Last week, North Carolina became the 34th state to allow hydraulic fracturing. Years in the making, new rules developed by the state’s Mining and Energy Commission after receiving over 200,000 public comments went into effect last Tuesday allowing the state to issue drilling permits to companies to begin shale gas exploration and extraction. The new rules open the door for drilling to begin in North Carolina later this year. The new rules govern many aspects of drilling, including well construction, water testing and buffer zones. Officials from the Mining and Energy Commission indicated that any company interested in fracing would have to establish a “drilling unit” by acquiring the mineral rights associated with several hundred acres of land before being able to apply for a drilling permit. Continue Reading
With low oil prices and producers slashing the rig count in the Bakken shale, it is fair to ask whether crude-by-rail will be able to compete with pipelines in the region. The bottom line is that crude-by-rail is likely to continue playing a vital role in carrying large amounts of crude—more than 700 thousand barrels per day (kbd) or roughly 10 unit trains’ worth per day—out of the Bakken area.
Aggregating the existing crude-by-rail loading facilities and export pipelines in the Bakken area indicates that there are currently approximately 1,360 kbd of rail and 750 kbd of pipeline takeaway capacity (Exhibit 1). Rail capacity could rise to 1,500 kbd over the next three years, primarily from expansion of existing facilities, while pipeline capacity could increase to 1,300 kbd by year-end 2018. In short, the vast majority of potential outbound rail capacity is already “baked in” and pipelines are where capacity could grow sharply if planned projects come through. Continue Reading
The Wyoming Attorney General’s Office filed a complaint today in Wyoming federal district court asking the court to set aside recently finalized federal regulations related to hydraulic fracturing on federal and public lands. Wyoming’s complaint requests the court set aside regulations the United States Department of the Interior announced last Friday, the same relief sought in a complaint that BakerHostetler previously filed in the same court on behalf of the Independent Petroleum Association of America (“IPAA”) and Western Energy Alliance. Wyoming becomes the first state to challenge the rule. A copy of Wyoming’s Complaint is available here.
According to the Bureau of Land Management’s Public Land Statistics, more than 1,000 permits were approved on federal oil and gas leases located within Wyoming during each of the last two fiscal years for which data is available. At the conclusion of Fiscal Year 2013, Wyoming had more than 4 million federal acres designated as being in producing status. Wyoming leads the nation in both categories. Wyoming is also a leader in regulating oil and gas development. During recent testimony before the Senate Committee on Energy & Natural Resources, Secretary of the Interior Sally Jewell praised Wyoming’s hydraulic fracturing regulations, acknowledging that “Wyoming has done a very good job in providing regulations that are forward thinking.” Continue Reading
California has become ground zero for legal opposition to crude-by-rail projects. Opponents decry derailments, toxic vapors, and other ills.[i] Yet despite the dire images painted by crude-by-rail’s opponents, the reality on the ground in California has been quite mundane thus far. The high-water mark to date for California railborne crude supplies was approximately 39 thousand barrels of oil per day (kbd) in December 2013 (Exhibit 1). To put this number in perspective, California refineries typically process an average of around 1.7 million barrels per day of crude – meaning that at the crude-by-rail peak, only about one barrel in 50 of the state’s crude supply came in by rail.[ii] Presently, the number is closer to one barrel in 100 – certainly not the overwhelming flood of trains opponents fear. And to that point, even supplying one-quarter of California’s total crude oil needs would only require about six to seven crude oil unit trains per day. To put this in context, the Colton Crossing east of Los Angeles by itself can see more than 100 freight trains per day.[iii]
Exhibit 1: California Crude by Rail Sources
Source: California Energy Commission, Alberta Office of Statistics and Information Continue Reading
After a regulatory review process lasting more than three years, the Bureau of Land Management (BLM) issued today a final rule purporting to govern hydraulic fracturing on federal and Indian lands. Given BLM’s failure to correct flaws in earlier versions of the rule – flaws that were addressed expressly in public comments responsive to the agency’s proposal — BakerHostetler immediately filed a lawsuit in federal court on behalf of the two most prominent national trade associations representing independent oil and gas producers: the Independent Petroleum Association of America (IPAA) and Western Energy Alliance (the Alliance). The associations’ Complaint, filed in the United States District Court for the District of Wyoming, asserts that BLM’s final rule is both substantively meritless and the product of a procedurally deficient rulemaking process. The Complaint requests that the federal court set aside the final rule.
Independent oil and gas producers note several factors that undermine the legitimacy of BLM’s approach. Most important, even were another layer of administrative rules necessary to ensure that hydraulic fracturing can be conducted safely, a position that contravenes decades of technical evidence, BLM’s new regulations do not represent those rules. Despite being titled as a rule for “Hydraulic Fracturing on Federal and Indian Lands,” BLM’s proposal does not attempt to govern any aspect of the hydraulic fracturing process. This omission suggests little more than a politically-motivated attempt to appeal to those that misrepresent “hydraulic fracturing,” using the term as a proxy for all oil and gas development rather than focusing on the more accurate, and narrower, definition of the term as a well stimulation technique.
A federal judge in Pennsylvania recently denied an environmental group’s attempt to subject a driller’s gas compressor stations to stricter regulatory permitting. This decision provides reliable guidance for drillers on the Marcellus Shale Formation in Pennsylvania.
On February 23, 2015, Judge Mariani of the U.S. District Court for the Middle District of Pennsylvania denied Citizens for Pennsylvania’s Future’s (PennFuture) claim that Ultra Resources, Inc. (Ultra), was operating its natural gas compressor stations on the Marcellus Shale without the necessary permit. Although Ultra’s eight separate compressor stations – facilities that compress and pump gas from the wells to processing facilities – each had general permits, PennFuture claimed that the compressor stations should be aggregated and therefore require a more stringent major source permit. While Ultra had obtained general permits from the Pennsylvania Department of Environmental Protection (DEP) that cover “aspects of natural gas compression and processing operation,” if the court determined that the eight stations should be aggregated then they would require a major source permit since they could potentially produce over 100 tons of nitrous oxide per year. Continue Reading
On Tuesday, March 11, 2015, the Texas Legislature’s 84th Session gained another bill directed at combating future local and municipal fracking bans. State Rep. Drew Darby (R-San Angelo), Chairman of the Texas House Energy Resources Committee, filed House Bill 40 (HB40), which seeks to amend Chapter 81 of the Texas Natural Resources Code and expressly preempts the authority of “a municipality or other political subdivision” to regulate an “oil and gas operation” and gives exclusive jurisdiction to regulate an “oil and gas operation” to the state of Texas, specifically the Railroad Commission.
Under the terms of HB40, a municipality or other political subdivision would not be able to “enforce an ordinance or other measure, or an amendment or revision of an existing ordinance or other measure, that bans, limits, or otherwise regulates an oil and gas operation within its boundaries or extraterritorial jurisdiction.” HB40 defines an “oil and gas operation” as “an activity associated with the exploration, development, production, processing, and transportation of oil and gas, including drilling, hydraulic fracture stimulation, completion, maintenance, reworking, recompletion, disposal, plugging and abandonment, secondary and tertiary recovery techniques, and remediation activities.” Continue Reading
While Colorado cities continue to litigate their authority to ban fracing, a new environmental group is rallying to ban the practice throughout the entire state. At a gathering on February 24, the “Coloradans Against Fracking” announced that “[w]e need to have a ban in this state.”
The group’s spokesperson, Karen Dike, first announced that the group would pursue a 2016 ballot measure banning the practice. But she backtracked on Wednesday, clarifying that they would press Colorado Governor John Hickenlooper to issue an executive order banning the practice before it resorted to a ballot measure. Continue Reading
Pennsylvania Governor Tom Wolf has proposed a new state severance tax on natural gas drilling. The measure, which the governor introduced as a means to fund the state’s education system, would impose a 5 percent tax on the value of gas withdrawn from within the Commonwealth, plus a volume extraction tax of 4.7 percent per 1,000 cubic feet of natural gas. The severance tax would replace the state’s current impact fee, which imposes a charge on oil and gas developers for each new well drilled in Pennsylvania and funnels revenue back to the communities where the drilling takes place.
According to the governor, the severance tax could generate upwards of $1 billion annually. But he said he has yet to “work out a formula” concerning how revenue will be split among local governments and the education system. If approved by the legislature, the tax would take effect at the beginning of 2016, providing revenue for the state in the 2017 fiscal year. Continue Reading
Oil price uncertainty strengthens the global competitive advantages of U.S.—and Canadian—unconventional oil projects. Both countries offer excellent geology, robust supporting infrastructure, deep local capital markets, stable politics, and favorable legal and regulatory regimes. They will be the markets that see the leading edge of efficiency improvements and cost decreases. In a nutshell, the OPEC low-cost producers’ decision to launch and sustain a crude oil price war will only entrench and increase the North American shale drillers’ first-mover advantage over the next several years.
The U.S. already has a massive lead on other countries that are developing (Argentina) or that seek to develop (China, Mexico, Russia) unconventional oil and liquids projects, as reflected by the fact that liquids output growth in the U.S. between 2009 and 2014 was roughly three times larger than that of Canada, China, and Russia combined (Exhibit 1). Continue Reading