North America Shale Blog

North America Shale Blog

Texas Railroad Commission Proposes New Regulations for High-Risk Seismic Areas

Posted in Earthquakes, Hydraulic Fracturing, Texas

On Tuesday, amidst claims that hydraulic fracturing could be causing earthquakes in some parts of Texas, the Texas Railroad Commission proposed amendments to permitting regulations for injection wells. The proposed rules would require drillers to submit additional information as part of the permit application process for injection wells in areas designated as high-risk for seismic activity.

The proposed rules define an area as “high-risk” if it has characteristics that may increase the risk that hydraulic fracturing fluids won’t be confined exclusively to the injection interval, including areas that exhibit complex geology or a history of seismic events. Permit applicants who want to operate an injection well in a high-risk area would be required to submit information from the United States Geological Survey related to seismic activity in the area of elevated pressure created by the injection of fluids into the subsurface, logs, geologic cross-sections and structure maps. The proposed rules would also allow the Commission to suspend or terminate a permit if seismic activity occurs near an injection well.

“Whether there is a definitive link or not between disposal wells and seismic activity in Texas has not been determined,” Commission spokeswoman Ramona Nye said. “As our agency continues to work with the scientific community to coordinate an exchange of information … we have seen a need for laying the groundwork for some basic industry best practices.” The Commission estimates that the proposed regulations would add about $300 per injection well permit application. The public comment period for the regulations is open until noon on September 29, 2014.

Media Coverage Resources:

Proposed Amendment of 16 Tex. Admin. Code § 3.9, relating to Disposal Wells, and § 3.46, relating to Fluid Injection into Productive Reservoirs; Oil & Gas Docket No. 20-0290951.

Quake reaction: Railroad Commission looks at new rules for injection wells

Governor Christie Vetoes New Jersey Fracking Ban

Posted in Fracking, New Jersey

Last week, New Jersey Governor Chris Christie vetoed legislation that would have banned the treatment, discharge, and disposal of fracking wastewater in the state, arguing that the bill violated the United States Constitution.  This is the second time the governor has vetoed a prohibition on fracking waste since entering office.

The bill, known as S1041, which easily passed both houses of the state legislature with bipartisan support, would have forbidden the storage or release of fracking byproducts as well as their use on roads as de-icing agents.

Citing the legislation’s outright ban of fracking waste from any state, Governor Christie issued his veto on the grounds that the bill violated the dormant Commerce Clause.  In his veto message, he argued that since no fracking operations currently exist in New Jersey, the bill was designed as an embargo on out-of-state waste, which “would have created an unconstitutional restraint on interstate commerce.”  He also referenced his 2012 veto of similar legislation, contending “Dormant Commerce Clause jurisprudence has not changed in a way that would cause me to sign a bill that I previously rejected on constitutional grounds.”

Sponsors of the legislation argue the prohibition is necessary to safeguard the public water supply from becoming tainted by toxic chemicals sometimes found in fracking water.  While conceding that fracking does not occur in New Jersey, proponents of the bill point out that at least three sites in the state have been used to dump wastewater from operations in Pennsylvania.  Oil and gas industry representatives, however, counter by arguing that fracking water can be safely reused and recycled.

State legislators are currently weighing whether to stage a vote to override the governor’s veto.  Senator and bill supporter Robert Gordon argued that the bill “could withstand any challenge on constitutional grounds,” as it concerned a matter of public health and safety.

Click here and here for additional coverage.

Leading Energy Attorney L. Poe Leggette Joins BakerHostetler

Posted in Uncategorized

Prominent counsel to oil & gas companies and former Interior Dept. official becomes Co-chair of firm’s energy practice and national shale team

Denver, CO – August 11, 2014—BakerHostetler announced that eminent energy attorney L. Poe Leggette has joined the firm as a partner in its Denver office. Leggette becomes co-chair of BakerHostetler’s energy practice and its prominent national shale team. He arrives from Norton Rose Fulbright, where he was partner-in-charge of the Denver and Pittsburgh offices and regional head for the Americas energy practice.

Leggette has built an extensive practice representing leading oil and gas companies in a range of transactions, disputes, regulatory proceedings, and other matters. His active litigation and deal work focuses on three principal areas of representation within the energy sector: onshore shale plays; oil and gas companies operating on federal and Indian lands; and companies operating under federal leases in the Gulf of Mexico.

Prior to his private practice, Leggette spent more than a decade at the U.S. Department of the Interior, where he served as Assistant Solicitor and advised the Bureau of Land Management and the Mineral Management Service on their onshore and offshore energy programs. He authored or co-authored numerous briefs filed in federal courts on outer continental shelf issues, two of which helped obtain Supreme Court reversals of unfavorable Ninth Circuit decisions.

Leggette is highly knowledgeable on legal issues regarding ownership of mineral rights, royalty disputes and compliance with environmental statutes. He’s litigated many cases on behalf of energy clients at the trial, appellate and Supreme Court levels. He has been involved with many cases of prime importance to the oil and gas industry, involving such statutes as the National Environmental Policy Act, the Endangered Species Act, the Coastal Zone Management Act, the National Historic Preservation Act, the Marine Mammal Protection Act, the Federal Land Policy and Management Act, the Mineral Leasing Act, the Outer Continental Shelf Lands Act, and the National Forest Management Act, and various Indian mineral development statutes.

“In addition to spurring rapid growth and business investment among energy providers, the shale era is ushering in a raft of new regulation, legislation, tax changes, insurance risk, and especially litigation. Having someone of Poe Leggette’s national stature and deep experience – in all aspects of energy law – join our firm adds to our bench strength in the energy sector,” said BakerHostetler Chairman Steven Kestner. “Poe’s distinguished, wide-ranging track record and his command of substantive policy and regulatory issues will be of immense benefit to our large roster of energy clients.”

“As the energy sector continues to grow in importance and shale development makes an increasing impact on America’s energy profile, the addition of someone with Poe’s deep knowledge and experience becomes a real differentiator for us,” said Ray Whitman, Chair of BakerHostetler’s Litigation practice. “Oil and gas development inevitably brings with it a host of complex litigation, regulatory challenges, and policy changes. Poe has represented the world’s leading energy producers and trade associations before state and federal courts as well as the most powerful regulators and we look for him to make significant contributions to our entire energy practice moving forward.”

“The arrival of Poe Leggette is a boon to the Denver office and exemplifies the growing importance of the energy practice and BakerHostetler’s position as a top-tier energy counsel in the western U.S. as well as nationally,” said Raymond Sutton Jr., Managing Partner of BakerHostetler’s Denver office. “Hydraulic fracturing has been a hot-button issue in Colorado and in many other regions where the firm has offices. We are thrilled to have one of the nation’s foremost authorities on shale and offshore energy development as part of our team.”

“The production surge in shale gas promises to turn the U.S. into a net energy exporter for the first time and it’s certainly changing the landscape for energy and environmental law,” Leggette said. “BakerHostetler has been at the forefront of this change and has built a reputation as a go-to law firm for energy-related matters. This is a momentous time for the energy industry and I’m very happy to join such an esteemed practice and look forward to helping expand our base as the industry continues to evolve.”

BakerHostetler’s energy lawyers have successfully secured major projects for leading international and domestic energy companies and oilfield service providers involving oil, natural gas (including shale), and alternative energy matters. BakerHostetler’s energy practice offers business, litigation and regulatory expertise for transactions including financings, land acquisitions, exploration and drilling, and production distribution. BakerHostetler is one of the first national law firms to create a dedicated shale practice and also produces its own shale blog tracking the industry – www.northamericashaleblog.com.

Leggette received his J.D. from the University of Virginia and a B.A., magna cum laude, from Tufts University. He is recognized as a leading energy attorney by the top legal rankings organizations, including Chambers USA, Chambers Global, Legal 500, and The Best Lawyers in America©.

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About BakerHostetler
One of the nation’s largest law firms, BakerHostetler helps clients around the world to address their most complex and critical business and regulatory issues. With five core national practice groups – business, employment, intellectual property, litigation, and tax – the firm has nearly 900 lawyers located in 14 offices coast to coast. BakerHostetler is recognized for its role as court-appointed counsel to the Securities Investor Protection Act (SIPA) Trustee in the recovery of billions of dollars in principal lost in the Ponzi scheme perpetrated by Bernard L. Madoff. Additionally, BakerHostetler is widely regarded as having one of the country’s top 10 tax practices, a nationally recognized litigation practice, data privacy practice, and an industry-leading middle market business practice. For more information, visit www.bakerlaw.com.

Contact: Laura Scharf (216.861.6616) or Tracy Hager (303.764.4090).

Youngstown, Ohio, Contractor Sentenced to 28 Months in Prison for Wastewater Dumping Scheme

Posted in Hydraulic Fracturing, Ohio, Ohio DNR, Water

We previously reported on the federal criminal and State of Ohio enforcement actions arising from the release of tens of thousands of gallons of hydraulic fracturing waste into a Youngstown, Ohio, area tributary by Hard Rock Excavating (Hard Rock) during late 2012 and early 2013.  On Tuesday, U.S. District Court Judge Donald Nugent handed Hard Rock principal, Benedict Lupo, a 28-month prison sentence and a $25,000 fine on one count of making an unpermitted discharge in violation of the United States Clean Water Act.

Lupo plead guilty to the Clean Water Act charge in March, admitting that he ordered two employees to release the waste into a nearby storm drain flowing into the tributary after business hours. The District Court sentenced each employee to three years’ probation on the same Clean Water Act charges in March and July of this year. The employees discharged wastewater on 33 occasions from November 2012 to January 2013. Ohio Department of Natural Resources investigators observed the dumping after receiving an anonymous tip on January 31, 2013.

Judge Nugent rejected pleas for leniency by Lupo’s attorneys, citing Lupo’s insistence over the employees’ objections that they discharge the waste and conceal their actions, and the significant water source pollution portrayed by photos presented by the U.S. Attorney.  Supporting the stern sentence, Ohio Attorney General Mike DeWine leaned on the recent contamination of the Toledo water supply resulting from large toxic algae bloom believed to be enhanced by phosphorous runoff from farming activities and septic systems:

“The recent water crisis in Toledo is a grave reminder of how important it is to protect our waterways. Those who commit crimes against the environment jeopardize the health and safety of Ohioans, and our natural resources and wildlife. They must be held accountable.”

The sentence exemplifies the harsh actions that the authorities will take for abuses of the environmental laws applicable to hydraulic fracturing operations.

Did an Ohio Spill Expose a Leak in Ohio’s Hydraulic Fracturing Disclosure Laws?

Posted in Hydraulic Fracturing, Ohio, Ohio EPA, U.S. EPA

After a recent accident at an Ohio unconventional drilling site, Governor Kasich expressed concern about the state’s fracturing-fluids-disclosure laws. The June accident spilled chemicals ­– including the drilling company’s proprietary hydraulic fracturing fluid – into a nearby stream. But under Ohio’s disclosure laws, the company didn’t have to reveal the contents of its proprietary fluid to first responders, which caused controversy among environmental groups and the national media.

The spill occurred on June 28 when a broken hydraulic hose sprayed fluid onto hot equipment, igniting it and spreading the fire throughout the facility. The fire consumed most of the equipment and chemicals at the drilling site. First responders doused the fire with thousands of gallons of water, which caused the chemicals to run into a nearby stream. The Ohio Department of Natural Resources (ODNR) Division of Wildlife removed 70,000 dead fish in the days following the spill.

Controversy sprung from the U.S. Environmental Protection Agency (USEPA) report, which stated that the drilling company did not inform the USEPA or the Ohio Environmental Protection Agency (OEPA) of the ingredients in its proprietary fracking liquid until July 3 – five days after responders first arrived on the scene. This raised concern among environmental groups and politicians, including Governor Kasich. Kasich told the Columbus Dispatch that it would be unacceptable for emergency responders to be restricted from the full list of chemicals that might have spilled into the stream. He added that “[w]e want people to know what the fracking fluid contains.”

Ohio law only requires companies to disclose the contents of its proprietary hydraulic fracturing fluids to the ODNR – at its request – in response to a spill, or to medical professionals treating someone affected by a drilling incident. In either instance, neither the ODNR nor the medical professional may disclose any information labeled as a trade secret. The USEPA report does not clearly state that the disclosure lawwas the reason why the USEPA did not find out about the proprietary chemicals until five days into the response. But now, many people – including the Ohio Governor – are demanding disclosure laws that would give first responders access to the complete lists of chemicals involved in a fire or spill.

The Ohio spill also could influence disclosure requirements being considered on a national level. The USEPA is currently taking comments regarding the adoption of its own disclosure rules. And while the USEPA acknowledged that the late disclosure in Ohio didn’t have any negative effects on its investigation, the optics were bad. At minimum, the incident caught the nation’s attention and might invoke a wave of comments asking for more stringent disclosure rules. The comment period on the USEPA’s advance notice of proposed rulemaking ends on September 18, 2014.

Leaked EPA Draft Offers Insight into Upcoming Shale Wastewater Regulations

Posted in Fracking, Shale, U.S. EPA

The rapid expansion of shale drilling in recent years has brought with it an increase in the wastewater that is generated during the fracking process. One fracking well can produce over one million gallons of wastewater in a year. In March of 2011, the EPA released “Natural Gas Drilling in the Marcellus Shale: NPDES Program Frequently Asked Questions,” which explained that because natural gas drilling in the Marcellus Shale can result in direct and indirect discharges into waters of the United States, those operations are subject to requirements under the Clean Water Act. However, aside from the Clean Water Act requirements, shale drilling was largely exempt from EPA regulation. In response to public concern about the effect of fracking wastewater on human health and the environment, the EPA released a statement  in October of 2011 announcing that by 2014, it would propose standards that shale gas wastewater would have to meet before going to a treatment facility. A draft of the rules was recently leaked, and shows the EPA’s proposed guidelines on water quality limits, removal of pollutants, and permits for treatment of discharged shale wastewater.

The leaked draft, titled “National Pollutant Discharge Elimination System Permitting and Pretreatment for Shale Gas Extraction Wastewaters: Frequently Asked Questions,” details the EPA’s proposed pretreatment standards for shale wastewater. The document notes that the EPA has identified potential pollutants in shale wastewater, including chlorides, bromide, metals, and organics, based on a limited set of data from the Marcellus shale. The document lists about twenty substances in shale wastewater that the EPA signals might have an impact on water quality and permitting for wastewater. Depending on the contaminants found in the wastewater, drilling companies may be subject to additional permitting or other controls to ensure that pollutants are removed before reaching a water source.

The document also offers guidance about the management and pretreatment of shale wastewater. It indicates a potential reduced need to discharge shale wastewater to centralized waste treatment (CWT) and publicly owned treatment works (POTWs) due to an increase in wastewater recycling and underground disposal wells. The leaked draft provides POTWs with examples of pollutant parameters to determine whether POTWs should establish local limits or accept shale wastewater. The EPA also identified various levels of dissolved solids that might impact POTWs, and may provide guidance on those, as well.

The EPA’s finalized rules for disposal of shale wastewater are set to come out later this year.

More information on the proposed rules is available here, here, and here.

This post was coauthored by Kendall Kash (BakerHostetler 2014 Summer Associate).

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.”