North America Shale Blog

North America Shale Blog

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.

Drought Conditions Cause Eagle Ford Operators to Find Wastewater Recycling Solutions

Posted in Hydraulic Fracturing, Texas, Water

Amidst what the National Drought Mitigation Center has classified as abnormal to severe drought conditions, operators in Texas’ Eagle Ford Shale formation are taking steps to increase their ability to recycle wastewater generated during hydraulic fracturing operations. Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University’s Cox School of Business, estimates that within five years Eagle Ford operators will be able to recycle half of the wastewater generated during the fracking process. Current estimates place the wastewater recycling rate at 30 percent, up from just 1 percent five years ago. “Water is becoming a precious resource,” says Bullock. “As it does, it will become more and more economical for companies to recycle.”

In early May, Austin-based oilfield services provider Pinnergy Ltd. and Austin-based water-recycling company Shalewater Solutions launched a joint venture to provide water-management services to operators in U.S. shale plays, particularly in the Eagle Ford.

The Pinnergy-Shalewater joint venture follows on the heels of Nuverra Environmental Solutions’ announcement that it was purchasing 180 acres in South Texas to develop a facility to collect, treat and recycle liquid and solid waste from Eagle Ford wells. Some companies, including Houston-based Energy Water Solutions, have sought to address the wastewater issue by deploying a squadron of mobile wastewater recycling units to Eagle Ford well sites.

“The oil and gas industry is really going to continue to move the meter on water recycling,” says Bullock. “It’s just a question of how fast they do it.”

Media Coverage Resources:

Eagle Ford may recycle half of its wastewater within five years”:

New joint venture targets water disposal in the Eagle Ford”:

Nuverra buying South Texas site for Eagle Ford waste treatment”:

Energy Water Solutions recycling well wastewater for EP Energy”:

 

D.C. Circuit Tells EPA Its Policy on Aggregating Sources for Clean Air Act Permitting Violates EPA’s Own Regulations

Posted in Air Emissions, EPA Issues, Legislative, Oil and Gas, U.S. EPA

Following a ruling by the D.C. Circuit, EPA may no longer consider interrelatedness in determining adjacency when making source determination decisions in its Title V or New Source Review permitting decisions under the Clean Air Act.  The decision, which vacates EPA’s policy directive Applicability of the Summit Decision to EPA Title V and NSR Source Determinations (Dec. 21, 2012) (the “Summit Directive”), is National Environmental Development Association’s Clean Air Project v. EPA, No. 13-1035 (D.C. Cir. May 30, 2014).  The ruling is significant to the oil and gas industry because EPA has been trying to aggregate well fields and processing facilities together for permitting purposes.

Pursuant to EPA’s Clean Air Act regulations, multiple pollutant-emitting facilities are considered to be a single stationary source if they are, among other things, “adjacent.”  See 40 C.F.R. §§ 71.2, 52.21(b)(5)-(6).  EPA made adjacency determinations based not only on the physical distance between two or more facilities, but also on the functional interrelationships of the facilities.  This policy was rejected by the Sixth Circuit in Summit Petroleum Corp. v. EPA, 690 F.3d 733 (6th Cir. 2012), which held that a natural gas plant and associated wells could not be considered one source under Title V purely based on functional relatedness.

In response to the Sixth Circuit’s ruling, EPA issued the Summit Directive, stating that it would not follow the Sixth Circuit’s ruling in states outside the Sixth Circuit’s jurisdiction.  The Summit Directive was subsequently challenged in the D.C. Circuit, where the Petitioner argued EPA put facilities outside of the Sixth Circuit at a competitive disadvantage by establishing inconsistent permit criteria applicable to different parts of the country.  The EPA argued that neither the Clean Air Act nor EPA regulations require it to ensure national uniformity in response to a judicial decision.

The D.C. Circuit vacated the Summit Directive.  In doing so, the court did not reach the question of “whether the [Clean Air Act] allows EPA to adopt different standards in different circuits” because it was clear that EPA’s own regulations – specifically, its “Regional Consistency” rule – require such uniformity.  This rule states that EPA’s policy is to “[a]ssure fair and uniform application by all Regional Offices of the criteria, procedures, and policies employed in implementing and enforcing the act” and to “[p]rovide mechanisms for identifying and correcting inconsistencies by standardizing criteria, procedures, and policies being employed by Regional Office employees.”  40 C.F.R. § 56.3(a), (b).  The D.C. Circuit found that by issuing the Summit Directive, the EPA clearly violated its Regional Consistency rule, stating that “EPA was obligated to respond to the Summit Petroleum decision in a manner that eliminated regional inconsistency, not preserved it.”

The D.C. Circuit did not address whether EPA could properly aggregate emissions from multiple facilities.  In fact, the court suggested that EPA could revise its regulations to allow for such aggregation.  Until EPA revises or replaces its Regional Consistency rule, however, EPA is precluded from considering multiple facilities to be a single source based solely on functional interrelatedness.

Anti-Fracking Bill Defeated in California Senate

Posted in California, Fracking, Hydraulic Fracturing, Legislative, Oil and Gas, Studies

Yesterday, the California State Senate rejected a bill that would have put a moratorium on fracking until a state-commissioned study determined that it was safe.  The bill, Senate Bill 1132, would have prohibited all “well stimulation treatments”—including fracking and acid well stimulation—while requiring the Secretary of the Natural Resources Agency to commission an “independent scientific study” no later than June 30, 2016.  According to the bill, the study would have evaluated “the hazards and risks and potential hazards and risks that well stimulation treatments and well stimulation treatment-related activities pose to natural resources and public, occupational, and environmental health and safety.”

Once the study was completed, the bill would have required the Governor to determine whether there were sufficient measures in place to address any adverse impacts identified in the study.  If the Governor determined that sufficient measures were not in place, the moratorium would have remained in place.  If the Governor determined that there were sufficient measures in place to address concerns, the moratorium would have terminated 90 days later.

The bill’s sponsor, Senator Holly Mitchell (D-Los Angeles) argued that the bill would hit the “pause” button on fracking because “the safety of oil drilling is an environmental justice issue” that she believes should be reviewed with “great scrutiny.”  Opponents argued that the bill was unnecessary because California passed a law last year to regulate hydraulic fracking.  Opponents also argued that the bill would have led to a “heavy reduction of jobs.”  The bill failed with an 18-16 vote, but the Senate left open the possibility that the bill could be reconsidered.

Coverage:

Fracking Moratorium Dies in State Senate

Calif. Senate vote falls short for moratorium on oil fracking

Bill text and analysis:

SB-1132 Oil and gas: well stimulation treatments

Texas Jury Awards Damages for Fracking Nuisance Claim for the Second Time

Posted in Fracking, Litigation, Texas

Last Friday, a Texas jury awarded a Tarrant County couple $20,000 in damages after finding activities at a natural gas drilling site located 165 feet from their property constituted a temporary private nuisance.  The verdict comes less than a month after a Dallas County jury awarded $2.9 million in damages to plaintiffs for a private nuisance claim arising from fracking operations.  Together, the two cases signify a growing trend in Texas of nuisance-based litigation involving oil and gas drillers.

Known as Crowder et al. v. Chesapeake Operating, Inc., the Tarrant County case was initially filed in November 2011 by plaintiffs Sam and Jane Crowder after a subsidiary of Chesapeake Energy Corporation began extracting natural gas from three wells near their home.  The Crowders contended that the fumes, noise, dust, and truck traffic generated by the drilling site substantially interfered with their ability to enjoy their property and asked for $108,000 in damages.

The six-person jury sided with the plaintiffs, despite the Crowders having entered into a drilling lease with Chesapeake Energy in 2007 for the five acre parcel where the wells are located.  Even so, the jury refused to grant the Crowders their request for more than $80,000 in future damages, determining, instead, that the nuisance was temporary, not permanent.  The verdict does not require Chesapeake Energy, one of the Barnett Shale play’s largest gas producers, to alter its activities at the well sites.  The company has not issued a comment regarding the case’s outcome.

The verdict in Crowder comes as the number of cases involving nuisance-based claims targeting oil and gas producers is on the rise.  For instance, after the verdict was released, the attorney representing the Crowders claimed to have eight similar lawsuits pending in various Texas counties.  The jury awards in Crowder and the Dallas County case may encourage the filing of additional nuisance-related suits in the future.  We will provide updates as further developments emerge.

Click here and here for additional coverage.