if “the State’s current air toxics program and any federal regulations governing toxic air emissions from drilling operations…are inadequate to protect public health, safety, welfare, and the environment.”

N. Michigan

On March 11, 2015, the Michigan Department of Environmental Quality announced final revised regulations18 on fracking in the state, which require companies to disclose chemicals used during fracking operations through FracFocus, to collect baseline samples from all available water sources within a quarter-mile radius of any fracking well, and comply with various notice requirements.

O. Oklahoma

On April 22, 2015, the Oklahoma House of Representatives passed two bills that will impact a municipality’s ability to regulate oil and gas operations. One bill will allow municipalities to enact reasonable ordinances, rules, and regulations relating to “road use, traffic, noise and odors incidental to oil and gas operations within its boundaries,” but prohibits bans on such drilling or disposal wells without approval from the state. The other bill will allow royalty owners to claim that a taking has occurred and seek compensation when a municipal “ordinance, resolution, rule, regulation or other form of official policy concerning oil and gas operations” adversely impacts a mineral estate. Commentators expect the Senate to approve the measures after passing previous version of both bills in March.

P. Texas

Following the November 4, 2014 vote by residents of Denton, Texas to ban fracking within city limits (see OMM January 13, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations), the Texas House of Representatives passed a bill in April 2015, sending it to the Senate for consideration, that would preempt regulations of oil and gas operations by municipalities, including bans on fracking or the imposition of setback rules.

Q. Wyoming

On January 23, 2015, the Wyoming Oil and Gas Conservation Commission and several environmental groups entered a settlement agreement whereby fracking operators will be required to provide documentation when claiming a trade-secret exemption for chemicals used in their fracking operations, and must follow extensive guidelines in seeking such an exemption19.

R. Florida

On April 27, 2015, the Florida House of Representatives approved a measure calling for statewide regulation which is expected to be passed by the Senate and become law. The bill prevents municipalities from adopting permitting programs for fracking operations (including outright bans), requiring instead a state-issued permit (currently, companies can utilize fracking techniques with a conventional drilling permit, without informing the state prior to the issuance of a drilling permit). The state will also have authority to view a fracking permit applicant’s out-of-state history and will establish both bonding requirements and fines for illegal operations. Under the legislation, the Florida Department of Environmental Protection will be required to submit a peer-reviewed study by June 30, 2016, which assesses the impacts of fracking on groundwater as well as potential for use or reuse of recycled fracking water. Proposed regulations will follow issuance of the study and no fracking permits are allowed to be issued until the rulemaking is complete.. Although the bill would require fracking companies to disclose chemicals used in fracking operations to the state, another bill that is expected to pass the House of Representatives would require the state to keep any “proprietary business information” (a term defined broadly in the proposed law) confidential, which will include many of such fracking chemicals.

INTERNATIONAL DEVELOPMENTS

S. Mexico

The Environmental Ministry of Mexico (“Ministry”) issued non-binding recommendations for the regulation of fracking, which are the first such guidelines released by the Mexican government. The Ministry recommended that fracking operations utilize 90 percent recycled water, and implement monitoring to avoid contamination of sources used to supply drinking water to the public20. Although no fracking operations have started in Mexico, the government announced it will hold a private auction in 2015 to develop fracking operations in the country, after recently opening the bidding period for an auction of shallow-water offshore oil exploration blocks in the Gulf of Mexico21.

T. Canada

On April 13, 2015, despite that no fracking applications are currently pending in the province, the Natural Resources and Forestry Minister of Ontario announced that it would not consider any fracking applications “before proper consultations with stakeholders, Aboriginal communities, and the public are conducted to ensure that adequate measures are in place to protect the environment.” In March 2015, the Northwest Territories released proposed fracking regulations that require operators to submit a risk assessment (including seismic and groundwater impacts), spill contingency plan, environmental protection plan, all-season well pad plan, and an inter-well distance plan to regulators for authorization. These developments follow a series of fracking restrictions imposed by other provinces, including New Brunswick, Nova Scotia, Quebec, Newfoundland and Labrador, and Yukon (the moratorium in Yukon will be lifted if aboriginal groups that would be affected by fracking agree) (see OMM January 13, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations).

U. United Kingdom

On February 12, 2015, the Infrastructure Act 2015, which rejected a proposal to place a moratorium on fracking in the U.K. and will allow fracking under national parks through horizontal drilling from wells located outside the parks, received royal assent, thereby becoming law. The law does not include certain conditions, initially included in the legislation, that developers of shale gas would need to follow, including carrying out environmental impact assessments prior to starting operations.

V. European Union

Following the issuance of non-binding guidelines for fracking in January 2014 (see OMM September 2, 2014, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations), the European Commission published a survey on February 27, 2015 finding that only five member nations (Denmark, the Netherlands22, Poland, Romania, and the U.K.) have authorized the issuance of fracking permits, six additional member nations (Austria, Germany, Hungary, Lithuania, Portugal, and Spain) are considering such authorization, and three member nations have banned fracking operations (France, Bulgaria, and the Czech Republic). The other 17 member nations surveyed have refrained from taking any action in connection with fracking and responded that they have no current plans to authorize the practice.

OTHER DEVELOPMENTS

V. Fracklog

It was recently reported that fracking operators in Texas and Pennsylvania have held back production at 4,731 oil and gas filed that have already been drilled, due to low oil prices23.

W. Disclosure

The EPA recently released a report that summarizes and evaluates the chemical and water use data from more than 38,000 fracking wells as reported to FracFocus between January 1, 2011 and February 28, 2013. The study found that the FracFocus database contained (at the time of the study) “692 unique ingredients reported for additives, base fluids, and proppants. Operators designated 11% of all ingredient records as confidential business information. One or more ingredients were claimed confidential in more than 70% of disclosures.” FracFocus recently announced on its website that improvements are being made to expand the public’s ability to search records, improve data accuracy, and update educational information on chemical use, oil and gas production, and potential environmental impacts of fracking. Approximately 1,110 companies and 9,500 well sites are registered on FracFocus.

On April 14, 2015, a Pennsylvania appeals court declined to overrule an order directing Range Resources Corporation (“RRC”) to provide the constituent ingredients of fracking chemicals to landowners who are alleging that environmental contamination caused by fracking operations caused personal injuries and property damage. The court found that RRC as the operator did not maintain a sufficient interest in protecting the information, and that only the manufacturer of fracking chemicals can assert such a claim24.

On April 24, 2015, a federal court granted a joint stay that will allow EPA until October 30, 205 to respond to a lawsuit brought by a coalition of environmental groups against the EPA for failing to require the energy industry to disclose information about toxic constituents of fracking fluids pursuant to the Emergency Planning and Community Right-to-Know Act of 1986 (“EPCRA) (see OMM January 13, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations). The plaintiffs originally sought a court order requiring EPA to respond within sixty days, however, agreed to the extended timeline provided by EPA. The plaintiffs seek a judgment declaring that the EPA’s failure to respond to the plaintiffs’ request is a violation of the Administrative Procedure Act.

X. Waste Disposal/TENORM

Several state authorities and academic institutions are evaluating risk associated with technologically enhanced naturally occurring radioactive material (“TENORM”), which results from fracking operations. The Pennsylvania Department of Environmental Protection (“PADEP”) released a study in January 2015 finding that there are limited risks to workers and the public from TENORM, concluding that, although the issue should be studied further, no additional regulations were required (a state appeals court recently rejected demands by an environmental group for the sampling data behind the PADEP study, finding that such data is exempt from disclosure under Pennsylvania’s Right-to-Know Law). However, a study released on April 9, 2015 by the Johns Hopkins Bloomberg School of Public Health found “a statistically significant association” between fracking wells and increased radon levels observed in approximately 300,000 basements located throughout the state, although the study makes no definitive findings and recommends that the issue be further examined.

In both North Dakota and Michigan, limits are being proposed in connection with TENORM disposal in landfills, based on the findings in a study and white paper commissioned, respectively, by each state. In 2012, Vermont banned the treatment, disposal or storage of fracking waste (in addition to all fracking operations), while a three-year moratorium in Connecticut took effect in August 2014. Legislatures in New York, New Jersey and Massachusetts have introduced legislation to implement various restrictions on fracking waste (including TENORM); however, to date, none have been signed into law.

Y. Water Quality

A recent study evaluating USGS and EPA data sets from 1970 to 2010 found no consistent trend in surface water quality in areas with fracking operations and that there is insufficient data to assess any potential risks to water quality associated with fracking.

Z. Methane

study published on March 12, 2015 in Environmental Science & Technology contradicts the findings of an earlier study published on September 15, 2014 in the Proceedings of the National Academy of Sciences, which stated that fugitive methane gas contamination found in certain areas of Texas and Pennsylvania were likely the result of well integrity problems due to casing or cementing issues in connection with fracking operations (see OMM January 13, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations). The March 2015 study “found no statistically significant relationship between dissolved methane concentrations in groundwater from domestic water wells and proximity to pre-existing oil or gas wells,” also claiming that the study’s data set “is hundreds of times larger than data sets used in prior studies.”

AA. Worker Safety

In January 2015, the Occupational Safety and Health Administration (“OSHA”) issued an advisory titled “Hydraulic Fracturing and Flowback Hazards Other than Respirable Silica,” following its publication of a proposed rule in September 2013 to amend existing standards for occupational exposure to respirable crystalline silica (a final rule has yet to be issued) (see OMM April 1, 2014, Client Alert, Recent Developments Affecting Hydraulic Fracturing Operations). OSHA states that the January 2015 “guidance document is not a standard or regulation and it creates no new legal obligations,” but is intended to assist employers in providing a safe and healthful workplace.

The National Institute for Occupational Safety and Health reported that, between 2010 and 2014, “inhalation of volatile petroleum hydrocarbons” during “tank gauging, sampling, and fluid transfer activities” at fracking wells was a possible contributing factor in at least nine deaths of workers.


[1] BLM published a minor correction to the Final Rule on March 30, 2015, addressing two references to the date September 22, 2015, which should have read December 26, 2014.

[2] Alan Kovski, BLM Has Begun Work on State Variances From Requirements of Federal Fracking Rule, BLOOMBERG BNA: DAILY ENVIRONMENTAL REPORT (Mar. 24, 2015).

[3] Paul O’Donnell, State orders two energy firms to prove wells aren't causing North Texas earthquakes, DALLAS BUSINESS JOURNAL (Apr. 25, 2015).

[4] Paul Stinson, Amid Surge in Seismicity, States Join Effort On Regulating Saltwater Disposal Wells, BLOOMBERG BNA: DAILY ENVIRONMENTAL REPORT (Feb. 17, 2015).

[5] Under the order, “an affected train is one that contains: 1) 20 or more loaded tank cars in a continuous block, or 35 or more loaded tank cars, of Class 3 flammable liquid; and, 2) at least one DOT Specification 111 (DOT-111) tank car (including those built in accordance with Association of American Railroads (AAR) Casualty Prevention Circular 1232 (CPC-1232)) loaded with a Class 3 flammable liquid.”

[6] Rachel Leven, Phaseout of Older Crude-by-Rail Cars Feasible in Five to Seven Years, Makers Say, BLOOMBERG BNA: DAILY ENVIRONMENTAL REPORT (Mar. 11, 2015).
Id.

[7] Rachel Leven, Crude-by-Rail Rule Underestimates Costs, Number of Tank Cars, Industry Tells OMB, BLOOMBERG BNA: DAILY ENVIRONMENTAL REPORT (Mar. 11, 2015).

[8] Rachel Leven, Lobbying on Crude-by-Rail Doubles Over Year as PHMSA Rule Becomes Final, BLOOMBERG BNA: DAILY ENVIRONMENTAL REPORT (Apr. 21, 2015).

[9] Rachel Leven, Impact of Cutting Crude-by-Rail Volatility, Fate of Resulting Product Remain Unclear, BLOOMBERG BNA: DAILY ENVIRONMENTAL REPORT (Apr. 14, 2015).

[10] Under Maryland law, Governor Hogan has 30 days after presentment to sign or veto a bill, which becomes law should he abstain from any action.

[11] Bass Energy Inc. v. City of Broadview Heights, Ohio, No. CV-14-82807 (Mar. 11, 2015).

[12] Mothers Against Drilling in Our Neighborhood v. Ohio, No. CV-14-836899 (Cuyahoga Co., filed Dec. 4, 2014).

[13] 43 U.S.C. § 1331 et seq.

[14] 16 U.S.C. § 1451 et seq.

[15] 42 U.S.C. § 4321 et seq.

[16] SWEPI LP v. Mora County, No. 1:14-cv-0035 (Jan. 19, 2015).

[17] Department of Environmental Quality Office of Oil, Gas, and Minerals, Oil and Gas Operations, available at http://www7.dleg.state.mi.us/orr/Files/AdminCode/1298_2013-101EQ_AdminCode.pdf.

[18] Powder River Basin Res. Council v. Wyoming Oil and Gas Conservation Comm’n, No. 94650-C, (Wyo. Dist. Ct.) (settlement approved Jan. 23, 2015).

[19] Emily Pickrell, Mexico Begins Foray Into Fracking Rules With Focus on Guidelines to Protect Water, BLOOMBERG BNA: DAILY ENVIRONMENTAL REPORT (Mar. 16, 2015).

[20] Laurence Iliff, Mexico Tenders Nine Shallow-Water Oil Fields, THE WALL STREET JOURNAL (Feb. 27, 2015).

[21] In the survey, the Netherlands stated that, although licenses were issued prior to 2011, issuance of fracking permits is not currently allowed while the government investigates the practice.

[22] Lynn Doan and Dan Murtaugh, Backlog of Wells Waiting to Be Fracked Triples as Drillers Keep Oil From Market, BLOOMBERG BNA: DAILY ENVIRONMENTAL REPORT (Apr. 24, 2015).

[23] Caroline Simson, Range Resources Loses Bid To Shield Fracking Chemical Info, LAW 360 (Apr. 15, 2015).


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