The key operative provisions of amended Rule § 3.8 enable on-site, permit-free storage of fluids awaiting recycling or treated fluids in “non-commercial fluid recycling pits,” subject to various pit construction, use, maintenance and operation requirements. The Commission also adopted a binary approach to the permissible reuse of recycled fluids. Recycled fluids may be reused without a Commission permit in (i) oil and gas operations and (ii) non-oilfield related uses other than discharge into the state’s waters if the use occurs pursuant to another state or federal permit or the fluid is in the form of distilled water.

In addition, the Commission adopted parallel amendments to the commercial fluid recycling permitting rules. Those revisions clarify the application requirements and expand the two existing permit categories to five, with a view toward more accurately facilitating the range of recycling practices utilized in the industry.

While the Commission notes that hydraulic fracturing operations and mining together only account for one percent of fresh water use in Texas, Commissioners quoted in the press release acknowledge that water use has been a primary concern, and that the aim of the new rules is to encourage oil and gas operators to recycle by removing regulatory hurdles. But resource conservation is not the only incentive to expand the practice of fluid recycling. The streamlined regulatory requirements may better position oil and gas outfits to reap significant cost savings from reduced water use. Considering the often steep expense associated with fresh water and fluid disposal transportation, an energy analyst quoted in a recent Wall Street Journal article predicts that fluids recycling has the potential to be a multi-billion dollar industry.

As the political and regulatory environment continues its shift toward natural resource protection and use constraints, other states may follow Texas’ lead in adopting pro-recycling regulations. This blog will continue to monitor the states’ efforts in this space.

Underscoring the state’s stern response to non-compliant drilling waste practices, two Ohio state senators have proposed a bill (SB 46) to heighten sanctions on transgressors. If passed, the bill would increase criminal penalties for violations of the Ohio oil and gas law relating to improper disposal, transport, and management of brine, and require the revocation and future denial of a violator’s permits and registration certificates. Currently, Ohio has no law barring the issuance of future permits.

The state and federal response to this release and the recently proposed enhancements to state regulatory oversight of drilling waste disposal under HB 59 highlight the increased scrutiny and stiff penalties for non-compliance faced by Ohio oil and gas industry participants in connection with their waste management practices. We will continue to monitor the progress of the proposed legislation and Ohio’s disposal-related regulatory efforts.

Press coverage of the state and federal actions can be found here and here.

In addition to initiating civil and criminal investigations, the state is pursuing a variety of regulatory enforcement actions against Hard Rock and D&L Energy Group (D&L), an affiliated oil and gas exploration and production outfit. The measures include denial of D&L’s pending injection well permit applications and revocation of its six current permits, cessation of D&L’s Ohio injection well and temporary storage operations and revocation of Hard Rock’s brine hauling permit.  

State legislators from both parties and environmental advocates have expressed outrage over the incident, and are directing blame at the state’s enforcement efforts and response practices. One of the most outspoken, state representative Robert Hagan (D-Youngstown), released a letter  accusing the OEPA and ODNR of conducting a secretive response, keeping local officials “in the dark” as the events transpired. In addition, noting Ohio’s relatively stringent and comprehensive oil and gas regulations, Sen. Rob Portman (R-Ohio) indicated in a statement that the incident highlights the need for robust enforcement of the state’s oil and gas compliance regime.  At least one Ohio environmental group has, however, questioned the capacity of Ohio’s agencies to oversee regulatory compliance by the consistently growing industry throughout the state.

We will continue to monitor the OEPA and ODNR enforcement efforts and the agencies’ responses to the scrutiny of their oversight and response practices. 

Press coverage of the incident can be found here, here, here and here.

 In the wake of these events, the proper management of oil and gas waste streams is likely to be a closely scrutinized enforcement priority in Ohio.  Operators should ensure that they have in place and are implementing effective and adequately communicated processes, procedures and plans to prevent and promptly respond to releases and to ensure the proper management and disposal of all waste streams associated with their business. Members of BakerHostetler’s Environmental and Energy Practice Team have extensive experience working with clients to develop these processes, procedures and plans, including the auditing to ensure that they are being property implemented.  We understand the urgency of many environmental situations and have an Emergency Response Team serving clients nationwide, with attorneys on call 24 hours a day (1.216.621.0200)  and available to be dispatched to an incident site immediately following notification of a problem. Our Emergency Response Team responds to chemical plant explosions, industrial accidents, release of chemicals to the environment and similar emergencies. These situations often involve environmental reporting, enforcement and cleanup requirements and sensitive public relations issues, and can result in class action and toxic tort litigation, OSHA investigations, white collar criminal investigations and wrongful death and workers’ compensation claims.

Last week, Maryland Governor Martin O’Malley released his proposed fiscal year 2014 budget.  Notably, the budget includes $1.5 million dedicated  ”to provide citizens, business leaders and policymakers the research and data they need to fully consider the potential economic and ecological impacts of natural gas extraction in Maryland.”  $1 million of these funds are proposed to go towards the ongoing hydraulic fracturing study, with the remaining amount for gathering baseline environmental data in areas of the state located in the Marcellus shale region. 

This blog will monitor the progress of both the Governor’s budget proposal and the state’s ongoing study.  Media coverage of the Governor’s budget proposal can be found here, here, and here.

The leaked February 2012 health assessment is a supplement to the comprehensive Supplemental Generic Environmental Impact Statement (SGEIS), a study commissioned by the New York Department of Environmental Conservation (the DEC) in 2008. In the released analysis, the New York State Department of Health (the DOH) found that “[b]y implementing the proposed mitigation measures identified and required in this [SGEIS], the department expects that human chemical exposures during normal [HVHF] operations will be prevented or reduced below levels of significant health concern.” Those mitigation measures are addressed throughout the SGEIS and include, among others, standards for storage of chemicals on well pads, increased standards or well construction, cementing and blow-out prevention equipment, treating used drilling water similar to medical waste, and pre-disposal water testing procedures. With the proposed and existing mitigation measures in place, the report concludes, “significant adverse impacts on human health are not expected from routine [HVHF] operations.”

However, the DEC disclaimed the notion that the report represents its final position. According to a statement issued by a DEC spokeswoman: “the final SGEIS will reflect the review currently underway by [the DOH] and outside experts,” and “no conclusions should be drawn from this partial, outdated summary.”

Further action on the recently filed revised proposed regulations is on hold pending completion of the final health review. The DEC expects to complete its review by February and to issue a decision on the proposed regulations soon thereafter. If the DEC concludes that HVHF can be done safely, it will move forward with the final rulemaking process, adjusting the regulations in accordance with the SGEIS’s health and safety requirements. Our prior coverage of the proposed rules can be found here.

Despite the DEC’s warning against prematurely interpreting the report as conclusive, it is currently the only publicly available information on the state’s hydraulic fracturing safety analysis, and may foreshadow the DOH’s ultimate position. Oil and gas industry advocates agree, hailing the report in hopes that a green light on HVHF in New York will soon follow. All hydraulic fracturing operations have  been halted under an indefinite moratorium since 2010. Opponents, on the other hand, criticize the overall lack of the transparency in the DEC’s rulemaking process, and label the leaked document as an inadequate assessment of legitimate health concerns. Further press coverage of the leak can be found here, here, here and here.

We will continue to follow the developments of the final health review and its impact on the DEC’s rulemaking.

All of these bills were slated for hearing before the session closes, but none are expected to pass the Republican-controlled chambers.  The proposed bills are: 

SB 318, sponsored by State Senator Capri Cafaro, would require wells in urbanized areas to comply with zoning requirements, to revise the setback distances of a well from an occupied dwelling, to require the disclosure of all chemicals and substances used in hydraulic fracturing, to eliminate mandatory pooling, to apply the Consumer Sales practices Act to lease agreements for the exploration for the development  of oil and gas on residential property and to require a surety bond for an injection well.  The bill would also fund a training program including employee training grants to oil or gas well owners.

SB 212, sponsored by Senator Mike Skindell, would establish requirements governing well stimulation, brine disposal, and water that is used in the drilling and operation of oil and gas wells on state land, including a requirement that oil and gas permittees pay a five per cent overriding royalty for each well that is stimulated.

SB 213, also sponsored by Sen. Skindell, would establish a moratorium on horizontal stimulation of oil and gas wells until the USEPA publishes a report containing the results of a study of the relationship of hydraulic fracturing to drinking water resources and the Chief of the Division of Oil and Gas Resources Management issues a report analyzing how Ohio’s rules address issues raised in the USEPA report.

HB 500, sponsored by Rep. Ron Gerberry, would authorize a fee on the recycling of brine from oil and gas operations to benefit local governments.

HB 596, sponsored by Rep. Robert Hagan, would revise the requirements concerning an oil and gas permit application, an oil and gas well completion record, designation of trade secret protection for chemicals used to drill or stimulate and oil and gas well and disclosure of chemical information to a medical professional, require an owner to report all chemicals brought to the well site, and to make other changes in the Oil and Gas Law.

HB 537, also sponsored by Rep. Hagan, would authorize a political subdivision to enact and enforce health and safety standards for oil and gas drilling and exploration and to revise the setback requirements in the Oil and Gas Law.

HB 493, sponsored by Rep. Mark Okey, would establish additional requirements governing wells that are drilled into the Marcellus shale formation or a deeper formation, to establish governing oil and gas land professionals, including the registration of such professionals and the creation of seller of mineral rights and to make other changes in the Oil and Gas Law.

HB 528, sponsored by Rep. John Carney, would require the lessee of an oil and gas lease to provide to the lessor monthly oil and gas production statements, to specify the minimum information that must be included in a monthly statement, and to establish procedures and requirements in accordance with which a lessor may conduct an audit of the lessee’s records and documents related to production or post-production costs under the lease.

Battelle Memorial Institute recently announced that it is partnering with the Ohio EPA and the Ohio DNR to identify alternative/new technologies that Ohio companies can utilize for treatment of drilling wastewater.  The overall goals of Battelle’s partnership are to ”increase water reuse and decrease injection of wastewater into disposal wells associated with shale gas drilling and production activities in the Marcellus and Utica Shale Regions.”  Recycling of flowback and produced water are expected to be key components of this process.

Additionally, per a recent announcement by Sen. Sherrod Brown’s office, Battelle and Ohio University are slated to receive funding from the U.S. Department of Energy’s Research Partnership to Secure Energy for America program to study alternative treatment and disposal options for flowback, produced water, and brine.  The two organizations combined will receive over $3.5 million in DOE funds over two years to conduct their studies, while contributing roughly $900,000 themselves to the effort.

The draft rules address a variety of topics, including:  detailed well construction, site preparation, operational, and maintenance requirements; enhanced chemical disclosure requirements for hydraulic fracturing fluids; well pad siting setbacks; pre-drilling testing of surrounding private residential water wells; and revisions to state water discharge permit requirements for high-volume operations.

The revised draft rules can be found on DEC’s webpage at the following link, and a brief summary of the regulations also can be found here.  DEC will accept comments on the draft regulations from December 12, 2012 through January 11, 2013.

Two weeks ago, the Ohio Department of Natural Resources (ODNR) issued approvals for four new injection wells — two in Washington County, one in Athens County, and one in Portage County.  The permits are notable because they are the first ODNR has issued since the December 31, 2011 earthquake near Youngstown, Ohio.  Earlier this year we provided analysis of ODNR’s March 2012 report on the Youngstown earthquake, which proposed updates to the state’s disposal well regulations, as well as Governor John Kasich’s July 10 executive order authorizing ODNR to adopt emergency regulations for disposal wells.  ODNR currently has 179 permitted disposal wells, not including the new four, and 31 additional disposal well applications remain pending with the agency.  Local coverage of ODNR’s permit approvals can be found here, here, here, and here.

In contrast, while Ohio has the ability to run its own disposal well permitting program, Pennsylvania does not — meaning that the U.S. EPA must approve all new injection wells in the state.  To date only five permitted and operating Class II disposal wells exist in the state that take wastewater from oil and gas operations.  But earlier this month EPA issued two draft permits for new Class II wells in Pennsylvania, and opened the permits up for public comment.  NPR’s State Impact blog has provided helpful background information on the two permit applications, along with copies of the draft permits.

As in most states, the Railroad Commission’s existing rules do not contemplate recycling of flowback fluids at all.  Typically these fluids, as well as produced water, are stored in tanks or containment ponds pending disposal in deep injection wells.  Recent improvements in recycling technologies are beginning to allow drillers to clean these fluids for use in another round of hydraulic fracturing, replacing fresh water.  Because a typical fractured well can use as much as several million gallons of water, allowing reuse and recycling without pre-approval both encourages conservation and can help drillers reduce longer-term operating costs (both in acquiring fresh water and hauling large amounts of fluids for disposal). 

Because the recycling technology is new, it is not yet common and can still be cost-prohibitive in the short term for smaller operators.  But as its cost decreases, flowback recycling may become more economically viable for small and mid-size operators than it is currently.  This blog will monitor the progress of Texas’s proposed rules, as well as whether states in the Utica and Marcellus shale plays follow the Railroad Commission’s approach to encouraging flowback recycling.