North America Shale Blog

North America Shale Blog

Ohio Links Earthquakes to Fracking, Toughens Drilling Rules Near Fault Lines

Posted in Earthquakes, Fracking, Hydraulic Fracturing, Ohio DNR

The Ohio Department of Natural Resources (ODNR) is tightening permit conditions for horizontal drillers after a report from state geologists found a “probable connection” between hydraulic fracturing and a string of small earthquakes near Youngstown, Ohio.

The ODNR’s new rules require companies drilling within 3 miles of a known fault or an area of seismic activity greater than 2.0 magnitude to install sensitive seismic monitors to detect future disruptions. If the monitors detect seismic activity in excess of 1.0 magnitude, drilling at the site will be halted pending an investigation. And if that investigation establishes a probable connection between the seismic activity and hydraulic fracturing process, all drilling operations will be suspended. These rules will apply to both existing and future drilling permits issued by the agency.

The announcement comes a month after Ohio suspended Hilcorp Energy’s drilling operations in western Ohio after five seismic events occurred in the vicinity. The strongest event had a magnitude of 3.0. After investigating potential causes of the quakes, ODNR scientists speculated that “sand and water injected into the well during the hydraulic fracturing process may have increased pressure on an unknown microfault in the area.”

While environmentalists praised the ODNR’s announcement, Thomas Stewart of the Ohio Oil and Gas Association urged caution, saying that the organization believed the seismic activity near Youngstown “was a rare and isolated event that should not cast doubt about the safety of hydraulic fracturing.”

Other states that have seen increased earthquake activity during the recent shale gas boom—including Oklahoma, Texas, and Kansas—may soon follow in Ohio’s footsteps by imposing additional requirements on drillers that operate close to known fault lines or areas of high seismic activity.  It remains to be seen whether federal regulators will likewise tighten regulations to account for the growing concern over earthquakes related to hydraulic fracturing. We will continue to update this blog with any further developments.

Additional coverage of this story can be found here, here, and here.

Colorado Supreme Court Grants Petition to Consider Use of Lone Pine Orders in Toxic Tort Case Involving Hydraulic Fracturing

Posted in Colorado, Litigation, Natural Gas

On Monday, the Colorado Supreme Court granted a Petition for Writ of Certiorari in Antero Resources, et al. v. Strudley, et al.  The Strudley case involves claims relating to alleged injuries from natural gas drilling operations near the Strudley’s home in Silt, Colorado.  The Strudley’s case was dismissed by the district court after it entered a Lone Pine Order requiring the Strudleys to present prima facie evidence in support of their claims.  When they failed to do so, the district court dismissed the case with prejudice.  The Colorado Court of Appeals reversed, finding that Lone Pine Order were prohibited as a matter of law in Colorado.

The Colorado Supreme Court will now consider two issues.  First, whether a district court in Colorado is barred as a matter of law from entering a modified case management order requiring a plaintiff to produce evidence essential to his or her claims after initial disclosures but before further discovery is allowed.  Second, assuming such a modified case management order is allowed, whether the district court acted within its discretion in entering and enforcing such an order.

The Strudley case has garnered significant attention.  A number of interested parties, including the Colorado Petroleum Association, filed amicus briefs asking the Court to hear the case.  In addition to the arguments raised by the named parties, a number of friends of the court briefs are likely to be filed for and against the issue as the case moves forward.  We will continue to monitor this case at the North America Shale Blog.

Prior coverage of this case can be found here and here.

Fifth Shale Symposium Provides Insights From Oil and Gas Industry Executives

Posted in Events, Oil and Gas, Shale

On March 24, the Energy and Shale practice team of BakerHostetler held its latest Shale Symposium, titled “The State of the Shale Play” at the Royal Sonesta in Houston, Texas. The program was co-hosted with Young Professionals in Energy (YPE). With nearly 400 in-person attendees, and more than 40 webinar participants, attendance at the event exceeded those of prior programs.

The event included presentations from executives who addressed the shale phenomenon in the United States and its implications in the energy industry. Jorge Leis, Partner and Head of Americas Oil & Gas Practice at Bain & Company, discussed the shale gas and tight oil in North America, highlighting major trends in the evolution of the energy landscape and introducing a “non-traditional” strategy to approach the complex and uncertain energy markets. Kenneth M. Fisher, Executive Vice President and Chief Financial Officer at Noble Energy, provided an operator’s view of the opportunities and challenges that the industry, and Noble Energy specifically, has encountered in the booming yet competitive energy markets.

The Shale Symposium series has garnered nationwide participation from major industry players, legislators, and regulatory experts, who provide insights on recent and future changes in the oil and gas industry and discuss the potential impacts of those changes. The format for this event differed from the past half-day functions. It began with a networking reception, followed by one hour of presentations and an additional hour for networking.

“The new format for the Shale Symposium was a great success,” said Marty Booher, co-leader of the firm’s Energy and Shale practice team. “An important goal of these symposiums is to raise BakerHostetler’s profile and highlight the firm’s proficiency in the energy space—and this symposium clearly achieved that goal.”

“Our goal is to assist clients to grow the global energy economy safely and sustainably. One of the ways we do this is through our Shale Symposium programs, which bring individuals in the industry together to discuss the future of shale development in the U.S. and abroad,” added Ray Whitman, Chair of BakerHostetler’s national Litigation Group and co-leader of the national Energy and Shale practice team.

A recording of the Shale Symposium is available, here.

In the coming months, BakerHostetler plans to announce additional programs in Denver, slated for early June, followed by Cleveland and Pittsburgh.

Development of Horizontal Drilling Techniques Drives Global Demand for Associated Fluids and Chemicals

Posted in Fracking

Research and Markets, a leading international market research and market data firm, has released its report on Global Trends and Forecasts for Fracking Chemicals and Fluid Markets. The report estimates that the global fracking fluids market is expected to increase by a compound annual growth rate of 9.6% over the next five years to reach $20 billion by 2018. The consumption of chemicals that are added to the fracking fluids was estimated at 1,700 kilotons in 2012.

The report covers the fracking fluid and chemicals market and its trends concerning six regions: North America, Europe, Asia-Pacific, Middle East, Africa and Latin America; and the major countries in each region such as the United States, Canada, Australia, China, Argentina, Brazil, and others.

North America, the largest market for fracking fluids and chemicals, and the site of the earliest development of fracking technology, is currently the largest consumer of fracking-related fluids and chemicals. Research and Markets’ report projects that the Asia-Pacific region, due to an increasing demand for oil and gas, will become the next high-demand market for fracking fluids and chemicals.

Media Coverage Resources:

Fracking Chemicals and Fluid Market by Fluid & Well Type, and by Chemicals-Global Trends & Forecasts to 2018

Research and Markets: Global Fracking Chemicals and Fluid Market Opportunities & Forecasts 2014-2018

Ohio Imposes New Fugitive Emissions Rules on Horizontal Drillers

Posted in Air Emissions, Ohio, Ohio EPA, Oil and Gas

The Ohio Environmental Protection Agency (OEPA) has announced new requirements for horizontal drillers aimed at reducing air pollution from so-called “fugitive emissions,” which are generally caused by leaking valves or connectors in drilling equipment. The regulations specifically target methane and other volatile organic compounds (VOCs) used in the drilling process.

 The new rules will require operators to conduct quarterly scans of all well site equipment with infrared cameras or other devices designed to detect hydrocarbon emissions.

 Mike Hopkins, OEPA’s assistant chief of air permitting, stressed that the inspections will cover the entire well site. “Every flange, every pipe, every pump, anything that could leak,” he said.

 Operators must fix any leaks revealed by the scans within five days, and must submit any detection and repair reports to state regulators on an annual basis. If operators consistently record leaks of less than two percent, they can reduce the frequency of the scans.

 The new rules apply only to horizontally-drilled wells, which studies have shown may emit up to twice the methane of traditional vertical wells—between one and eight percent of methane from individual wells.

 Both environmentalists and members of the drilling industry expressed support for the new rules. Fred Krupp, president of the Environmental Defense Fund, praised Governor Kasich’s “unblinking vigilance in driving down harmful emissions.”

Mike Chadsey, spokesman for the Ohio Oil and Gas Association, commented that the new rule merely “incorporates new federal requirements” and thus “provides clear regulatory guidance for oil and gas operators looking to do business in Ohio.”

 Ohio is the third state to adopt stricter fugitive emissions rules over the last six months. Both Wyoming and Colorado had previously adopted similar programs.

 Additional coverage of Ohio’s fugitive emissions rules can be found here, here, here, and here.

White House Unveils Plan to Curb Methane Emissions

Posted in Dept. of Energy (DOE), Oil and Gas, U.S. EPA

Last week, the White House announced its new plan to cut methane emissions, the tenants of which could have far reaching implications for the oil and gas industry.  Titled the “Strategy to Reduce Methane Emissions,” the plan outlines a coordinated interagency response to methane reduction that targets a broad swath of industries, including waste disposal, coal mining, and agriculture.

But many of the strategy’s core components are directed squarely at the oil and gas sector.  The Obama Administration aims to institute a combination of voluntary programs and targeted regulations designed to cut the amount of methane released during the production and transmission of oil and gas.  Specifically, the plan introduces the following initiatives:

  • Targeting Emission Sources:  This spring, the U.S. EPA will release a series of technical white papers that will identify potentially significant sources of methane within the oil and gas sector.  These papers will focus on emissions control technologies and will be used by the agency to solicit feedback from industry insiders.  The agency will then use the information it collects to determine how best to curb methane emissions.  If additional technical guidelines or regulations under the Clean Air Act are deemed necessary, the agency must enact its new standards by the end of 2016.

 

  • Voluntary Coordination:  The Department of Energy (“DOE”) will host roundtables that will bring together industry leaders, state government officials, academics, and other stakeholders to discuss best practices for reducing methane.  These meetings are meant to encourage participation in voluntary emission reduction programs and facilitate the exchange of cost effective ways to cut the release of methane within the industry.

 

  • Venting and Flaring Regulations:  By the end of this year, the Bureau of Land Management must draft updated regulations to mitigate methane venting and flaring during oil and gas production on public and tribal lands.

 

  • Enhancing Downstream Control Technologies:  In its 2015 budget proposal, the Administration has devoted $4.7 million to the creation of a DOE program aimed at developing and disseminating technologies that improve gas pipeline maintenance, monitoring, and leak detection.

 

  • Improving Methane Measurement:  The Administration has committed to developing and refining the government’s approach to greenhouse gas monitoring by focusing on the sources and activities that release methane.  In conjunction with this new approach, the Administration will promote and fund the development of technologies capable of quantifying greenhouse gas emissions with greater precision.

 

The strategy is an extension of President Obama’s 2013 Climate Action Plan, in which the President pledged to reduce greenhouse gas emissions dramatically by the end of the decade.  According to the Administration, the initiatives set forth in its methane plan could cut methane discharges by an estimated 90 million tons by 2020.  Last year, the gas represented 14% of the country’s total greenhouse emissions.

The BakerHostetler Shale Team will provide updates about this plan as new details emerge.

Additional coverage available here, here, and here.

BakerHostetler’s Shale Oil and Gas Industry 2013 Year-in-Review and 2014 Look Forward

Posted in Oil and Gas

With Congress and the White House mired in partisan gridlock and preoccupied by issues like the federal debt ceiling, the Affordable Care Act rollout, and the Edward Snowden leak investigation, states again took the lead on shale gas issues in 2013. Several states enacted new hydraulic fracturing regulations, with many others completing overhauls of existing rules to account for changing technology and expanded opportunities for unconventional oil and gas plays.

This report examines the key legal developments in the shale oil and gas industry in 2013, with a look ahead to several key issues that will continue to shape this industry in 2014.

Federal Government

Legislative Developments

Congress once again spent the year mostly on the sidelines in the hydraulic fracturing debate, with little if any significant shale legislation reaching President Obama’s desk. In June, the President unveiled his proposed Climate Action Plan—a comprehensive strategy to address climate change by reducing domestic carbon pollution, which included a proposal for national carbon emissions standards by the Environmental Protection Agency (EPA). But Democratic lawmakers were unsuccessful in pushing through any significant oil and gas legislation in 2013. For example, Democratic senators introduced a bill—known as the FRAC Act—that would amend the Safe Drinking Water Act to repeal an exemption from restrictions on underground injection of fluids for fracturing operations. The bill never made it to a full vote.

Significant legislative efforts by Republicans similarly stalled before reaching the President’s desk.  One Republican bill—the Federal Lands Jobs and Energy Security Act (H.R. 1965), which aimed to streamline the drilling permit process on federal lands—passed the House in November, but quickly lost momentum and was never taken up by the Senate. Another Republican proposal—the Protecting States’ Rights to Promote American Energy Security Act (H.R. 2728), which gave state drilling laws primacy over federal regulations—also passed the House in November, but was quickly scuttled when the White House threatened to veto any attempt to undermine federal regulatory authority over drilling.

Regulatory Developments

Most of the action on the federal level occurred in the regulatory sphere, with the highlight being the Bureau of Land Management’s (BLM) proposed rules on the use of hydraulic fracturing techniques on federal land, issued in May 2013. The rules represent a modified version of drilling regulations proposed by the BLM in 2012, based in part on public comments received by the agency after its initial proposal.

Among other things, the BLM’s revised rules would: (i) exempt automatic disclosures of chemicals used in the fracturing process based on trade secret protections and institute a central website, “FracFocus.org,” for all public disclosures; (ii) create testing protocols for well integrity, particularly the cement casings on wells and aquifers, maximum injection pressure, and flowback volumes; and (iii) require management plans for the protection of both surface water and groundwater from contamination by flowback fluids, including potentially requiring such fluids to be stored in closed tanks.

Experts have estimated that the BLM’s proposed regulations could cost the industry anywhere from $20 million to $2.7 billion each year. The public comment period for the proposed rules, which ended in August, drew over 1 million responses, and the BLM has yet to set a date for issuing a final rule. Among the concerns voiced in the public comments were calls for greater protection of industry trade secrets, since as-written, the rule requires companies claiming protection to provide proprietary information to operators, which conflicts with normal practice and could violate private non-disclosure agreements.

Several new rules issued by the Occupational Safety and Health Administration (OSHA) will also impact the oil and gas industry, including a proposed rule governing acceptable exposure limits for silica dust. The rule, proposed in September 2013, triggered a mandatory 90-day public comment period, which ended in December. No final rule has been issued, but industry experts have warned that any such rule could be particularly costly to drillers using fracturing techniques that depend on the use of silica sand. Continue Reading

Study: Statewide Ban on Hydraulic Fracturing Would Cost Colorado Billions

Posted in Colorado, Fracking, Studies

A statewide ban on hydraulic fracturing in Colorado would cost the state $12 billion in lost gross domestic product (GDP) and result in 93,000 fewer jobs—both over 2% declines—according to a study released on Wednesday by the University of Colorado’s Leeds School of Business.

According to Tom Clark, CEO of the Metro Denver Economic Development Corporation, one of the groups sponsoring the study, the report is a “worst case scenario” designed to educate the public on “the size of the oil and gas in Colorado.”

The study predicts that about two-thirds of the losses—$8 billion in lost GDP and 68,000 fewer jobs—would occur in the first five years alone. The study also showed likely decreases of almost $1 billion in tax revenue annually between 2015 and 2040. The report predicts that the losses will spread to virtually every sector of the economy, including the healthcare and service industries.

The study notes that 95 percent of Colorado’s oil and gas wells use hydraulic fracturing, and so assumes that drilling activity would decrease by 95 percent in the event of a statewide ban.

While plans to push for a comprehensive ban on fracking have stalled in Colorado, several local bans succeeded at the ballot box in 2013.  One of the study’s authors, Brian Lewandowski, believes that local bans are unlikely to significantly impede oil and gas exploration in the state.

“When it comes to local control, it is likely that communities that have benefited from development wouldn’t ban it and population centers, which might not have oil and gas reserves, would,” Lewandowski said.

Some lawmakers, however, are less optimistic that local bans will be limited to undesirable areas.  In fact, state representatives Frank McNulty and Jerry Sonnenberg recently announced a potential ballot initiative that would prevent cities with fracking bans from collecting funds from the state’s severance tax on oil and gas production.

Whether the study slows the proliferation of local bans remains to be seen, but it gives drilling proponents a powerful tool for persuading voters that hydraulic fracturing is crucial to Colorado’s economic success.

News coverage of the study can be found here, here, here, and here.

DOE Approves Liquefied Natural Gas Exports to Non-Free Trade Agreement Countries from Oregon Project

Posted in Dept. of Energy (DOE), Oil and Gas, Oregon

On March 24, 2014, the Department of Energy granted a conditional order authorizing the export of domestically produced liquefied natural gas (LNG) from the Jordan Cove Energy Project, L.P. in Coos Bay, Oregon, to countries that do not have a Free Trade Agreement (FTA) with the United States. Jordan Cove is wholly owned and controlled by Veresen, Inc., a Canadian corporation based in Calgary, Alberta.

Federal law generally requires approval of natural gas exports to countries that have an FTA with the United States. For countries that do not have an FTA, the Natural Gas Act directs the DOE to grant export authorizations unless it finds that the proposed exports “will not be consistent with the public interest.” While “public interest” is not defined by statute, the DOE has identified a range of factors that it evaluates when reviewing an application for export authorization, including economic impacts, international impacts, security of natural gas supply, and environmental impacts.

The Jordan Cove project includes plans to construct a liquefaction terminal, a 230-mile feeder pipeline and a natural gas-fired power plant to serve the liquefaction operation. The project will cost $7.5 billion in total, create thousands of construction jobs and 150 permanent positions, according to backers. Pursuant to the DOE’s conditional order, the facility is conditionally authorized to export at a rate of up to 0.8 billion standard cubic feet per day of LNG for a period of 20 years. Jordan Cove plans to export the LNG on its own behalf or as an agent for other entities holding title to LNG. The company will execute Liquefaction Tolling Agreements, under which an individual customer that holds title to natural gas will have the right to deliver that gas to Jordan Cove’s Terminal for liquefaction services and to receive LNG in exchange for a processing fee paid to Jordan Cove.

Jordan Cove is the seventh application, of more than 20, to receive the DOE’s conditional approval. So far only one project–Sabine Liquefaction, LLC, in Sabine Pass, Louisiana—has final federal approval to export natural gas and it is expected to begin doing so in late 2015. Before Jordan Cove and the other five projects that have won conditional approval can be built, they must get final clearance from the Federal Energy Regulatory Commission (as well as other federal and state agencies).

Most of the previous approvals have been on the Gulf Coast in southeastern Texas and Louisiana, but the new approval for the Jordan Cove Energy Project LP in Oregon would mean exporting LNG to Asia and beyond from the Pacific Northwest. In its press release Monday, Veresen announced that “Jordan Cove’s advantageous location leverages existing North American pipeline infrastructure and will provide access to substantial markets for both Canadian and United States Rockies natural gas producers.” Non-FTA markets include countries throughout Asia and South America. Among significant LNG importing countries, only South Korea, Singapore and Chile have FTA status with the United States.

Illinois Voters Defeat Local Ban on Hydraulic Fracturing after Controversial Campaign

Posted in Fracking, Hydraulic Fracturing, Illinois, Legislative

On Tuesday, Voters in Johnson County, Illinois rejected a local referendum designed to pressure county commissioners into enacting a ban on hydraulic fracturing.

Specifically, the referendum—technically a non-binding recommendation to the county commissioners—asked: “Shall the people’s right to local self-government be asserted by Johnson County to ban corporate fracking as a violation of their rights to health and safety?”  Fifty-eight percent—about 2,200 voters—answered “no.”  After the results were announced, supporters of the ban guessed that the language of the measure may have been difficult for voters to parse, with voters assuming a “no” vote was a vote against fracturing.  The vote caused additional controversy when two local newspapers—the only papers published in Johnson County—refused to publish advertisements from environmental groups supporting the ban.

Johnson, a county of just 12,000 people located in southern Illinois, sits above part of the New Albany shale formation, industry experts have estimated could hold as many as 300 billion barrels of oil. The New Albany shale formation is spread across three states, with possible reserves of 86 to 160 trillion cubic feet.

Illinois is coming off of a year in which the state legislature passed a new regulatory framework for hydraulic fracturing while the Illinois Department of Natural Resources continues to draft administrative rules that will govern the practice moving forward. With the possibility of a state-wide ban all but gone, outside environmental groups are going local, urging counties like Johnson to enact localized bans on fracturing.

Additional news coverage of the vote can be found here, here, and here.