HBW Resources: Ollison Fracking Report

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HBW Resources: Ollison Fracking Report

Below is a summary of publicly available activities currently underway at the federal, state and international levels that could impact the use of hydraulic fracturing for oil and gas extraction. With numerous state legislatures now in session, HBW Resources is monitoring these activities to ensure that responsible and feasible policies based on sound science are advanced.

National
The Environmental Protection Agency (EPA) hosted a webinar on Monday for a technical workshop on analytical chemical methods related to its ongoing hydraulic fracturing study (EPA stated that the presentation would be made available on its website sometime next week). The call was an attempt to provide a technical summary of the February 25, 2013 roundtable hosted in Research Triangle, NC. That was the first of five scheduled roundtables EPA will be hosting. There were 52 participants at the roundtable. Upcoming roundtables include:
• April 16-17, 2013, Research Triangle, NC, “Well Construction/Operation and Subsurface
• Modeling”
• April 18, 2013, Research Triangle, NC, “Wastewater Treatment and Related Modeling”
• June 4, 2013, Arlington, VA, “Water Acquisition Modeling: Assessing Impacts through Modeling and Other Means”
• June 5, 2013, Arlington, VA, “Hydraulic Fracturing Case Studies”

The EPA’s Independent Science Advisory Board (SAB) announced the formation of its Hydraulic Fracturing Research Advisory panel. This panel of independent experts will peer review EPA’s 2014 draft report of results for its national study on any potential health and environmental impacts of hydraulic fracturing on drinking water resources. Leading up to the peer review, the SAB panel will provide scientific feedback on EPA’s research in an open and transparent manner. The SAB has identified an independent panel of 31 experts that meet the SAB’s criteria of having the necessary expertise and breadth of experience to adequately review the EPA hydraulic fracturing study on the potential impacts on drinking water resources, and meet long-standing rules regarding financial conflicts of interest.

EPA also indicated that it would not use the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) to regulate hydraulic fracturing fluids other than to require registration of any pesticides in the fluid.

The Office of Management and Budget (OMB) completed its review of a proposed rulemaking that would establish requirements for oil shale leasing on federal lands in Colorado, Utah, and Wyoming. The proposed rule also covers the development of oil sands in Utah. BLM already released its final environmental impact statement, finding that the preferred alternative would be to make 677,000 acres of federal land available for lease.

Several environmental groups, including Friends of the Earth, League of Conservation Voters, the Sierra Club and the Wilderness Society, warned in a letter to President Obama that approving American exports of liquefied natural gas (LNG) would mean a surge in hydraulic fracturing. The letter criticized the Department of Energy, which must review export applications, for disregarding the environmental impacts of increased gas production. The groups claim that hydraulic fracturing would result in substantial increases in methane emissions as well as greenhouse gas emissions from the energy required to liquefy and transport the gas.

According to a recent article in the Wall Street Journal, Senator Ron Wyden (D, OR), Chairman of the Senate Energy & Natural Resources Committee, is laying the groundwork for a bill that would address natural gas exports, hydraulic fracturing and infrastructure issues and examine ways to promote natural gas vehicles. Among the ideas being considered, “finding a ‘sweet spot’ on exports– allowing enough shipments to incentivize energy companies to continue producing natural gas but restrictive enough to keep a cap on domestic prices.” With respect to fracking, “One possible proposal would allow states to develop their own standards and then require a federal agency such as the Environmental Protection Agency to sign off on the states’ plans. Another proposal is to strengthen the role of the Interstate Oil and Gas Compact Commission, a group representing several states in their efforts to develop energy policies.”

States
California
Assemblyman Richard Bloom (D, District 50) introduced, AB 1301, which would amend “The Safe Drinking Water, Water Quality and Supply, Flood Control, River and Coastal Protection Bond Act of 2006” by halting fracking until oversight rules are put in place. The bill was referred to the Committee on Natural Resources.

Assemblyman Adrin Nazarian (D, District 46) introduced, AB 649, and Assemblywoman Holly Mitchell (D, District 54) introduced, AB 1323, both would ban fracking and require state regulators to determine by Jan. 1, 2019, whether and under what conditions fracking can be permitted. The bills were referred to the Committee on Natural Resources.

Colorado
The anti-fracking group, East Boulder County United, hosted a community forum in Lafayette, CO on the “hidden risks of fracking” urging residents to join a campaign to get Lafayette to ban any new drilling activity in the city. The group wants residents to have the ability to vote this November on what role oil and gas drilling should play in the city, similar to the vote last November in Longmont where residents chose to ban hydraulic fracturing within city limits. Earlier this month the group submitted a petition demanding an immediate moratorium on any new drilling activities. According to the Colorado Oil and Gas Conservation Commission, there are 14 active gas wells in Lafayette.

Rep. Dominick Moreno (D, District 32) introduced House Bill 1268, would require home sellers to disclose whether mineral rights to a property are owned separately or have been leased and if oil and gas companies have access rights to the surface property. Rep. Mike Foote (D, District 12) introduced House Bill 1267, which would increase fines for oil and gas operators from the current maximum of $1,000 a day per violation to $15,000 a day was referred to the Committee on Finance by an 8-5 vote in the Transportation and Energy Committee. Rep. Foote also introduced House Bill 1269, would eliminate language in state law requiring the Colorado Oil and Gas Conservation Commission to foster the production of oil and gas in balance with environmental and public safety concerns and would bar any commissioners from working for the oil and gas industry. Sen. Matt Jones (D, District 17) introduced Senate Bill 202, would require all wells to be inspected once per year, a requirement that would add an additional 65 inspectors and cost an estimated $8 million. The bill was referred to the Committee on Appropriations as amended by a 3-2 vote in the Agriculture, Natural Resources & Energy Committee.

Connecticut
The State of Connecticut’s General Assembly’s Energy and Technology Committee voted 21-3 in favor of HB 6533, an Act Concerning Hydraulic Fracturing, to define hydraulic fracturing and hydraulic fracturing waste and to prohibit the treatment, discharge, disposal or storage of hydraulic fracturing waste in the state of Connecticut. The Environment Committee passed a similar bill, HB 5335, an Act Prohibiting the Possession and Storage of Fracking By-Products by a 20-8 vote.

Florida
Two bills introduced by Rep. Ray Rodrigues (R, District 76), HB 743, Fracturing Chemical Usage Disclosure Act, which directs the Department of Environmental Protection to establish a registry for the use of fracking chemicals and HB 745, which would exempt trade secrets involving fracking from public records requirements are now being opposed by environmental groups opposed to hydraulic fracturing. Groups such as Clean Water Action, Credo Action, Audubon Florida and Sierra Club Florida have all come out against the proposals.

Illinois
Northwestern University is hosting a seminar series focusing on critical issues and opportunities in tight shale gas and hydraulic fracturing. Among the upcoming events:
• April 4, 2013 – “Short History of Shale Gas Phenomenon.” Robert Langan, Chevron Energy Technology Company
• April 5, 2013 – “Uncertainty in Micro Seismic Event Locations with Fracture in Tight Sand.” Robert Langan, Chevron Energy Technology Company
• April 11, 2013 – “Fracking the Marcellus in Pennsylvania.” Arthur Rose, Pennsylvania State University
• April 12, 2013 – “Flow-Back Water of Marcellus Shale in Pennsylvania.” Arthur Rose, Pennsylvania State University
• April 17, 2013 – “Industrialization of the Shale Gas Operation.” Anthony Ingraffea, Cornell University
• April 18, 2013 – “Shale Gas Development: Leaks and Vents.” Anthony Ingraffea, Cornell University
• April 30, 2013 – “Where Are We Today: Reservoir and Completion Quality.” Sidney Green, Schlumberger Ltd.
• April 30, 2013 – “Current Economic and Policy Impacts.” Michael Ratner, Congressional Research Service
• May 1, 2013 – “How Can We Greatly Improve Hydraulic Fracturing Efficiency?” Sidney Green, Schlumberger Ltd.
• May 1, 2013 – “Future Economic and Policy Expectations.” Michael Ratner, Congressional Research Service

Michigan
Rep. Jeff Irwin (D, District 51) has introduced HB 4061, to amend 1994 PA 451 “Natural Resources and Environmental Protection Act.” The bill would require drillers to fully disclose to the Michigan Department of Environmental Quality the chemical composition of fluids they mix with water used in hydraulic fracturing prior to drilling. The bill would allow physicians and other health professional access to and share the information for treatment and diagnosis reasons. The proposal has been referred to the Energy and Technology Committee.

Rep. Frank Foster (R, District) has introduced, HB 4070, also to amend 1994 PA 451 “Natural Resources and Environmental Protection Act.” The bill would codify the Michigan Department of Environmental Quality regulations on chemical disclosure, but also require background sampling of surrounding wells and disclosure of additives prior to drilling. HB 4070 also allows physicians access to chemical information, but only if a medical emergency exists. The proposal has been referred to the Energy and Technology Committee.

The West Michigan Environmental Action Council (WMEAC) has launched a campaign that calls for a moratorium on “fracking” of oil and gas wells. While they know of no “fracking” permits that have been sought or approved in Kent County, WMEAC officials said they are alarmed by the fact that 8,158 acres of state-owned land and 39,933 acres of privately held land — 8.8 percent of Kent County’s land area, have been leased for oil and gas exploration in the past three years. WMEAC spokesman Dan Schoonmaker said they are using the fracking term because “we define it as the entire industrial process related to it.”

Encana Oil & Gas applied for permits for 13 hydraulic fracturing wells in the northwestern portion of Michigan’s Lower Peninsula in Kalkaska County.

Minnesota
The St. Charles, MN City Council denied a permit to Minnesota Proppant LLC to build a new sand mine. Mining for sand for hydraulic fracturing has become a source of significant economic activity in Minnesota and Wisconsin.

New Mexico
Preliminary results from some of the 22 exploratory wells drilled in the Mancos shale formation in the San Juan Basin show commercial potential for production. Ken McQueen of Oklahoma-based WPX Energy Inc. told the Albuquerque Journal that two wells the company drilled in 2010 in a dry natural gas section of the Mancos have produced 2 billion cubic feet of gas so far. Eight companies have received permits to drill 45 wells. Almost half of the wells are producing or ready to produce. Among those are a dozen wells being developed by Canada’s Encana Corp. The company has invested $100 million in the Mancos play.

New York
The Joint Landowners Coalition of New York (JLCNY) is encouraging its members to send letters to Governor Cuomo expressing their, “support for safe and responsible natural gas development in New York.” Press reports indicate that the group is also considering filing suit after the state failed to lift its fracking moratorium. JLCNY believes that the state’s inaction has rendered the lease of mineral rights unusable, made their property worthless and interfered with the parties’ investment-backed expectations.

The City of Marbletown, NY expects to pass a complete ban on hydraulic fracturing in the near future. The City recently extended its moratorium on the practice and its Environmental Conservation C omission recently discussed the practice and the issue was brought up at the March 22, 2013 Town Board meeting by Councilman Douglas Adams.

Ohio
The FracTracker Alliance, the Buckeye Forest Council and the FreshWater Accountability Project Ohio are hosting, “Unconventional Shale Drilling: A Science/Technology, Health, Environmental, Economics and Policy Discussion: What We Know! What We Don’t Know! What We Need to Know before Moving Forward” conference April 5-6, 2013 in Warren, OH.

The Energy & Mineral Law Foundation is hosting a conference, “Title and Development Issues in the Utica Shale – Ohio” on April 14-16 in Columbus.

Pennsylvania
Carnegie Mellon University will host a symposium about shale gas and its implications for regional manufacturing on April 4, 2013 from 8:30am – 12:30pm at CMU’s McConomy Auditorium.

South Dakota
Officials say western South Dakota could play a key role in energy development in North Dakota and elsewhere because of special sand used to help extract oil and gas. The South Dakota Geological Survey is investigating whether silica sand found in the Black Hills is suitable for hydraulic fracturing operations. Sandman Products LLC and Cambrian Enterprises LLC, have obtained exploration permits to test the fine sand.

Texas
The Railroad Commission of Texas adopted new rules encouraging Texas operators to continue their efforts at conserving water used in the hydraulic fracturing process for oil and gas wells. Among the changes adopted include eliminating the need for a Commission recycling permit if operators are recycling fluid on their own leases or transferring their fluids to another operator’s lease for recycling. The rule amendment establishes five categories of commercial recycling permits to reflect industry practices in the field:
• On-lease commercial Solid Oil and Gas Waste Recycling
• Off-lease or Centralized Commercial Solid Oil and Gas Waste Recycling
• Stationary Commercial Solid Oil and Gas Waste Recycling
• Off-lease Commercial Recycling of Fluid; and
• Stationary Commercial Recycling of Fluid

The Eagle Ford Shale Caucus of the Texas Legislature reported that an ongoing study by the University of Texas at San Antonio revealed that last year, the Eagle Ford Shale had a $61 billion impact and supported 116,000 jobs across a 20-county area of South Texas. Currently, 5,400 Eagle Ford wells have been permitted by the Texas Railroad Commission, but by 2022, the study expects more than 24,000 wells in the region. In the 20-county area, the study puts the economic impact in 2022 at $89 billion and 127,000 jobs.

Wyoming
Natrona County District Judge Catherine Wilking has sided with the state of Wyoming and ruled against environmentalists who sought to obtain lists of the ingredients that go into hydraulic fracturing fluids. In 2010, Wyoming became one of the first states to require companies to disclose to state regulators the ingredients in hydraulic fracturing chemicals. The goal was to help the regulators track the source of any groundwater contamination that might occur at or near a drilling site. Judge Wilking ruled that the state oil and gas supervisor in charge of the oil and gas commission as a state agency acted reasonably in evaluating requests for trade secret exemptions under the fracking disclosure rule. The environmental groups failed to demonstrate that the supervisor didn’t properly follow the rule or state law.

International
Argentina
Argentine energy company YPF said it signed a memorandum of understanding with Dow Chemical to develop shale natural gas in the country. YPF said the deal is for shale reserves in more than 10,000 acres in Neuquen province. The development deal was described as the first shale gas project in the province. The U.S. Energy Department’s Energy Information Administration estimates that Argentina has 774 trillion cubic feet of technically recoverable shale gas resources, the third most in the world. YPF announced the recent discovery of 150 million barrels worth of shale oil.

Canada
More oil will need to be transported by rail over the next 10 years as pipeline capacity from Western Canada, the U.S. Bakken shale deposit and the Rockies lags rising production, according to a report by ITG Investment Research. The report, “No More Guessing: Canada” estimates that Canadian production will grow to 5.7 million barrels a day by 2025, making Canada the world’s fourth-largest oil producer. Even if all planned pipeline projects such as Keystone XL and pipelines to Canada’s coast are built, about 600,000 more barrels a day must move by rail in those areas by mid-2014. If three proposed pipelines aren’t completed, rail will have to carry more than 2 million barrels a day by 2018 and more than 3.5 million barrels by 2023.

China
China’s shale gas development will bring business opportunities to the related equipment manufacturing industry with a market value of about CNY 3 billion ($477 million) this year, a 33% growth compared with last year. According to China’s 12th Five Year Plan (2011-15) on energy industry, the country will realize large-scale commercialized production of shale gas by 2015. To meet the target of 6.5 million cubic meters of production capacity by 2015, China is accelerating its pace in surveying and exploring the unconventional energy source. Experts said the main obstacle is the technology barrier during exploration. Also in China, Sinopec says it will raise production capacity for a pilot project, the Fuling shale gas block in southwest China’s Sichuan, in pursuit of “major breakthroughs” in shale. China aims to produce 6.5 billion cubic meters (230.4 billion cubic feet) of shale gas annually by 2015 and 60 billion to 100 billion cubic meters by the end of the decade, the NDRC said in March 2012.

Royal Dutch Shell won government approval for its production sharing contract with China National Petroleum Corp., the nation’s largest oil and Gas Company. Shell announced a $1 billion investment in developing China’s shale gas reserves. The companies agreed to explore, develop and produce shale gas in the Fushun-Yongchuan block in the Sichuan basin, an area covering about 3,500 square kilometers (1,350 square miles. Chinese shale may hold 1,275 trillion cubic feet of technically recoverable gas, or 12 times the country’s conventional gas deposits, data from the U.S. Energy Information Administration show. That’s almost 50 percent more than the 862 trillion cubic feet held by the U.S., according to the EIA.

Germany
According to a report from Sidley Austin LLP, “Proposed regulations that would allow for hydraulic fracturing in Germany are being criticized by states, environmental groups, and industry. The environmental groups and many of the states oppose hydraulic fracturing, citing risks of groundwater contamination; industry groups say that the proposed regulations would make hydraulic fracturing unjustifiably expensive. Projects would be prohibited in designated drinking water protection areas, require individual environmental impact assessments, and various other requirements. Green Party representatives called the requirements “cosmetic” and want a permanent ban on hydraulic fracturing. The regulations must be approved by the Bundestag, where the upper house, the Bundesrat, is comprised of state representatives. Some representatives have already stated their opposition to the proposed rules, including those with large shale gas deposits, such as in Baden-Württemberg and North Rhine-Westphalia.”

India
India plans to unveil its shale gas policy within the next two weeks as it seeks to develop unconventional resources to fuel its expanding economy. Recent reports indicate that India hopes to become “energy independent” by 2030 and the government has begun to review its regulatory process in the hopes of expanding domestic production.

Scotland
Trapoil announced its intention to develop plans to develop offshore fracking in the central North Sea. Trapoil plans test drilling a well next year if it can find a partner for the project.

United Kingdom
Nearly 2 million homes in the UK will be heated by shale gas from the U.S. within five years, under a deal that is likely to be the first time major exports of the energy source are used in the UK. Under the deal, Centrica PLC will pay £10bn over 20 years for 89bn cubic feet of gas annually – enough to heat 1.8m homes – from Cheniere Energy Partners LP, one of the first US companies to receive clearance from the federal government to export shale gas in the form of LNG (liquefied natural gas). The first deliveries, by tanker, are expected in 2018. Prime Minister, David Cameron said, “I warmly welcome this commercial agreement between Centrica and Cheniere. Future gas supplies from the U.S. will help diversify our energy mix and provide British consumers with a new long-term, secure and affordable source of fuel.”

Chancellor of the Exchequer George Osborne announced that there will be a “generous new tax regime”, with tax breaks such as field allowances (which will allow developers to off-set profits from their shale gas exploitation against any other losses in the company, which they would not otherwise be able to do under UK law) in order to propose early investment in the industry. Osborne stated during his 2013 Budget speech, “I want Britain to tap into new sources of low cost energy like shale gas. So I am introducing a generous new tax regime, including a shale gas field allowance, to promote early investment. And by the summer, new planning guidance will be available alongside specific proposals to allow local communities to benefit. Shale gas is part of the future, and we will make it happen.” The announcement follows the UK’s lifting of a moratorium on hydraulic fracturing of shale gas and the publication of it Gas Generation Strategy paper this past December. Under existing law, operators will (subject to certain thresholds in the case of environmental matters) have to acquire at least the following:
• A petroleum exploration and development license, granted by the DECC
• Planning permission for surface operations, granted by the Local Minerals Planning Authority
• Permits from the Environment Agency allowing injection of fracking fluids and proppant, water abstraction and management of flow-back fluid and waste gases
• Permissions or agreements with relevant landowners.

Additional specific existing regulations have clear application to shale gas wells, including the Offshore Installations and Wells (Design and Construction) Regulations 1996, the Borehole Sites and Operations Regulations 1995, the Provision and Use of Work Equipment Regulations 1998, the Town and Country Planning Act 1990, Environmental Protection Act 1990, and Environmental Permitting (England & Wales) Regulations 2010.

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