North America Shale Blog

North America Shale Blog

BLM Agrees to Complete Hydraulic Fracturing EIS for Leases in California

Posted in Hydraulic Fracturing, Oil and Gas, U.S. Bureau of Land Management

A recent agreement between environmentalists and the Bureau of Land Management (BLM) may open the floodgates to challenges of the sufficiency of Environmental Assessments (EA) or Environmental Impact Statements (EIS) for oil and gas leases. Of course, this also means delays in opening up more federal lands, held in trust for U.S. citizens, to unconventional oil and gas exploration and production. In its July 17, 2014 settlement agreement with the Center for Biological Diversity (CBD) and the Sierra Club, BLM agreed to prepare an EIS analyzing the potential impacts from hydraulic fracturing on two oil and gas leases in California. The settlement of Case No. CV-11-06174-PSG in the U.S. District Court for the Northern District of California included a stay of the suit and suspended all operations and production on the two leases until completion of the EIS. After completing the EIS, BLM will determine whether the two leases should have been issued or whether revised or additional stipulations are needed. According to the settlement agreement, if BLM finds that further stipulations are required, and the lease holders decline to accept these stipulations, then CBD will be able to renew its request for vacatur of the leases. On the other hand, if BLM finds that the leases should have been issued, or the lease holders accept the stipulations, then BLM will notify CBD and the parties will file a motion with the court to dismiss the case with prejudice. But CBD may still challenge the adequacy of the EIS, or any actions taken in reliance upon it, by bringing a new civil action.

The agreement is the result of settlement discussions between the parties after the court ruled last year that BLM violated the National Environmental Policy Act (NEPA) and the Administrative Procedure Act when it approved the sale of oil and gas leases without assessing the potential contamination from hydraulic fracturing. In the July 17 agreement, BLM also agreed to assess the current state of industry practices for well completion and stimulation in California. BLM officials admit that conducting the EIS and industry assessment is an attempt to break the recent cycle of lawsuits and administrative challenges. According to an agency statement, “[t]he scoping period provides the public an opportunity to comment on the full suite of oil and gas leasing and development issues in the geographic area covered by the field office. In addition, the science review and planning effort will allow the BLM to revisit litigated, appealed, and protested lease sales at a later date.” The settlement could set a precedent that adds another layer of review to an already protracted administrative permitting process and could chill the leasing of federal lands for fracking operations. Most importantly, the settlement agreement could embolden environmental groups to challenge prior environmental assessments prepared by BLM for other leasing programs (and further stifling development).

The case docket and filings are available on the Northern District of California’s CM/ECF system under Case No. CV-11-06174-PSG.

This post was coauthored by Marissa Black (2014 BakerHostetler Summer Associate).

Shots Fired: PA Auditor General Releases Oil and Gas Audit

Posted in Oil and Gas, Pennsylvania

On Tuesday, the Pennsylvania Auditor General’s Office released a report criticizing the Department of Environmental Protection (DEP) for failing to adequately track and respond to public complaints concerning water quality related to natural gas development. Auditors cited deficiencies in eight key areas, including record-keeping, oversight of drilling waste and gas well inspections, and communication with citizens who complain of water contamination. The report is the product of a campaign promise by Auditor General Eugene DePasquale to investigate how the DEP handles water complaints related to oil and gas drilling. DePasquale calls the DEP “underfunded, understaffed and inconsistent in how it approaches shale gas development. It’s like firefighters trying to put out a five-alarm fire with a 20 foot garden hose.”

The DEP disputes the Auditor General’s findings. It explains that the report only covers operations from January 2009 through December of 2012, when the department utilized different, outdated procedures. “Most of this audit reflects how our Oil and Gas program formerly operated, not how the program currently functions,” said DEP Secretary Chris Abruzzo in a statement. However, the DEP conceded that many of the audit’s 29 specific recommendations for improvement, mostly geared towards transparency and responsiveness to public requests, were helpful.

In light of growing public interest and increased judicial pressure, the DEP recently released their official determinations of state water supplies adversely impacted (defined as pollution or flow diminution) by oil and gas operations. According to the DEP, oil and gas operations have damaged Pennsylvania water supplies 209 times since the end of 2007. By comparison, operators drilled nearly 20,000 new oil and gas wells over that same span. Environmental groups view this information release as the first step in the right direction. Still, they demand more detailed water impact information, including the specific impacts oil and gas operations have caused, the companies involved, how the companies addressed the problems, and any fines imposed. Former DEP Secretary John Hanger views this as a structural issue: “Quite a lot of the audit findings have to do with handling the complaints. You’re not going to fix those problems without creating a new office.”

Conversely, the Marcellus Shale Coalition (MSC) cites the DEP’s figures as overwhelming evidence that drilling activity is not harmful to local water supplies, as 99% of wells caused no damage. In contrast to DePasquale, the MSC believes “Pennsylvania’s regulatory regime is effectively meeting its objectives of protecting our environment and making certain that shale’s broad benefits are fully realized.” Though the MSC applauds Pennsylvania regulators’ efforts to exercise oversight of the fracking boom, its members are willing to pay higher well permit fees, which the DEP raised by $1,800 in June, to enable the department to hire more oil and gas inspectors.

It will be interesting to see how the DEP incorporates the audit’s findings as the focus on shale drilling and its environmental effects intensifies in the coming months. Pennsylvania’s response could serve as a template for regulators throughout the country.

More information regarding the audit is located here.

This post was coauthored by R. Kevin Saunders (2014 BakerHostetler Summer Associate).

Analysts and Industry Leaders Bullish on North American Fracking Demand

Posted in Fracking, Hydraulic Fracturing

Upon review of second quarter earnings reports from industry participants, analysts are rather bullish on future demand for hydraulic fracturing in North America.

Halliburton in particular is looking to take advantage of projected increases in demand for fracking after two years of falling prices.  “On our last call, some of you may have been skeptical when I said I was beginning to feel the turn in North America …. Today, we are not feeling the turn, we are in the turn, and I feel even more excited than I was last quarter,” said Halliburton CEO, David Lesar, on a second-quarter earnings conference call on Monday.  Halliburton plans to immediately begin increases in its fracking crew and fleet of equipment to take full advantage of improving demand.

Baker Hughes shared the optimism of Halliburton, stating that pressure pumping supply is becoming tighter, though still with roughly 20% excess.  Baker Hughes expects increased drilling activity and improving market conditions in North America to lead the way to a 15% increase in profits from operations in the third quarter.

Analysts have also been encouraged by these recent trends in the industry.  “I think it is a kind of vote of confidence that demand is on its way back,” said Stewart Glickman, IQ analyst for S&P Capital.  “You’re seeing tightening in overall frack capacity.  People are going to like this,” added Capital One Southcoast analyst Luke Lemoine.  Looking back, analyst Mike Breard of Hodges Capital quipped “A year ago, the question was ‘how bad can it get?’  The question now is ‘how good can it get?’  It does look like the fracking business has definitely bottomed out; it’s just a question of how fast it’s going to improve.”

For additional coverage, click here, here, here, and here.

Denver Shale Symposium Attracts Large Attendance from Major Oil and Gas Companies

Posted in Colorado, Oil and Gas, Shale

Addressing recent developments affecting the oil and gas industry in the Rockies, theShale Symposium in Denver drew close to 300 industry professionals, making it one of the highest attended of the six symposiums hosted by the firm’s Energy and Shale team since the spring of 2013. The symposiums have attracted speakers and attendees from major players in the oil and gas industry throughout the country, as well as attention from national media and trade publications. Attendees represented top energy companies, including Anadarko, Antero Resources, Encana, EOG Resources, MarkWest Energy Partners, National Oilwell Varco, Noble Energy, Schlumberger, SM Energy, Whiting Petroleum, and WPX Energy. The Denver event was attended by reporters from Bloomberg News,EnergyWireLaw Week ColoradoOil & Gas Journal, Platts, and Shale Daily. Young Professionals in Energy, a non-profit organization facilitating the advancement of young professionals in the global energy industry, co-hosted the event.

Following opening remarks by Partner Ray Whitman, Brad Holly, vice president of operations at Anadarko Petroleum Corporation, discussed development of the Wattenberg field of the Niobrara shale play, noting that horizontal wells in the Wattenberg field are generating approximately 150 times the production of vertical wells in the field. Holly also addressed Colorado ballot measure 88, which potentially poses a significant threat to the Colorado oil and gas industry because its setback requirements (2,000 feet) would result in a de facto ban on drilling in the Niobrara shale play. Mark R. Williams, senior vice president of exploration and development at Whiting Petroleum Corporation, spoke about the legislative and regulatory issues associated with flaring of natural gas in the Bakken and added that Whiting has taken steps to limit flaring. Williams also discussed new drilling technologies being implemented by Whiting in the Niobrara and Bakken shale plays to increase recovery rates. Matt Most, vice president of U.S. government relations at Encana Oil & Gas USA Inc., said that the outcome of the debate over hydraulic fracturing in Colorado will likely lead the national debate. He also shared information on the economic benefits of hydraulic fracturing in Colorado, pointing out that 65 cents of every dollar invested in energy stays in the local economy.

“We’re very pleased with the attendance and strong interest from the oil and gas industry in our oil- and gas-related programs,” noted Partner Martin Booher, co-leader of BakerHostetler’s Energy and Shale team. “These events demonstrate the depth and experience we offer clients nationally on energy-related matters.”

“The Denver symposium showcased the highly specialized skills and experience our attorneys in Denver, Houston, Ohio, and other offices have in the Rocky Mountain region and in the national energy/shale space,” said Whitman, chair of BakerHostetler’s national Litigation Practice Group and co-leader of the firm’s Energy and Shale team.

Of the next symposium, slated for Cleveland in early fall, Booher said, “The ongoing rapid development of the Utica and other unconventional formations in Eastern Ohio—coupled with the judicial, regulatory, and political response to this development—promise to make it a significant ‘value add’ to the oil and gas industry.”

Efforts to Avoid Ballot Measures on Fracking Fail in Colorado

Posted in Colorado, Fracking, Legislative

Faced with the potential for two anti-fracking measures on the Colorado ballot this November, Colorado governor John Hickenlooper and state lawmakers have been working for weeks to develop a legislative compromise to avoid putting the issues to a popular vote.  Hickenlooper’s proposal would have placed some additional restrictions on fracking, but would have clarified that local governments could not ban fracking altogether.  Last week, however, Hickenlooper announced that there would be no special legislative session on the proposal because he lacked the support to get a compromise deal done.  With legislative compromise effectively off the table, both sides of the fracking debate will be gearing up for a fight this fall.

The Colorado ballot measures 88 and 89, which would take effect as amendments to the Colorado Constitution if successful, would give local governments authority to regulate oil and gas development and would mandate setbacks of 2,000 feet from occupied structures for new oil and gas wells.  While phrased as a setback requirement, opponents claim that initiative 88 would effectively ban fracking across Colorado because the overlapping setbacks cover most of the state.  Opponents also claim that the initiatives would cost some 68,000 jobs, $567 million in tax revenue and $8 billion in GDP within five years.

The ballot measures have garnered major attention and concern from both ends of the political spectrum.  Democrats—including Governor Hickenlooper and Senator Mark Udall who are running for re-election this fall—fear that the ballot measures could harm their re-election chances with millions in outside political spending.  Republicans, who generally oppose any bans on fracking, see an opportunity to win crucial seats in the upcoming elections.

The deadline to gather enough signatures to place both measures on the November ballot is August 4th.

Additional coverage on these issues can be found here and here.

Utilities, Oil and Gas Companies Feeling Drained by “Energetic Bear”

Posted in Oil and Gas

The following was authored by Mary Guzman, Senior Vice President, InfoSec Practice Leader with McGriff, Seibels & Williams, Inc.

There is much going on in the cyber world related to energy and utility companies.  As has long been anticipated, it appears that Industrial Control Systems are the subject of targeted attacks both against Oil and Gas companies as well as Utilities.  At the moment, it appears the attackers are focused on espionage with a plan for who knows what down the road.   There is a new Oil and Gas ISAC (Information Sharing and Analysis Center) in addition to an already very active ICS ISAC (if you don’t visit their web site often already, it is a great source of information about current cyber threats against Critical Infrastructure). Also, the DHS is holding several closed working sessions for select insurance industry representatives on how we can play a more crucial role (and how they can help us) in developing risk transfer solutions and risk mitigation strategies for clients in this sector.  I attended the first one and I am hopeful some good things will come out of it in the coming months!

Below you will find several recent articles highlighting attacks on the energy sector, as well as an update on how robust the SEC is becoming in pursuing companies that do not provide adequate disclosures around information security related risks and security breaches that have already occurred.  The debate looms over how much information is too much, but really how much is a sophisticated hacking group like Energetic Bear going to learn from a paragraph in your SEC filing?

On the insurance front, as you are hopefully aware, McGriff has developed an energy line slip that provides $100mm+ in insurance capacity that covers the full spectrum of information security related risks for utilities and other energy companies, including full privacy coverage with no sub-limits for breach response expenses, damage to data, business interruption and extra expense, failure to supply resulting in regulatory investigation/fines and/or law suits from third parties who suffered an outage as a result, and other industry specific risks that have not been readily insurable before.  We are gaining traction on both the product and the process we use (partnering with a third party information security firm) to provide robust risk assessment underwriting data to the markets on a confidential, secure basis.

Given the current state of these targeted attacks, some of the coverage features we’ve built into this policy form (not available on standard policy language or, as far as we are aware, anywhere else) become even more vital to make sure the protection you believe purchased is in fact included in the contract.

  • automatic 2 years of Prior Acts coverage (huge if you are buying this insurance for the first time)
  • favorable “warranty” language
  • favorable Notice and Consent provisions
  • full regulatory coverage even for non-privacy related fines and penalties where insurable and with most favored venue language
  • failure to supply
  • first party “programming or administrative” error coverage
  • affirmative “cyber terrorism” coverage

This policy is geared specifically to your industry and the very risks discussed in these headlines.

Of importance to note, in the Oil and Gas sector there are already exclusions on most property and/or terrorism policies for cyber attacks that preclude coverage for actual property damage and/or business interruption and extra expense.  Having several rigs out of operation for days on end could cost millions of dollars in lost income and damage to or loss of proper use of a blow out preventer could have serious consequences.  We are seeing a nudge (as opposed to a push) to add these exclusions to utilities and we are also seeing concerning language on casualty policies (such as regulatory or intentional acts exclusions) that may be problematic in the event of a major breach event.  There is capacity available on a separate policy form and through a different underwriting process for these risks (several carriers now coming out with policies written to address these gaps).  If cyber-related property damage is of interest to your organization, please let us know.

We hope you find this of use and that you will pass this along to others in your organization that may be interested.

Further Resources:

Hackers Target Energy Firms
By Mathew J. Schwartz, July 1, 2014 (BankInfoSecurity.com)

Russian Hackers Targeting Oil and Gas Companies
By Nicole Perlroth, June 30, 2014 (The New York Times)

Author Contact:

McGriffMary Guzman
SVP, InfoSec Practice Leader
404.497.7535
mguzman@mcgriff.com

Ohio Natural Gas Production Reaches Historic Levels

Posted in Hydraulic Fracturing, Ohio, Ohio DNR, Oil and Gas, Utica Shale

Natural gas production in Ohio nearly doubled last year largely because of a surge in hydraulic fracturing operations in the state.  Speaking at a conference earlier this month about oil and gas development in the state, the Ohio Department of Natural Resources (ODNR) Director James Zehringer said the amount of natural gas extracted in Ohio rose by 97% between 2012 and 2013 to about 171 billion cubic feet.  Oil production also rose by nearly 62% to 8.1 million barrels during that same period.

Zehringer attributed the soaring natural gas outputs to the oil and gas industry’s aggressive development of the Utica Shale play, which runs beneath much of the eastern portion of the state.  The number of fracking wells operating in the play increased from 85 in 2012 to 352 last year.  And that figure promises to continue growing.  State officials have issued permits for approximately 350 additional wells since January alone and expect to approve 350 more by the end of the year.

Also in attendance was Richard Simmers, head of the ODNR’s Oil and Gas Division, who pointed to advancements in drilling technologies as another important reason why oil and gas production in Ohio reached historic levels in 2013.  Simmers said drillers who needed around 35 days to hit 13,000 feet in 2010 could surpass 17,000 feet in less than half that time today.

The conference, held outside of Canton, Ohio, at Stark State College, highlighted the achievements of Ohio’s energy sector over the last few years.  In addition to discussing the growth in natural gas production, speakers addressed a wide swath of issues, ranging from pipeline development to regulatory practices.  According to Zehringer, “Ohio’s oil and gas industry is growing and moving [the] state toward energy independence.”

To watch a video of the conference click here. Click here, here, and here for additional coverage.

Texas Railroad Commission Chairman Calls Proposed Denton Fracking Ban ‘Extremely Misguided’; Asks City Council to Reject Measure

Posted in Fracking, Hydraulic Fracturing, Texas

On July 11th, Texas Railroad Commission Chairman Barry Smitherman sent a letter to the mayor and city council members for Denton, Texas asking that the council reject a proposal to ban hydraulic fracturing in Denton. Chairman Smitherman’s letter, which calls the proposed attempt to ban drilling “extremely misguided”, was sent ahead of the July 15th public hearing on the matter.

Denton is currently under a drilling moratorium after the City Council unanimously adopted an ordinance on May 9th of this year which stated that “…increased drilling in close proximity to residential and other protected uses … have resulted in negative and deleterious effects on Denton citizens, calling into question whether the various interests could be better balanced by additional review of the city’s ordinances and regulations… .” The July 15 hearing and vote was mandated by Denton’s municipal law after an organization called the Denton Drilling Awareness Group presented the city council with a petition which now contains over 1,900 signatures asking that fracking be banned in the Denton city limits.

In the four-page letter, Smitherman stated that a “ban on hydraulic fracturing of oil and natural gas wells within the city limits of Denton is essentially a ban on drilling” and argued that “[t]hose advocating for a ban on hydraulic fracturing know that what they are really calling for is a ban on drilling.” Smitherman will not be able to attend the council meeting but has requested that his letter be considered by the council as part of its decision.

If the ban is adopted, Denton would be the first Texas city to ban fracking. If the council rejects the proposal, the initiative would be included as a ballot measure for Denton residents to consider in November.

Media Coverage Resources:

Ohio Tremors Cause Pennsylvania Department of Environmental Protection to Contemplate New Fracking Regulations

Posted in Fracking, Ohio, Pennsylvania, Utica Shale

The Pennsylvania Department of Environmental Protection (DEP) is considering regulating drilling near “seismic hazard areas” after geologists linked a series of small earthquakes in Ohio to fracking at a Utica Shale well. The Pittsburgh Post-Gazette reported that the DEP is beginning a “massive data-mining project” to determine whether the regulations are necessary.

In April, state geologists in Ohio determined that a “probable” link existed between five small tremors and fracking in the Utica Shale. State Oil & Gas Chief, Rick Simmers, believes that the fracking may have increased the pressure on a previously unknown microfault. As a result, the Ohio Natural Resources Department is implementing a special permitting condition that would require oil and gas companies who intend to drill within three miles of a known fault or seismic activity area of 2.0 magnitude and higher to install seismic-monitoring equipment. If the monitoring equipment alerts activity of 1.0 magnitude or greater, the company would have to temporarily cease drilling so geologists could evaluate the activity. If the evaluation reveals a link between the drilling and seismic activity, then the company would have to stop drilling.

Before Pennsylvania implements a permitting condition similar to Ohio’s, the DEP intends to look for possible links between fracking and seismic activity to determine if the state has any seismic hazard areas, and, if so, where they are. To do this, the DEP will compare current and historical records of seismic activity with completion reports that oil and gas companies have filed that detail fracking activity.

For further information regarding fracking and seismic activity, please see here and here.

This post was coauthored by Kathryn Geisinger(2014 BakerHostetler Summer Associate).

The American Petroleum Institute Pens “Good Neighbor” Standards for Fracking

Posted in Fracking, Hydraulic Fracturing, Oil and Gas

In a press release Wednesday, the American Petroleum Institute (“API”) published a first-of-its-kind industry standard for community engagement in shale-rich areas where oil and gas can be extracted using horizontal drilling and hydraulic fracturing techniques. API is a national oil and gas trade association with members including large integrated companies, as well as exploration and production, refining, marketing, pipeline, and marine businesses, and service and supply firms.

API Director of Standards, David Miller, announced at a press conference on Wednesday that the guidelines “will provide a roadmap for oil and natural gas operators seeking to build lasting, successful relationships with local residents in areas of the country where energy development opportunities are open for the first time.” He said that the standard “provides a detailed list of steps that oil and natural [gas] companies can take to help local leaders and residents prepare for energy exploration, minimize interruption to the community, and manage resources.”

The Community Engagement Guidelines document is divided into five phases of oil and natural gas development:

  • Entry: During the entry phase, companies are encouraged to introduce key personnel to local leaders, share information on safety commitments and operational goals, and set professional standards for local employees and contractors.
  • Exploratory Drilling: During the exploratory drilling phase, companies are encouraged to focus on transparency, open dialogue, and education, with recommendations for community meetings and discussions around training for job opportunities.
  • Development: During the development phase, companies are urged to work with local emergency responders to prepare for any potential risks, engage with local authorities, develop relationships with mineral owners, and promote best practices regarding safety and environmental protection.
  • Operations: During the operations phase, when industry presence declines as existing wells continue to produce, the guidelines recommend long-term standards for maintenance and safety, as well as a public feedback mechanism to allow local residents to maintain two-way communication with company representatives.
  • Exit: During the exit phase, as companies close or transfer ownership of local operations, companies are encouraged to engage with the community regarding plans for reclamation and restoration, and prepare stakeholders for the transition.

David Miller stressed that “each community is different, and the standards are not designed to be exhaustive, but rather to serve as a reference for developing a plan-of-action that matches the needs and concerns of a broad range of stakeholders — from rural farmers to indigenous tribes.”

More information is available here.