North America Shale Blog

North America Shale Blog

Is a Statewide Ban in Colorado in Play for 2016?

Posted in Colorado, Fracking

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 Proposes Severance Tax

Posted in Natural Gas, Oil and Gas, Pennsylvania, Shale

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governor introduced as a means to fund the state’s education system, would impose a 5 percent tax on the value of gas withdrawn from within the Commonwealth, plus a volume extraction tax of 4.7 percent per 1,000 cubic feet of natural gas.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

OPEC’s Price War Is Entrenching North American Shale Producers’ Global Competitive Advantage

Posted in Oil and Gas, Shale

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.[1]

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

State Oil and Gas Laws v. Local Control: The Struggle Continues in Ohio

Posted in Ohio, Ohio DNR, Oil and Gas, Zoning

On February 17, 2015, the Ohio Supreme Court announced its ruling in The State Ex Rel. Morrison v. Beck Energy Corporation et al. That closely-watched case addressed whether local ordinances that impact drilling operations are preempted by the Ohio Department of Natural Resources’ (ODNR’s) authority to issue oil and gas drilling permits under R.C. Chapter 1509. In this case, Beck Energy had received a permit from ODNR to drill for oil and gas in the city of Munroe Falls. As Beck Energy began its operations, Munroe Falls successfully sought an injunction from an Ohio state court based on Beck Energy’s non-compliance with several local ordinances, including requirements to obtain a “zoning certificate,” pay a specified fee, and secure a performance bond. The court of appeals reversed the trial court, holding that Ohio’s Home Rule Amendment did not allow the city to impose its own permit requirements on oil and gas drilling operations.

In a clear victory for Beck Energy, a divided Ohio Supreme Court agreed with the appeals court ruling and invalidated all five local ordinances. A close reading of the multiple opinions, however, shows that the court did not categorically preempt all forms of local regulation that impact drilling operations. Rather, it left the door open for further litigation regarding whether “local land use ordinances that address only the traditional concerns of zoning laws, such as ensuring compatibility with local neighborhoods, preserving property values, or effectuating a municipality’s long-term plan for development, by limiting oil and gas wells to certain zoning districts” are enforceable. In other words, the court invalidated what it considered to be a “separate permitting regime” at the local level, but declined to rule on whether more traditional exercises of local zoning that impact drilling operations are enforceable.

Continue Reading

New Mexico Federal Court Frames The Issues That Will Define Future Fights Over Local Fracking Regulation

Posted in New Mexico, Oil and Gas

On January 15, 2015, the United States District Court for the District of New Mexico became the first federal court to address questions related to the scope of local governments’ ability to regulate oil and gas development within those governments’ jurisdictional boundaries. In SWEPI, LP v. Mora County, New Mexico, the district court struck down a county ordinance prohibiting the extraction of oil and gas, a decision that has generally been hailed as a victory for industry. Yet a closer reading of the 199-page opinion that United States District Judge James O. Browning issued reveals that the real import of the SWEPI decision is not the result, but the framework the court articulated for analyzing two issues driving the public debate over the regulation of oil and gas development: whether state and federal laws permitting oil and gas extraction preempt local regulation of oil and gas operations, and whether, if local regulation is permissible, those regulations can represent a taking of private property.

In SWEPI, the federal district court concluded that, while there may be limitations on local communities’ ability to regulate oil and gas operations, at least in New Mexico those limitations are not likely to foreclose local governments from regulating entirely. And while not deciding the issue, Judge Browning became the first federal judge to meaningfully grapple with the question regarding whether local regulation of oil and gas, and specifically regulation of hydraulic fracturing, has the potential to result in an uncompensated taking of a mineral interest in violation of the Fifth Amendment to the United States Constitution. Given the court’s comprehensive treatment of the pertinent legal issues relevant to those questions, the opinion in SWEPI is likely to be influential in shaping the approach of both regulators and industry in the future. Continue Reading

Crude-by-Rail Update: What to Expect From Recent Crude Oil Derailments

Posted in PHMSA, Transportation, West Virginia

These are uncertain and stressful times for all involved in the transportation of crude oil by rail. Since February 14, two fiery derailments in West Virginia and Ontario have refocused an unwelcome spotlight on the necessity of transporting crude oil production by railroad in areas without adequate access to pipelines.

The attention comes at a politically sensitive juncture as the Pipeline and Hazardous Materials Safety Administration’s and the Federal Railroad Administration’s comprehensive crude-by-rail safety rule awaits review with the White House’s Office of Management and Budget[1] – a process that will likely produce a final rule by mid-May.

But can companies involved in crude-by-rail expect other repercussions from the two recent derailments? Without a doubt they can. Continue Reading

China to Increase Shale Gas Production

Posted in Oil and Gas, Shale

China plans to increase its shale gas production from 1.3 billion cubic meters of shale gas per year to 30 billion cubic meters per year by 2020, according to Chen Weidong of China National Offshore Oil Corp. This goal is significantly less than the 60 to 80 billion cubic meter goal set in 2012, when the Chinese government declared it would start extracting its reserves, which are the largest in the world. The goal was reduced because of difficult drilling conditions.

Though China became the second largest shale gas producer in 2014, it will likely have to increase its reliance on imports over the next few years because demand is growing faster than production. “Last year, the import dependency was about 31 percent. By 2020 that dependency will go up to 40 to 50 percent,” said James Henderson, senior research fellow at the Oxford Institute for Energy. “We’ll get the supply from Russia and also [from] Turkmenistan. We’ve already got secured supplies for over 400 billion cubic meters for 2020.” Turkmenistan supplies nearly half of China’s gas imports. Continue Reading

When Oil Prices Head South, So Do the Bakken Oil Trains

Posted in Shale, Transportation

Bakken crude oil increasingly heads south as low oil prices erode its competitive advantage in the U.S. East Coast market. The price of WTI crude oil—the benchmark price for most U.S. shale crudes—is moving toward parity with Brent, the international crude price benchmark for grades such as Nigerian Bonny Light that compete with Bakken in the U.S. East Coast market. This reduces the economic incentive for refiners to bring Bakken oil nearly 1,800 miles by rail when they can procure seaborne cargoes of light, sweet crude oil from Nigeria, Angola, and other niche suppliers such as Azerbaijan, which eagerly seek buyers because the U.S. shale revolution largely displaced them from the massive U.S. crude market. In essence, when WTI’s discount to Brent falls below $5/bbl, East Coast refiners’ incentive to bring in Bakken crude by rail declines because the economics come to favor imported crudes. Continue Reading

U.S. Geological Survey Releases Publications on Historical Hydraulic Fracturing Trends

Posted in Hydraulic Fracturing

On Tuesday, January 27, the U.S. Geological Survey released two new publications highlighting historical hydraulic fracturing trends. These publications are the first of their kind: until now, there has not been comprehensive, published, publicly available information regarding the extent, location, and character of hydraulic fracturing in the United States.

The publications are a scientific investigation report called “Trends in Hydraulic Fracturing Distributions and Treatment Fluids, Additives, Proppants, and Water Volumes Applied to Wells Drilled in the United States from 1947 through 2010—Data Analysis and Comparison to the Literature” and a companion data series called “Data Regarding Hydraulic Fracturing Distributions and Treatment Fluids, Additives, Proppants, and Water Volumes Applied to Wells Drilled in the United States from 1947 through 2010.” According to lead author Tanya Gallegos, the U.S. Geological Survey now has “an improved understanding of where the practice [of hydraulic fracturing] is occurring and how hydraulic fracturing characteristics have changed over time.” Continue Reading

Pennsylvania Governor Reinstates Ban on Oil and Gas Leasing in State Parks and Forests

Posted in Oil and Gas, Pennsylvania

On Thursday, January 29, 2015, Pennsylvania’s new governor, Tom Wolf, signed Executive Order 2015-03, thereby reinstating a moratorium on new leases for oil and gas development in state parks and forests. Wolf’s moratorium restores a ban instituted by Governor Ed Rendell just prior to his leaving office in 2010. Republican Governor Tom Corbett had lifted Rendell’s moratorium by Executive Order 2014-03 on May 23, 2014.

Wolf, who campaigned heavily on a promise to ban fracking on state lands, insists that he generally supports fracking, but was concerned with “striking the right balance” because “[o]ur state parks and forests are unique assets that should be preserved, protected, and utilized by our residents for recreational purposes.” Continue Reading