Recent Developments Affecting Hydraulic Fracturing Operations

June 11, 2013

In general, hydraulic fracturing or “fracking” involves the injection of fluids under pressure great enough to fracture oil- and gas-producing formations. The resulting fractures are then held open using “proppants,” such as fine grains of sand or ceramic beads, to allow oil and gas to flow from small pores within the rock to production wells. Fracking can be used to produce economically viable quantities of oil and natural gas that otherwise might be unavailable, including from unconventional reservoirs, such as shale, tight sands, coalbeds and other formations.

As the use of fracking has increased dramatically in the last three years, so have concerns about its potential impacts on health and the environment, including impacts on drinking water resources and air quality impacts, diminution of property value, sociologic effects (such as increased traffic and demand for public services) and increased seismic events.[1] These concerns have spawned litigation and governmental initiatives that have the potential to significantly change the face of fracking operations. Until recently, these initiatives were limited to state and local requirements mandating the disclosure of fracking fluid constituents.

1. U.S. Federal

At the urging of Congress, the U.S. Environmental Protection Agency (“EPA”) is undertaking a study of the potential impact of fracking on drinking water resources. The EPA began formal planning for the study in 2009 and, in November 2011, published its study plan.[2] In November 2012, the EPA invited the public to submit data and scientific literature to inform the EPA’s research, setting April 30, 2013 as the final date for submissions[3].

In December 2012, the EPA published its first progress report for the study.[4] The progress report describes eighteen projects currently underway that will attempt to answer questions relating to water acquisition, chemical mixing, well injection, flowback and produced water, and wastewater treatment and waste disposal.[5] However, the EPA has cautioned that the information present in the progress report “cannot be used to draw conclusions about the potential impacts to drinking water resources from hydraulic fracturing.”[6]

In March 2013, the EPA’s Science Advisory Board announced the formation of a Hydraulic Fracturing Research Advisory panel, which will be composed of thirty one independent experts.[7] When the draft report becomes available, the panel will conduct and publish a peer review. Prior to that, the panel will seek input from applied science practitioners in the field and provide scientific feedback on the EPA’s research.[8]

In April 2013, the EPA extended the deadline for submitting information relevant to the study to November 15, 2013.[9] The EPA currently anticipates that a draft report will not be released for public comment and peer review until late 2014.[10]

In addition to its study of the potential impact of fracking on drinking water resources, the EPA has commenced several other regulatory undertakings:

  • In October 2011, the EPA announced that it would propose treatment standards for wastewater discharges produced by natural gas extraction from underground coal-bed and shale formations by 2013 and 2014, respectively.[11]
  • In May 2012, the EPA issued draft Underground Injection Control permitting guidance for Class II injection wells for fracking activities that use diesel fuels.[12]
  • In August 2012, the EPA promulgated first-of-their-kind federal new source emission standards for emissions of volatile organic compounds from fracking wells.[13] In April 2013, the EPA proposed amendments to the rule, primarily relating to emissions from natural gas storage vessels.[14]

Separately, the Bureau of Land Management (“BLM”) has been developing best practices for fracking on public lands. The BLM published a proposed rule in May 2012 and a revised proposal in May 2013.[15] The revised proposal requires (i) public disclosure of chemicals used in fracking operations, (ii) confirmation that wells used in fracking operations meet appropriate construction standards, and (iii) plans for managing flowback waters from fracking operations.[16] According to the BLM, “in most cases, the requirements in this rule can be satisfied by submitting additional information during the existing [approval] process.”[17] The BLM estimates that the industry-wide cost to comply with the proposed rule is between $12 million to $20 million per year.[18] The BLM’s proposed rule has been criticized by environmental groups for not doing enough to protect water supplies, and some commentators have urged the BLM to prohibit all fracking on public and Indian lands until the EPA completes its study regarding the potential impacts of fracking on drinking water resources.[19]
A March 2013 decision of the Northern District of California determined that the BLM violated the National Environmental Policy Act, 42 U.S.C. §4321 et seq., by entering into oil and gas leases for federal lands before preparing an environmental impact statement considering the potential impacts of fracking.[20] The court found that the increased use of fracking rendered the BLM’s prior management plans and associated environmental reviews for the area obsolete.[21]

In addition, the court rejected the BLM’s determination that the BLM was not required to evaluate the potential groundwater impacts from fracking, because, “[t]o date, there is no direct evidence that communities where hydraulic fracturing has been allowed have had any issues with contamination of drinking water.”[22] Instead, the court found that the BLM is required to consider these impacts due to the “potential danger” of contamination, as noted by the U.S. Congress and the EPA.[23] The court also found that “BLM erroneously discounted the uncertainty from fracking that could be resolved by further data collection,” and that the BLM is required to collect data particular to the affected region.[24]

The EPA does not anticipate that even a draft of its drinking-water study will be available until 2014 and, given the EPA’s current schedule, it is unlikely that there will be comprehensive federal regulation of fracking in the near future. It is also unclear what reasonable investigation the BLM can undertake on its own of the potential impacts of fracking. Therefore, it is likely that, in the U.S., fracking will continue to be regulated by a patchwork of federal, state and local regulations.

2. State

In April 2011, a consortium of state groundwater regulators collaborated with the Interstate Oil and Gas Conservation Commission and the Ground Water Protection Council on the creation of FracFocus, an on-line system by which operators can publically disclose constituents of fracking fluids.[25] Following criticisms of site limitations, updates were implemented beginning June 1, 2013, including expanded search functions allowing data to be accessed via chemical name, dates, CAS number and well location, together with improved mechanisms to assure submission to state authorities.[26] Currently, ten states—Colorado, Oklahoma, Louisiana, Texas, North Dakota, Montana, Mississippi, Utah, Ohio and Pennsylvania—use FracFocus.[27]

Vermont is the only state that has effectuated a ban on fracking. In addition, state and local authorities in Arkansas, California, Colorado, Louisiana, Maryland, Michigan, Nevada, Pennsylvania, New York, North Dakota, Texas and West Virginia have considered or implemented regional or partial bans or moratoria on fracking operations. Very recently, actions have been brought to challenge such enactments.
In May 2013, a New York State appellate panel upheld local fracking bans based on New York State’s home-rule doctrine.[28] The New York constitution grants “every local government [the] power to adopt and amend local laws not inconsistent with the provisions of [the] constitution or any general law relating to its property, affairs or government.”[29] To implement this express grant of authority, New York has enacted a series of statutes establishing a wide range of local powers, including the authority to regulate the use of land through zoning laws.[30]

Pursuant to this authority, in 2011, the Town of Dryden amended its local zoning ordinance to ban all activities related to natural gas and petroleum exploration, production or storage.[31] The appellant argued that this zoning restriction was preempted by New York State’s Oil, Gas and Solution Mining Law, which “supercede[s] all local laws or ordinances relating to the regulation of oil, gas and solution mining industries.”[32] The court disagreed, explaining that a regulation is “an authoritative rule dealing with details or procedures.”[33] The court found that the zoning ordinance “simply establishes permissible and prohibited uses of land,” and does not “regulate” the details or procedures of the oil, gas or solution-mining industries.[34]

It is noteworthy that initial bans have been lifted in some jurisdictions based on further consideration of fracking risks. In Colorado, the Fort Collins and Boulder city councils both voted on May 21, 2013, to discontinue bans.[35]

A very recent development is state “technology forcing” requirements applicable to fracking operations. On May 24, 2013, the Texas Railroad Commission issued final regulations updating its “Rule 13” well-construction requirements to impose more detailed obligations for casing, cementing, drilling, well control and completions. Included among the new requirements is an obligation to “identify and isolate corrosive zones and potential flow zones that compromise well integrity.”[36]

3. Litigation

Litigation in respect of alleged health and environmental damages has been relatively limited given the wide purview of fracking operations. Recent surveys chronicle a total of three dozen suits—filed in Arkansas, California, Colorado, Louisiana, New York, Ohio, Pennsylvania, Texas and West Virginia, with ten styled as class actions—based on common law, federal regulation, strict liability, fraud and contract claims, but none as yet have come to verdict or otherwise resulted in a determination that fracking activities contaminated water.[37] Of these cases, five have been dismissed voluntarily or on motion, and another eight have settled or are in the process of settlement.[38] A few suits include claims of property damage from seismic events alleged to be related to fracking operations (such events have been recorded in Arkansas, Ohio, Oklahoma, Texas and British Columbia).

* * *

This advisory is provided for information purposes only and does not reflect the opinion of O’Melveny & Myers LLP.

[1]See, e.g., Plan to Study the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources, EPA/600/R 11/122 at 112 (November 2011).
[2] Id.
[3]77 Fed. Reg. 67,361 (Nov. 9, 2012).
[4]Study of the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources—Progress Report, EPA/601/R-12/011 (December 2012).
[5]Id. at 1.
[7]EPA’s Science Advisory Board Announces Independent Panel to Peer Review Agency’s Hydraulic Fracturing Research, here (March 25, 2013).
[9]78 Fed. Reg. 25,267 (April 30, 2013).
[10]Questions and Answers about EPA’s Hydraulic Fracturing Study, http://www2.epa.gov/hfstudy/questions-and-answers-about-epas-hydraulic-fracturing-study#38.
[11]EPA Announces Schedule to Develop Natural Gas Wastewater Standards, (October 20, 2011).
[12]77 Fed. Reg. 27,451 (May 10, 2012).
[13]40 C.F.R. Part 60 Subpart OOOO.
[14]78 Fed. Reg. 22,126 (April 12, 2013).
[15]78 Fed. Reg. 31,635 (May 24, 2013).
[16]Id. at 31,636.
[18]Id. at 31,637.
[19]See, e.g., T.K. Keith, The BLM’s Proposed Fracking Regulation, Red Lodge Clearinghouse, http://rlch.org/blog/2012/25/6/blm%E2%80%99s-proposed-fracking-regulation.
[20]Center for Biological Diversity v. Bureau of Land Management, No. C 11-06174 PSG (ND Cal. March 31, 2013).
[21]Id. at *20-22.
[22]Id. at *26.
[24]Id. at *27.
[26]FracFocus 2.0 to Revolutionize Hydraulic Fracturing Chemical Reporting Nationwide, http://fracfocus.org/node/347 (May 29, 2.013).
[28]Norse Energy Corp. USA v. Town of Dryden, No. 515227 (N.Y. App. Div., May 2, 2013).
[29]NY Const., Art. IX, § 2(c).
[30]Norse Energy, at *6.
[31]Id. at *2.
[32]N.Y. Envtl. Conserv. Law 23-0303(2).
[33]Norse Energy, at *7.
[34]Id. at *8.
[35]Local Authorities in Colorado End Bans on Hydraulic Fracturing, Cite Legal Threats, Daily Envtl. Rep. (BNA), No. 102, at A-9 (May 28, 2013).
[36]Stricter Texas Oil, Gas Rules Touted as Model for BLM, State Policies, Inside EPA (May 30, 2013), at 7-8.
[37]See Earl Hagström, Hydraulic Fracturing Litigation is On the Rise, Sedgwick Law Firm Publications (Sept. 2011) and Dave Neslin, Hydraulic Fracturing Litigation: Recent Developments, Davis Graham and Stubbs LLP (Sept. 2012).

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 New York and Missouri, and John Renneisen, an O'Melveny counsel licensed to practice law in the District of Columbia contributed to the content of this newsletter.

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