North America Shale Blog

North America Shale Blog

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.

Protestors Call for California Fracking Ban

Posted in California, Fracking, Legislative

Thousands of protestors converged on Sacramento on Saturday, urging Gov. Jerry Brown to institute a moratorium on fracking in California.  The demonstration is believed to be the largest anti-fracking rally in state history.

The protest was organized largely in response to Gov. Brown’s decision to support the development of California’s Monterey Shale formation.  Said a spokesperson for CREDO Action, an organization that helped coordinate the rally, “we want to make it clear that as [Gov. Brown] decides whether to green light a massive expansion of fracking in California, his legacy is on the line.”  The demonstration comes only a week after anti-fracking protestors interrupted Gov. Brown’s speech at the state Democratic Convention as he announced his intention to seek re-election.

Arguing that current drilling regulations are far too lax, some protestors called on Gov. Brown to support SB-1132, a bill that would ban hydraulic fracturing until the state can confirm that the practice poses no threat to the environment or public health.  That bill is currently pending in the state legislature.  Other demonstrators argued that the governor should ban fracking through an executive order.

The protest, however, is not expected to alter Gov. Brown’s position that fracking will bolster the state economy and unlock vast energy resources.  As we reported last year, California enacted hydraulic fracturing legislation in September, which fracking proponents believe adequately safeguards against shale development’s potential risks.

The Monterey Shale formation is estimated to hold more than 15 million barrels of recoverable natural gas and remains largely untapped.

Additional coverage available here and here.

Wyoming Supreme Court Remands Fracking Chemical Disclosure Case to District Court for Reconsideration

Posted in Fracking, Litigation, Wyoming

On March 12, 2014, the Wyoming Supreme Court issued a highly anticipated ruling in a case concerning the scope of trade secret protection available to exempt certain fracking chemical information—which Wyoming requires to be provided to the Wyoming  Oil and Gas Conservation Commission (Commission)—from public disclosure.  The decision, however, rested largely on technicalities and declined to answer the substantive question of whether individual fracking chemicals qualify as trade secrets.

The suit arose after environmental groups sought disclosure from the Commission of several companies’ fracking chemicals under Wyoming Public Records Act.  The Supervisor of the Commission, who is the legal custodian of such chemical records, found the records exempt from public disclosure as trade secrets under the Wyoming Public Records Act.  In reaching that decision, the Supervisor applied the definition of trade secrets in Wyoming’s Uniform Trade Secrets Act.

The environmental groups then filed suit challenging the Commission’s decision as arbitrary, capricious, and an abuse of discretion under the Wyoming Administrative Procedure Act (APA).  The district court, applying the APA, reviewed the Commission’s decision and found that it was reasonable and in accordance with Wyoming law.  In affirming the Commission’s decision, the district court referenced three different definitions of trade secrets—the federal Freedom of Information Act (FOIA) definition, the Restatement (Third) of Unfair Competition definition, and the Wyoming Uniform Trade Secrets Act definition—and found that fracking chemical information could qualify as a trade secret under all three.  The court did not, however, independently determine whether the information sought was actually a protected trade secret, and instead reviewed the reasonableness of the Commission’s decision.

On appeal, the Wyoming Supreme Court ruled that the environmental groups should not have sought review of the Commission’s decision as an administrative action under the APA.  Rather, the Court found that the proper procedure was to apply to the district court for an order directing the Supervisor to “show cause” why the chemical information was protected from public disclosure as a trade secret.  The difference between the two procedures is that the APA permits the district court only to review the Commission’s decision on the record presented, while the order to show cause procedure allows the district court to hold evidentiary hearings and make an independent determination on the trade secret question.  Based on that ruling, the Wyoming Supreme Court remanded the case to the district court to allow the parties to try again under the correct procedure.

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Advances in Drilling Techniques Push U.S. Oil Rig Count to New Record High

Posted in Oil and Gas, Texas

Operators’ ability to develop previously untapped oil reserves through horizontal drilling techniques has led to a record 1,443 oil rigs currently in operation in the U.S. according to a report released last week by Baker Hughes, Inc. According to industry observers, one of the main drivers of the record rig-count is the ability to develop portions of well-known fields such as the Permian Basin formation in Texas and New Mexico through drilling techniques and technologies that didn’t exist even just a few years ago. “While it’s [the Permian] one of the oldest fields in the U.S., there are multiple producing formations there and companies are learning how to optimize horizontal drilling in them. The growth is evidence that they’re figuring it out,” said James Williams, president of WTRG Economics.

Timothy Dove, the COO of Pioneer Resources, which holds one of the largest positions in the Permian formation, said in 2014 the operator is spending the “vast majority” of its drilling capital in northern areas of the Permian. E. Joseph Wright, the COO of Concho Resources, Inc., estimates that his company, the largest Permian operator drilling for oil, will add four rigs throughout the year.

The Baker Hughes report also detailed that there are currently 345 gas rigs operating in the U.S. for a total of 1,792 rigs (oil & gas) in operation, the highest level in more than a year. According to Williams, “we may be finally seeing some impact in the gas count from natural gas prices.”

Media Coverage Resources:

Drilling Surge in Permian Drives U.S. Oil Rigs to Record


Los Angeles City Council Clears Way for Fracking Ban

Posted in California, Fracking, Hydraulic Fracturing, Legislative

A vote taken by the Los Angeles City Council last week could set the stage for a city-wide ban on hydraulic fracturing.  During its session on Friday, February 28, the ten-member council unanimously approved a motion to draft ordinances prohibiting all natural gas “well stimulation,” including fracking, acidization, and gravel packing, within the city limits.  If ultimately accepted, the ordinances would make L.A. the largest city in the nation to impose a moratorium on fracking.

The new ordinances, which are to be drafted by the City Attorney’s office, are expected to forbid fracking-related activities until the city can confirm that such practices do not put the public at risk.  Lifting the ban would be contingent, at least in part, on the development of more stringent drilling regulations by federal and state authorities.  Under its current system, the city regulates where oil and gas wells can operate, but producers are under no obligation to disclose their extraction methods.

Supporters of the moratorium contend that fracking has inherent dangers, including the risk of contaminating the city’s water supply.  Councilman Mike Bonin, the motion’s coauthor, justified the ban, arguing fracking is “largely unregulated and we don’t know the true extent of the threats here in Los Angeles.”

But oil and gas drillers counter that imposing a ban would be a huge mistake.  Catherine Reheis-Boyd, President of the Western States Petroleum Association, attacked the council vote in a prepared statement:  “A moratorium on a safe and proven energy production technology for the city of Los Angeles—the driving capital of the world—will send the wrong signal about California’s energy and economic future.”  Critics also point out the new ordinances, if enacted, could prompt companies to shutter otherwise productive wells.

L.A. is home to one of the largest urban oil fields in the country, with more than 1,800 wells currently operating within the city limits.  Less than one tenth of those facilities are estimated to use fracking or other related extraction techniques.

It remains unclear when the council expects to vote on the proposed ordinances.  Further news coverage can be found here.

Ohio House Ways and Means Committee Receives Testimony on Substitute House Bill 375

Posted in Legislative, Ohio, Oil and Gas, Tax

            On February 12, 2014, Ohio House Ways and Means Committee Vice-Chair Rep. Gary Scherer offered a substitute House Bill 375 to the Ways and Means Committee, including significant amendments from the prior version of House Bill 375 previously reported here. The Ohio Legislative Service Commission has published a Substitute Bill Comparative Synopsis, which describes the significant changes to House Bill 375 as introduced.  Perhaps the biggest change is changing the base of the tax from “net proceeds” to “gross receipts” from the first sale of oil or natural gas, without deduction for costs.  While this change does away with the lengthy debate over what properly was included in deductible “post-production costs,” it significantly increases the burden of the tax.  The proposal also shortens the cost-recovery period for wells from five to three years, and increases the tax rate that will apply during the productive years of most wells from 2% to 2.25%.

            Another significant change is unifying the treatment for horizontal and traditional wells, which would have been taxed differently under the proposal as introduced.  The party upon whom the tax is visited also changes – under the bill as introduced, the tax was borne by the well owner, but a severer or holder of a royalty interest could be designated to pay the tax.  Under the substitute bill, the tax is squarely on the well owner, though now only the royalty interest holder will be entitled to claim the corresponding income tax credit.  This income tax credit also would now come with significant limitations – a cap on the amount of the income tax credit to the lesser of 12.5% or the actual proportion of the tax that the royalty interest holder is contractually required to pay the well owner, and the royalty interest holder cannot claim the credit in any year in which it claims the Ohio small business investor income deduction recently enacted in the Ohio biennial budget bill, H.B. 59.

            In addition, the exclusion from the Ohio Commercial Activity Tax (“CAT”) proposed under the bill as introduced is significantly limited in the substitute bill.  Receipts would be excluded from the CAT base only if the CAT taxpayer is subject to the personal income tax, or is a pass-through entity and its investors are subject to the personal income tax.  The effective date of the new law would be pushed from April 1, 2014 to October 1, 2014, and the filing date for the first returns would be pushed out to 60 days after the end of the first calendar quarter ending after the law takes effect.

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Safety Alerts and Other Recommendations in the Wake of Rail Accidents Involving Bakken Formation Crude Oil

Posted in Oil and Gas, PHMSA, Transportation

Editor’s Note: This entry is also to be published in the Spring 2014 Bakken Oil Report.

Recent accidents involving rail cars transporting crude oil from the Bakken shale region have resulted in the heightened interest of rail industry regulators and other federal agencies, including the Pipeline and Hazardous Material Safety Administration (PHMSA), the Federal Railroad Administration (FRA), and the National Transportation Safety Board (NTSB).  In January 2014 alone, PHMSA issued a safety alert addressing the flammability characteristics of crude oil originating from the Bakken shale formations and the NTSB issued two letters containing safety recommendations to both FRA and PHMSA, copies of which may be found: here, here and here.

The PHMSA safety alert and NTSB’s safety recommendations arrived on the heels of (i) FRA’s August 2, 2013 Emergency Order 28, which addresses safety issues related to unattended rail cars carrying Bakken crude oil; (ii) FRA and PHMSA’s August 2, 2013 joint safety advisory 2013-06, which contains additional recommendations for railroads and shippers to implement improved safety measures for the transport of Bakken crude oil; and (iii) FRA and PHSMA’s second joint safety advisory, published on November 20, 2013, which discusses the importance of proper characterization, classification and selection of a packing group for Class 3 materials and the corresponding requirements in the Federal hazardous materials regulations for safety and security planning.

In the meantime, while agencies have been scrambling to compile their safety recommendations and other notices, rail accidents have continued to occur.  For example, as recently as December 30, 2013, a BNSF Railway Company train carrying fracked oil from Bakken shale deposits derailed outside of Casselton, North Dakota, resulting in the rupture of several DOT-111 train cars and the spilling of 400,000 gallons of crude oil.  Local residents were also evacuated.  A week later, a Canadian National Railway train, also carrying crude oil, derailed and caught fire.  Again, local residents were evacuated from their homes.  These incidents, along with others like them, have led to headlines like “Another Day, Another Crude by Rail Accident” and “Accidents Surge as Oil Industry Takes the Train.”

The purpose of this article is thus threefold:  (i) first, to examine the impetus underlying industry regulator’s piqued interest in the transport of Bakken crude oil and describe the factual background surrounding recent rail incidents (for the purpose of placing NTSB, FRA, and PHMSA’s safety-related communications in context); (ii) second, to summarize the NTSB’s recent, though non-binding, recommendations to FRA and PHMSA; and (iii) third and finally, to summarize the recent safety alert issued by PHMSA in January 2014 as well as similar safety alerts that pre-date it.

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Broomfield Fracking Ban Upheld

Posted in Colorado, Fracking, Legislative

On February 27, 2014, Colorado District Court Judge Chris Melonakis ruled that Broomfield’s five-year fracking ban would remain in effect.  The ban passed by a mere twenty votes.   The results of the November 2014 election were challenged by Broomfield Balanced Energy Coalition.  The Coalition argued that the election was flawed because mistakes were made in counting the ballots.  The Court disagreed.  According to the Court, the City and County of Broomfield substantially complied with state election laws.

Another lawsuit, this time challenging the ban itself rather than the election results, is likely to be filed.  We will continue to monitor developments at the North America Shale Blog.

Media coverage can be found here and here.

BOEM Releases Final Programmatic Environmental Impact Survey For Offshore Atlantic Geological and Geophysical Activity

Posted in Oil and Gas

Yesterday, the Bureau of Ocean Energy Management, in cooperation with NOAA’s National Marine Fisheries Service (NOAA Fisheries), and pursuant to the National Environmental Policy Act (NEPA), released its final Programmatic Environmental Impact Statement to evaluate potential environmental effects of proposed geological and geophysical (“G&G”) survey activities on the southern and mid-Atlantic US Outer Continental Shelf, a step toward allowing offshore oil and gas drilling in the area.

The statement examines G&G survey activities for three program areas, oil and gas, renewable energy, and marine minerals, for possible activity levels projected between 2012 and 2020 and identifies broadly applicable measures governing any such activities. The statement also considers potential impacts on different types of resources (such as marine mammals, fish, and cultural resources) and the cumulative effects from G&G and other human activities in these areas and establishes a framework for mandatory environmental reviews for site-specific actions. Potential surveys will be limited by protective mitigation measures and safeguards to reduce or eliminate potential impact to marine life, including requirements to avoid vessel strikes, physical separation of simultaneous seismic air gun surveys and passive acoustic monitoring to improve detection and thereby reduce potential harm to marine life prior to or during such surveys.

A copy of the Programmatic Environmental Impact Statement is available here.

Oral Argument Recap: Ohio Supreme Court Considers Home Rule in Challenge to Zoning Ordinances Restricting Drilling

Posted in Litigation, Natural Gas, Ohio, Ohio DNR, Ohio Supreme Court, Oil and Gas, Zoning

On Wednesday, the Ohio Supreme Court held oral argument to determine the scope of Ohio’s constitutional guarantee of municipal “home rule.”  The case—brought by the city of Munroe Falls, Ohio against Beck Energy Corp. for violations of its local zoning laws—concerns the constitutionality of Ohio Revised Code § 1509.02, which grants the Ohio Department of Natural Resources (ODNR) sole authority to regulate oil and gas drilling activities (i.e., activities on the drilling site) within the state. Practically speaking, the question to be decided by the Ohio Supreme Court is whether towns and municipalities can—through their local zoning ordinances—impose requirements or conditions on drillers beyond those imposed by the ODNR.

Attorneys for Beck Energy and for the State of Ohio urged the court to uphold § 1509.02, arguing that by granting the ODNR “sole and exclusive authority” over drilling activities, including the “location” of oil and gas wells, the statute effectively preempts local zoning laws.

Some justices seemed skeptical of this arrangement. Justice Paul Pfeifer, for example, questioned whether the “citizens of Ohio . . . [should] just rely on there [being] good people at [ODNR]” to determine the proper scope of drilling, rather than having input through their local zoning commissions.

Peter Glenn-Applegate, the attorney for the State, responded that citizens had no need to fear ODNR’s broad authority. “ODNR is absolutely committed to the health and safety of its residents,” he told the court.

“I believe it’s the only department that we’ve held in contempt in my tenure here,” Justice Pfeifer quipped.

The city, on the other hand, argued that “the state statute doesn’t say anything about local zoning,” and that “the home rule amendment [to the Ohio Constitution] gives the power to cities to regulate local zoning.” Thus, the city argued, drillers should be required to satisfy both the ODNR’s requirements and local zoning laws.

The case has drawn a great deal of attention, with a number of other municipalities filing amicus briefs on behalf of Munroe Falls. Likewise, members of the energy industry and local chambers of commerce have lined up support behind Beck Energy.  The State of Ohio has also intervened on Beck’s behalf to defend the constitutionality of § 1509.02.

The court will likely render a decision sometime in mid-2014. We will continue to update this blog as the case develops.