North America Shale Blog

North America Shale Blog

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.

U.S. Surpasses Russia and Saudi Arabia as World’s Leading Producer of Oil

Posted in Hydraulic Fracturing, Oil and Gas

With an output exceeding 11 million barrels per day in the first quarter of 2014, the United States has surpassed Saudi Arabia and Russia to become the largest producer of crude oil and liquids separated from natural gas in the world, according to a report released by Bank of America Corp. on July 4, 2014. In June, the International Energy Agency also called the United States the biggest producer of oil and natural gas liquids. The United States has been the largest natural gas producer since 2010. Oil production in the United States is expected to continue to increase to 13.1 million barrels per day by 2019 before leveling off, according to the International Energy Agency, and the United States is expected to retain its status as the largest oil producer in the world until the early 2030s.

Oil production has climbed in the U.S. due to extraction at shale formations across the country through hydraulic fracturing, or fracking. “The American shale revolution has had a transformational effect on the U.S. and global economies in recent years,” said Francisco Blanch, Bank of America’s head of commodities research in New York. According to the Bank of America report, oil production in the United States has “expanded by 70 per cent since bottoming out in 2008, as has natural gas liquids (NGLs) output, while natural gas output has grown by 40 per cent since shale gas drilling picked up in 2005.”

Despite being the largest oil producer in the world, the U.S. Department of Energy reported the United States imported an average of 7.5 million barrels per day in April, making the U.S. the largest consumer of oil in the world. However, the Bank of America report also notes that as supply has grown more quickly than demand, America has shifted away from dependence on foreign fuels and now spends less than 1.5 per cent of national income on foreign oil and gas, in stark contrast to the heavy dependence on foreign fuels prior to the 2008 financial collapse.

Although oil production has increased in the United States, oil prices worldwide have remained high as this surge in U.S. supply comes at a time when outputs in other countries are endangered by civil unrest. Oil outputs from Iraq, the second-largest oil producer in Organization of Petroleum Exporting Countries, could be interrupted by the growth of an insurgency in Northern Iraq, while outputs from Libya (protests) and Nigeria (theft and sabotage) have also been reduced.

Additional coverage of this story can be found here, here and here.

Rural Nevada Anti-Fracking Group Seeks to Enjoin Oil and Gas Lease Sale

Posted in Fracking, U.S. Bureau of Land Management

Reese River Basin Citizens Against Fracking filed a complaint in federal court on June 27, seeking to enjoin the United States Bureau of Land Management (BLM) from holding an oil and gas lease sale. The rural group is comprised of owners of “farming and ranching land, water rights, and grazing rights” adjacent to the land that the BLM intends to lease. Citizens Against Fracking’s members claim they “derive recreation, aesthetic and spiritual benefit” from their use and enjoyment of the land at issue. In their complaint, the group claims that the BLM violated the National Environmental Policy Act (NEPA) by: (1) minimizing the proposed lease sale’s consequences, environmental impact and adverse effects in its environmental assessment and (2) proposing the lease sale without preparing an environmental impact statement.

In April, the Battle Mountain District Office of the BLM announced that it intended to hold a lease sale of about 230,989 acres of land in Lander, Nye and Esmeralda counties in Nevada. The BLM conducted an environmental assessment of the proposed sale and determined that the proposed sale’s environmental impacts are insignificant based on: (1) the low probability that any of the land will actually be used for oil and gas development and (2) the fact that leasing does not authorize oil and gas development. The BLM wrote an Interested Party Letter this past February and sent it to those with grazing rights to the land, posted it on its website, and noticed it in the Federal Register. The public had thirty days to respond, but Citizens Against Fracking did not respond because its members allegedly did not learn about the proposed sale until after the deadline had passed.

Citizens Against Fracking now claims the BLM minimized the environmental impacts that the lease sale and possible development would have on “air quality, cultural and historical resources, Native American religious and cultural sites, riparian and wetland impacts, threatened and endangered species, waste fluids, forest and rangeland, geology and mineral resources, geothermal conflicts, range resources, and recreation impacts.” Citizens Against Fracking also claims that the BLM did not consider the impacts that may be caused by fracking if the leases are developed. The group alleges that the BLM’s reliance on the low probability of development is misplaced because the BLM did not consider the impact of the newly evaluated Chainman Shale Formation, an area that a 2005 U.S. Geological Survey estimated could contain 1.598 billion barrels of oil and 1.836 trillion cubic feet of natural gas.

For additional coverage of this lawsuit, click here.

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

More Oil and Gas Patenting Worldwide, Especially in China

Posted in Oil and Gas

Innovation in the oil and gas industries, as measured by the number of patent filings, is increasing worldwide.  As reported by Thomson Reuters, from 2012 to 2013 the number of patent applications filed worldwide increased by a whopping one-third.  (“Unconventional energy boom drives oil and gas patents to record” (Thomson Reuters))  See below for a caveat.  Thomson Reuters attributes the increasing IP filings to the oil industry’s expansion into less-established forms of oil and gas extraction, such as hydraulic fracturing.

The oil and gas patent filings in the U.S. went up 18 percent in 2013.  Much of the increasing patenting occurs in China, where roughly 60 percent of new patent applications are filed.  The recent growth in Chinese industry has led to a greater demand for energy, and China’s filings have surpassed those of the U.S. to take over the top spot in international filings in the industry, according to the report.

The numbers reflect an increasing investment in intellectual property in the oil and gas industries, but the conclusions based on the numbers require some explaining because of the heavy effect of Chinese patent numbers.  First, the Chinese government subsidizes patent application filing in several ways, which results in more patents of dubious value.  A recent study found that Chinese applicants break up inventions into small bites for the purpose of filing multiple applications on one invention to increase subsidies (Z. Lei, Z. Sun, B. Wright, “Patent subsidy and patent filing in China”).  Second, a large majority of Chinese patent applications are low quality “utility models,” rather than patents on inventions, as in the U.S. and Europe.  Without the eye-popping patent numbers from China, the numbers still increase, just not in a hockey stick.

Further, it is unclear how Thomson Reuters obtained data for 2013 because patent applications remain secret for 18 months in nearly all countries.  The numbers might reflect official reports from patent offices around the world, which tend to be crude.

But the above questions about the data do not affect the overall conclusion: increased investment in IP in the oil and gas industries is clear and the surge of patenting in China is impressive.

This post was coauthored by Dmitry Dymarsky (BakerHostetler 2014 Summer Associate).

New York High Court Affirms Local Fracking Bans

Posted in Fracking, Hydraulic Fracturing, New York

On Monday, New York’s highest court—the New York Court of Appeals—upheld local bans on shale gas drilling designed to eliminate hydraulic fracturing.  The 5-2 decision clears the way for drilling opponents to target fracking at the local government level while the statewide moratorium remains in limbo.

Judge Victoria Graffeo wrote the opinion for the majority, which held that the “statewide Oil, Gas and Solution Mining Law (OGSML) does not preempt the home rule authority vested in municipalities to regulate land use,” and therefore could not restrict municipalities’ ability to eliminate drilling through its zoning powers.

The court emphasized that it “will invalidate a zoning law only where there is a ‘clear expression of legislative intent to preempt local control over land use,’” because zoning is a “core power” of municipalities in New York.

The dissent, written by Judge Eugene Pigott, criticized the municipalities’ use of zoning as a “pretext” to regulate oil and gas drilling, likening the bans instead to “regulation.”

Over 70 local fracking bans have already been passed in New York, along with several dozen fracking “moratoriums.”

The decision to uphold these bans creates additional risk for drillers in New York, with the potential for acquiring mineral rights that may become worthless in the event of a local ban. To overturn the bans, drilling operators would need to ask the legislature to revise New York’s oil and gas laws to specifically preempt local zoning laws.

Additional coverage of this story can be found here, here, and here.

Loveland Voters Reject Two-Year Ban On Fracking

Posted in Colorado, Fracking, Hydraulic Fracturing

Loveland voters defeated an anti-fracking initiative that would have imposed a two-year moratorium on hydraulic fracturing, or fracking, within the city’s borders. Loveland is located about an hour north of Denver.

The proposed ban on fracking failed by about 1,000 votes—with a tally of 9,942 votes in favor of the moratorium, and 10,844 against the measure, according to Loveland’s elections website.

Colorado cities that voted on fracking bans prior to Loveland–Longmont, Boulder, Fort Collins, Lafayette and Broomfield–all approved restrictions on hydraulic fracturing. Several of these voter-approved bans have been taken to court, and the state has a legal case pending against Longmont, which, in 2012, became the first city in Colorado to approve a ban. The Loveland decision appears to dull the prospects of a statewide ban.

B.J. Nikkel, the director of the Loveland Energy Action Project, considers the Loveland decision a turning point in Colorado. Nikkel credits the victory to an unprecedented coalition of citizens and civic leaders that came together to take a stand against a pernicious ban. Nikkel attributed the Loveland results to voters being informed, stating “Loveland serves as a great example that when voters receive the right information and encouragement they see through the activists’ deception and fear tactics.”

Notwithstanding the result, opponents of hydraulic fracturing in Colorado remain confident their efforts will ultimately succeed. Nick Passante, spokesman for Coloradans for Safe and Clean Energy, views the Loveland result as a small skirmish leading up to a larger battle. According to Passante, “[t]he [oil and gas] industry should certainly be running scared as we head towards the ballot in November, to pass clear and decisive measures in support of sensible setback limits and responsible protections for Colorado families”.

Following the Loveland decision, Colorado Governor John Hickenlooper stated that negotiations were continuing on the possibility of calling lawmakers back to Denver for a special session to address fracking-related ballot initiatives that are being circulated for the November election. The lawmakers would consider a bill aimed at stalling potential statewide ballot measures.

Regardless of how the energy debate in Colorado is resolved, whether at ballot boxes or the legislature, it is clear that decisions regarding the future of Colorado’s “energy economy” are imminent. There is little doubt that these decisions could have significant impacts on Colorado’s economy. In addition, burgeoning shale-rich states which are supportive of hydraulic fracturing will no doubt look to attract investment from oil and gas companies currently operating in Colorado in the event hydraulic fracturing is banned or severely restricted.

 For further coverage:

Loveland voters’ rejection of fracking ban is seen as victory in Colorado battle” (Denver Business Journal)

Voters reject Loveland fracking moratorium” (Denver Post)

Fracking vote doesn’t end special session talk” (Denver Post)

California Issues Proposed Fracking Rules

Posted in California, Fracking

On June 13, the California Department of Conservation released proposed regulations for oil and gas production activities in the state. The draft rules are being issued pursuant to legislation passed last year. They would replace interim rules that have been in place since the beginning of the year. The regulations, which are now subject to a 45-day notice and comment period, apply to production activities on both land and water.

If approved, the draft rules would introduce new requirements addressing a wide-range of fracking-related issues. For instance, the regulations introduce new standards for calculating the amount of acid used in wells, shifting from a concentration-based measurement system to a volume-based threshold. Oil and gas producers also would be subject to more rigorous notification and monitoring obligations. The rules call for drillers to provide written notice, in both Spanish and English, to adjacent landowners, informing them of their right to have local waters tested prior to and following drilling operations. Moreover, drillers would be obligated to monitor seismic activity at well sites while fracking activities are in progress and for 10 days after production ends. Any earthquakes at a site registering at 2.0 or higher on the Richter scale would need to be reported to the state.

California’s Conservation Department released the proposed rules in response to nearly 150,000 comments it received concerning similar draft regulations released last year. Department Director Mark Nechodom explained, “There are significant differences between the version [of the rules] released last November and this revised version, thanks in no small part to some helpful recommendations received during the initial public input process, as well as extensive consultation with other regulatory agencies.”

Oil and gas industry interest groups have come out in support of the revised regulations. Catherine Reheis-Boyd, President of the Western States Petroleum Association, said the rules appear “to be in line with the conservation department’s . . . commitment to transparency and collaboration with the industry and the public.”

We will keep you updated as new developments emerge.

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

Oil and Gas Companies Ask Colorado Supreme Court to Approve Trial Court Order Requiring Plaintiffs to Present Preliminary Evidence of Their Claims Before Engaging in Full Discovery

Posted in Colorado, Fracking

On June 18th, Antero Resources Corp., Antero Resources Piceance Corp, Calfrac Well Services Corp, and Frontier Drilling LLC filed their Opening Brief before the Colorado Supreme Court in a “toxic tort” case concerning fracking operations in Silt, Colorado. The plaintiffs in the case, landowners in Silt, claim that the defendant companies’ operations caused contamination of their property and that they suffered “physical and personal injuries.” Before the plaintiffs filed suit, the Colorado Oil and Gas Conservation Commission conducted an investigation of the plaintiffs’ complaints of contamination and issued a report finding no evidence of contamination due to oil and gas operations.

After the parties served their initial disclosures (a mandatory exchange of key information early in the case), the defendant companies argued to the trial court that the plaintiffs’ allegations were vague and unsupported by information in their initial disclosures. Based on these deficiencies in the plaintiffs’ case, the defendant companies asked the trial court to issue a modified case management order requiring the plaintiffs to present evidence of their alleged injuries before beginning complex and expensive discovery. The trial court agreed with defendants and directed the plaintiffs to provide prima facie (i.e., preliminary) evidence, supported by expert analysis, to back up their allegations before the parties engaged in discovery. Such orders are typically referred to as “Lone Pine” orders—named after the New Jersey case that created the procedure. After the period of time set by the trial court for the plaintiffs to proffer evidence of their claims, the defendants moved to dismiss the case arguing that the evidence put forth was insufficient. The trial court agreed and dismissed the case.

The plaintiffs appealed the dismissal of their case to the Colorado Court of Appeals, which reversed the trial court concluding that Lone Pine orders “are not permitted as a matter of Colorado law.” The Court of Appeals reasoned that Colorado Supreme Court precedent prohibited trial courts from requiring plaintiffs to make a preliminary showing of exposure, causation, and injury before having the benefit of full discovery.

The companies then appealed the Court of Appeals’ reversal to the Colorado Supreme Court, which agreed in April to hear the case. The companies’ Opening Brief urges the high court to rule that trial courts are within their discretion to manage the discovery process when they order parties to make a preliminary Lone Pine showing of evidence supporting their case.

The outcome of this case is important for all oil and gas companies operating in Colorado because Lone Pine orders provide companies with an effective tool for disposing of meritless litigation prior to incurring the significant expenses associated with modern discovery, and e-discovery in particular.

New York State Assembly Passes Three-Year Fracking Moratorium – Senate Vote Unlikely

Posted in Fracking, Hydraulic Fracturing, Legislative, Marcellus Shale, Natural Gas, New York

On Monday, the New York State Assembly voted 89-34 in favor of a three-year statewide moratorium on hydraulic fracturing.  But with the legislative session ending in just a few days, the Senate appears unlikely to take up the bill, rendering the vote largely symbolic.

Speaker Sheldon Silver emphasized the need for caution in exploring New York’s natural gas deposits.

“We have heard from thousands of residents across the state about many issues associated with hydrofracking, and prudent leadership demands that we take our time to address all these concerns,” said Silver. “The natural gas deposits within the Marcellus Shale are not going to go anywhere.”

Hydraulic fracturing has been stalled in New York for over five years while the state continues studying the environmental and health effects of the practice.  Governor Andrew Cuomo has come under fire for what some believe are politically-motivated delays in issuing final environmental rulings.

In fact, a group of landowners—the Joint Landowners Coalition of New York—has sued New York for illegally delaying a final decision on hydraulic fracturing, alleging both administrative law and constitutional takings claims. The Assembly bill could essentially moot those claims, at least until 2017.

A large number of municipalities within the state have enacted their own fracking bans.  But the New York Court of Appeals is now considering whether those bans are preempted by state law.

Additional news coverage can be seen here, here, and here.

Aubrey McClendon’s American Energy Partners LP Announces Agreements to Purchase over $4 Billion of Shale Acreage in Utica, Marcellus, and the Permian Basin.

Posted in Marcellus Shale, Ohio, Shale, Texas, Utica Shale, West Virginia

In two press releases Monday, American Energy Partners LP announced agreements to purchase shale acreage in the Utica and Marcellus shale for $1.75 billion, and acreage in the Permian Basin in Texas for $2.5 billion. The deals are expected to close in the next 60 days.

American Energy Partners CEO Aubrey McClendon formed the company last year with financial backing from First Reserve Corp. and the son of retired Exxon CEO Lee Raymond. McClendon was ousted from his position as CEO of Chesapeake Energy Corp. last year due to “philosophical differences” with the board of directors. During his tenure at Chesapeake Energy, which he co-founded in 1990, he aggressively built the company’s shale portfolio. McClendon has raised $10 billion for American Energy Partners in the last nine months, and is now running five closely held affiliates, each focused on drilling in distinct locations. To date, American Energy has acquired or announced deals to acquire drilling rights on about 400,000 acres, equivalent to 3 percent of Chesapeake’s 12.79 million acres.

Affiliate American Energy – Utica LLC (AEU) will acquire 27,000 acres in Monroe County, Ohio. American Energy – Marcellus LLC (AEM), another American Energy Partners affiliate, will purchase 48,000 acres in West Virginia counties bordering Ohio. The Ohio acreage is expected to produce 40 million cubic feet of natural gas equivalent per day. The West Virginia acreage is expected to produce approximately 135 million cubic feet of natural gas equivalent per day.  The two affiliates purchased the land from East Resources, Inc., and another undisclosed seller. The sellers are currently using two rigs to develop the acreage that is being acquired, and AEU and AEM plan to increase operated drilling activity to 4-6 rigs by year end 2015.

This is American Energy Partners’ seventh major acquisition in Utica, and it now holds approximately 280,000 acres – the largest leasehold position in Utica. The company has invested over $3.5 billion in Utica, and plans to drill 1,600 wells.  In 2012, the U.S. Geological Survey estimated that the Utica shale contains 38 trillion cubic feet of undiscovered, technically recoverable natural gas, with a mean of 940 million barrels of unconventional oil resources and a mean of 208 million barrels of unconventional natural gas liquids. The Ohio Department of Natural Resources approved 32 new shale permits last week. To date, Ohio has approved 1,312 Utica shale permits, with 904 wells drilled and 467 in production. Ohio currently has 40 working rigs.

The Texas deal is American Energy Partners’ first acquisition in the Permian Basin. The Permian Basin has been producing oil since the 1920s, and is in the midst of a new drilling boom.  American Energy – Permian Basin, LLC (AEPB)  signed an agreement to acquire approximately 63,000 acres of leasehold in the southern Permian Basin in Reagan and Irion Counties. AEPB purchased the leasehold from affiliates of Denver-based Enduring Resources LLC for $2.5 billion. The property is expected to have a net production of 16,000 barrels of oil equivalent per day. The seller, an affiliate of Enduring Resources LLC, is currently operating four rigs in the area. AEPB said it plans to increase operated drilling activity to six to eight rigs by the end of 2015.