alerts & publications
Current Developments Affecting Hydraulic Fracturing Operations (October 2015)October 20, 2015
We are providing our quarterly update on laws, regulations, and policies affecting hydraulic fracturing (“fracking”) operations. Our last installment was issued July 21, 2015, and may be found here.
This update includes changes in state and local bans and restrictions (these continue to proliferate in the absence of a federal scheme), regulatory developments at the state and federal levels including in connection with new proposed requirements for control of methane emissions at upstream operations, and efforts to evaluate and regulate seismic risk. In many instances, we carry forward text from our prior information updates in order to provide context, although we encourage readers to refer to previous installments for a more in-depth analysis.
FEDERAL REGULATORY DEVELOPMENTS
A. BLM Final Rule
As reported in our April and July editions, industry groups and several states filed separate lawsuits (subsequently consolidated) against the U.S. Department of Interior (“DOI”) Federal Bureau of Land Management’ (“BLM”), seeking to enjoin BLM’s rule governing fracking on federal and tribal lands (“Final Rule”). In the most recent of these, the U.S. District Court for the District of Wyoming1 on September 30th issued a preliminary injunction, temporarily putting the Final Rule on hold. The injunction follows an order issued by the Wyoming District Court on June 23, 2015, which stayed the June 24th effective date of the Final Rule.
On October 9, 2015, the Southern Ute Indian Tribe (the “Tribe”) and the DOI, in a separate action filed by the Tribe in June 2015 in Colorado federal court, requested a stay of all legal proceedings while the parties sought to negotiate a resolution. The Tribe challenged a provision of the Final Rule limiting BLM’s authority to grant variances for tribal land where Final Rule objectives would be met or exceeded. The Tribe claims that such provisions conflict “with the Indian Mineral Leasing Act” and “unlawfully restricts the Tribe’s power under the Indian Reorganization Act, the Indian Mineral Leasing Act and [applicable regulations].”
B. Osage Nation Final Rule
On July 1, 2015, Osage Minerals Council, an agency in the Osage Nation, and Osage Producers’ Association, an industry group, filed separate lawsuits2 in Oklahoma federal court seeking to strike down the final rule published by the DOI Bureau of Indian Affairs that would revise oil and gas mining regulations on the tribe’s reservation. The rule would update leasing procedures and the rental, operations, safety and royalty requirements for oil and gas production on Osage mineral lands. The Osage Producers’ Association claims that the revised regulations are unconstitutionally arbitrary and impose unreasonable costs. The Osage Minerals Council claims that the rule “imposes requirements that are arbitrary, unsubstantiated, lack justification and are unnecessary,” would be impossible to comply with, and would destroy the development of the mineral estate. On July 10, 2015, the court ordered the July 8th effective date of the Final Rule to be delayed and then granted a preliminary injunction on August 10, 2015, while the legal proceedings are in process.3
C. Control of Methane Emissions
As reported in our January edition, the EPA has been planning a proposed rulemaking on control of fugitive emissions since April 2014. On August 18, 2015, the EPA proposed standards for new and modified oil and natural gas wells (“Proposed Standards”), which will set limits on methane and volatile organic compounds (“VOC”), including for pneumatic pumps and fugitive emissions from compressor stations. The Proposed Standards also require new and modified wells to capture methane and VOCs using green completions “to reduce methane and VOC emissions and maximize natural gas recovery from well completions.” The EPA is also proposing standards to control methane and VOC emissions from equipment leaks at wells and natural gas processing plants (VOC limits were already implemented under the 2012 Rule, as discussed below). The public comment period on the Proposed Standards expires on November 17, 2015, with a final rule expected to be released in the summer of 2016.
In public hearings on the Proposed Standards, environmental groups have urged the Agency to expand the scope of the Proposed Standards to include existing sources of methane. Industry groups have argued that the Proposed Relations are unnecessary because methane emissions are decreasing (in part, through state regulation) and the EPA’s 2012 New Source Performance Standards (“2012 Rule”) already indirectly regulate such emissions. As reported in our September 2014 edition, in April 2012, the EPA adopted final regulations under the Clean Air Act, which took effect on January 1, 2015, creating national standards to reduce air pollution created by fracking and other oil and gas operations. Several technical updates to the 2012 standards were finalized on July 31, 2015.
On the same day as its release of the Proposed Standards, the EPA also released a proposed rule for new and modified oil and natural gas wells to clarify what will be considered a “source” subject to regulatory obligations (“proposed Rule”). EPA suggests two approaches; Under the first option, “adjacent” sources will be considered a single source where two or more surface sites share the same two digit Standard Industrial Classification (SIC) code, are under common control, and are contiguous or are located within a short distance of one another, (EPA proposes a distance of ¼ mile or less). EPA states that it prefers this option because it is similar to regulations under the National Emission Standards for Hazardous Air Pollutants (NESHAP) and will streamline the permitting process. Further, EPA states this will avoid facilities being “daisy-chained” whereby “each individual unit is located within the specified ‘contiguous or adjacent’ distance from the next unit, but where the last unit is separated from the first unit by a much larger distance.”
The second option presented in the proposed Rule would define a source to include all interrelated equipment that is under common control, is in the two-digit SIC code, and is on contiguous or adjacent property. Under the second option, sources will be considered “adjacent” if separated by a distance of ¼ mile or more and there is an exclusive functional interrelatedness (e.g. connected by a pipeline or there are exclusive deliveries of products from one group of equipment to the other via trucks or trains); or (2) the pollutant-emitting activities are separated by a distance of less than ¼ mile. Some commentators have noted that EPA does not explain in the Source Determination Rule how this proposal differs from the standard of “functional interrelatedness” in determining adjacency under the Title V of the Clean Air Act struck down by the U.S. Court of Appeals for the Sixth Circuit Court.4
On the same day as its release of the Proposed Standards and Source Determination Rule, the EPA also released Draft Control Techniques Guidelines for reducing VOC emissions from existing oil and gas sources in certain ozone nonattainment areas and states in the Ozone Transport Region.
D. EPA’s Fracking and Water Study
The EPA has now received 257 comments on its June 2015 report, analyzing potential impacts of fracking on drinking water (see OMM July 21, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations). The EPA’s Science Advisory Board has observed that these comments reflect concern over toxicity of fracking compounds, excessive water usage wastewater controls and the extent of public disclosure around safety data.5 In a related development, on August 26, 2015, environmental groups issued a 60-day advance notice of intent to sue the U.S. Environmental Protection Agency (“EPA”) under the Resource Conservation and Recovery Act (“RCRA”) with respect to Wastes Associated with the Exploration, Development, or Production of Oil and Gas. The environmental groups stated that if the EPA fails—within 60 days of the notice being issued—to review and, if necessary, revise the regulations that govern fracking under the RCRA, they will file a lawsuit against the agency claiming that the EPA failed to perform its nondiscretionary duties under the RCRA. It is expected that the suit will go forward at the end of this month.
STATE BANS AND RESTRICTIONS ON FRACKING OPERATIONS
On October 14, 2015, a Pennsylvania federal court struck down a municipal ordinance banning the disposal of oil and gas waste within Grant Township,6 finding that “second-class townships,” such as Grant, are not authorized to regulate underground injection control wells.
On October 8, 2015, Governor Tom Wolf signed legislation that will facilitate the use of treated mine water in place of fresh water, creating a state liability exemption for mine operators who furnish treated mine water from coal mine operations. The new law will not protect coal mine operators or fracking developers from liability under federal environmental laws.7
In August 2015, the PaDEP issued its most recent draft of a rulemaking for improved practices in development of oil and gas wells (“Proposed Rule”). The current draft of the Proposed Rule requires identification of abandoned wells within 1,000 feet of a new well bore prior to fracking, implementation of more stringent waste management processes at well sites, and restrictions for drilling near certain community areas such as schools and playgrounds. The recent draft of the Proposed Rule did not include provisions on noise control and centralized wastewater storage tanks that were included in a previous version of the Proposed Rule, although the PaDEP recently announced that it is considering a separate rulemaking on noise mitigation resulting from oil and gas operations. A final version of the Proposed Rule is expected by March 2016.
As reported in our April edition, on February 17, 2015, the Ohio Supreme Court ruled that state law supersedes home rule in connection with issuing permits for oil and gas well operations, thereby overriding certain restrictions that certain municipalities had sought to impose. In response, three counties attempted to put anti-fracking community rights initiatives on the November 2015 ballot. However, Ohio’s secretary of state invalidated these measures, a decision that was upheld by the Ohio Supreme Court in a 6-1 decision handed down in September 2015. The Court stated that although the secretary of state did not have the authority to invalidate the charter provisions as “void and unconstitutional,” he did have the authority to invalidate the proposed initiatives under “threshold requirements that define a charter initiative.”
Despite these rulings by the state’s highest court, and failing to pass a local charter amendment five times, an initiative to ban fracking within the City of Youngstown will be put before voters in November 2015, although even if passed, the initiative will almost certainly be struck down by the state courts.
G. New York
As reported in our April edition, on March 31, 2015, the New York Court of Appeals (“NY Court”) (New York’s highest court) ruled that a force majeure clause in an oil and gas lease did not serve to extend its term in light of the New York State June 2015 ban. On August 19, 2015, the Second Circuit, affirmed the NY Court’s ruling.
On September 21, 2015, the Colorado Supreme Court announced it would hear appeals from lower court decisions overturning fracking bans passed in Longmont and Fort Collins. The lower courts found that the state’s Oil and Gas Conservation Law8 preempts the local bans (see OMM April 28, 2015, Client Alert: Current Developments Affecting Hydraulic Fracturing Operations).
On July 30, 2015, the Center for Biological Diversity filed a lawsuit against the California Department of Conservation, alleging that the agency failed to properly consider environmental impacts (as required under SB 4 and the California Environmental Quality Act9) in an environmental impact report certified on the same day it issued rules regulating oil and gas well stimulation in California (See OMM July 21, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations).
California continues to close Class II wastewater injection wells under emergency regulations issued earlier this year (and set to expire on October 20th). A total of 56 wells have been closed, most of these serving oil production operations in Kern County.
J. New Mexico
On August 14, 2015, a federal court denied a local stakeholder requests to enjoin the DOI from approving more Mancos Shale drilling permits (see OMM July 21, 2015, Client Alert, Current Developments Affecting Hydraulic Fracturing Operations). The court found that evidence presented by the plaintiffs (which include Navajo tribal groups) “…does not persuade the Court that the BLM’s [permit] approval…were arbitrary or capricious, or that the BLM arrived upon them without taking a hard look at the environmental consequences.” The plaintiffs are expected to appeal the decision to the U.S. Court of Appeals for the Tenth Circuit.
K. Consideration of Seismic Impacts
On September 10, 2015, the Texas Railroad Commission (“TRC”) found that activities at waste injection wells could not be linked to the earthquakes occurring in the same vicinity.
At the same time, international tribunals indicated a willingness to consider seismic impacts. A Dutch court ruled, in September 2015, that an oil company co-owned by ExxonMobil Corp. and Royal Dutch Shell PLC is required to pay property owners who claim that their property value has decreased as a result of earthquakes in the vicinity of their property allegedly caused by nearby oil and gas operations.10
In August 2015, the BC Oil and Gas Commission approved amendments to regulations for oil and gas drilling in the province, which require certain actions to be taken in the event of a seismic event occurring within a three-kilometer radius of a disposal or fracking operation. In addition, waste and reservoir storage regulations were strengthened, and enhanced testing and analysis requirements were implemented.
L. Rail Transportation
On October 9, 2015, the Department of Transportation (“DOT”) and the Federal Railroad Administration (“FRA”) announced plans to issue a safety advisory recommending increased and improved inspection of rail defects and flaws. The FRA also indicated it will explore the need for rail-head wear standards and potentially require railroads to slow trains or replace a rail when certain conditions pose a safety risk. Following the derailment of 27 cars and the evacuation of hundreds of local area residents in West Virginia on February 16, 2015, the FRA secured a commitment from CSX Corporation to perform “real time” comparisons of inspection data with prior data in order to provide for early identification of conditions that have worsened between inspections.
As reported in our April edition, the FRA published a notice of proposed rulemaking titled “Risk Reduction Program,” which 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 proposed 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. The comment period for this proposed rule was reopened two times, with the second extension expiring on September 18, 2015.
M. Toxicity Risk
A study conducted by the Stanford University Institute for the Environment on July 21, 2015, concludes that additional safeguards would be beneficial for shallow fracking operations (operations where fracking activity occurs less than one mile from the surface). Shallow fracking accounts for approximately sixteen percent of total wells. According to the study, “only Colorado and Texas provide additional oversight or data transparency regardless of how shallow the fracturing occurs, even when millions of gallons of water and chemicals are used.” The study suggests requiring operators to provide more information about the distance between groundwater resources and potential fractures; creating a mandatory state or federal registry for all shallow fracking operations; and requiring pre-drilling and post-stimulation water testing to ensure that fracking operations are not impacting drinking water reservoirs.
A report released in the journal Endocrinology11 on October 14, 2015, found “23 commonly used oil and natural gas operation chemicals” can have “possible adverse developmental and reproductive health outcomes in humans and animals.” The study found decreased sperm count and increased testes, body, heart, and thymus weights in prenatal male mice exposed to certain fracking chemicals.
Some commentators have suggested that additional testing on fracking chemicals may be required pursuant to the Toxic Substances Control Act if reform legislation pending in the Senate is passed (the House has already approved a comparable measure).
N. United Kingdom
On August 13, 2015, government officials announced measures that will be implemented in order to fast-track shale gas planning applications to “ensure communities and the industry benefit from a swift process for developing safe and suitable new sites.” The government will target local councils that repeatedly take longer than the sixteen-week statutory timeframe required in making a decision on applications.
 Wyo. v. Dep’t of Interior, D. Wyo., No. 2:15-CV-00043 (D. Wyo. Sep. 30, 2015).
 Osage Producers' Association v. Jewell et al., No. 4:15-cv-00367 (N.D. Okla. Aug. 10, 2015), available here; Osage Mineral Council v. U.S. Department of the Interior et al., No. 4:15-cv-00371 (N.D. Okla. Aug. 10, 2015), available here.
 Summit Petroleum Corp. v. EPA, 690 F.3d 733 (6th Cir. 2012).
 Pat Ware, Toxics, Water Use Top Fracking Concerns: Researcher, BLOOMBERG BNA: DAILY ENVIRONMENTAL REPORT (Sep. 30, 2015).
 Pennsylvania General Energy Co. LLC v. Grant Township, No. 1:14-cv-00209 (W.D. Pa. Oct. 14, 2015).
 Leslie Pappas, Pennsylvania Promotes Use of Mine Water for Fracking, BLOOMBERG BNA: DAILY ENVIRONMENTAL REPORT (Oct 8, 2015).
 The Oil and Gas Conservation Act. Colo. Rev. Stat. Sec. 34-60-102.
 California Public Resources Code Sec. 21000 et seq.
 Keith Goldberg, Exxon-Shell JV Must Pay For Quake Damage, Dutch Court Says, LAW360 (Sep. 2, 2015).
 Authors of the study include researchers from Duke University, the University of Missouri, the University of Massachusetts, IDEXX RADIL Pathology, and the U.S. Geological Survey's Columbia Environmental Research Center.
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