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.
State Legislative Update
Please see linked spreadsheet for an updated listing of state legislation dealing with hydraulic fracturing.
A new report on hydraulic fracturing in California focuses on wastewater and potential water quality impacts. The report, “Regulation of Hydraulic Fracturing in California: a Wastewater and Water Quality Perspective” is an analysis by Berkeley Law’s Center for Law, Energy & the Environment. The report urges caution, greater transparency, and increased accountability for oil and gas operators. The report supports the following changes to the current regulations:
- At least 30 days advanced public notice of all fracking events, included the full list of chemicals to be used in fracking fluid;
- Mailed notice to all property owners near planned fracking or injection sites;
- Baseline testing of water quality in aquifers near oil and gas production activity, to enable tracing potential contamination to operators and assess pre-fracking water quality; and
- Development of a formal process by which concerned citizens can respond to planned fracking events.
The report also supports better inter-agency coordination and planning to prepare for and mitigate the potential impacts of fracking and better tracking and handling of fracking wastewater.
The California Assembly’s Natural Resources Committee passed AB 669, which proposes that a regional water quality board must approve an operator’s wastewater disposal plan prior to drilling by a vote of 6-3.
Oil and gas drilling fines in Colorado are closer to going up dramatically. The state House gave final approval on HB 1267 with a vote of 35-27. The bill would increase the fines dramatically, from a maximum of $1,000 a day to a maximum of $15,000 a day. The hike would be the first increase to Colorado drilling fines since 1955. The bill now heads to the Senate.
The Fort Collins City Council decided to delay, by a 4-3 vote, until April 23 a vote to drop the city’s moratorium on oil and gas drilling. In addition to terminating the moratorium that halted all oil and gas development in the city last year, the proposed ordinance is explicit: Prohibitions in the city’s fracking ban passed March 5 “shall not apply to oil and gas operations conducted by Prospect Energy, LLC.”
BLM announced that it was suspending 25 oil and gas leases in the White River National Forest issued in 2003 in order to conduct environmental studies, as BLM now asserts the NEPA review was inadequate. The leaseholders will not be able to develop their properties while the new BLM environmental review is ongoing, although development is not currently underway. A coalition of environmental NGOs and ranchers oppose drilling in the area, arguing that oil and gas development harms area wildlife. Conservation groups are raising money to purchase the leases and allow them to expire as the area could not be re-leased once the leases expire.
Governor John Hickenloopper (D, CO) wrote an op-ed in the Denver Post explaining his decision to file suit against the City of Longmont. “Responsible development of domestic natural gas is helping to reduce carbon emissions and address climate change. It’s also helping create jobs. We should be able to realize the benefits of this development and still protect the health and safety of communities.”
The Committee to Ban Fracking is beginning its push to gather 258,088 valid signatures to amend state law to “prohibit the use of horizontal hydraulic fracturing and production, storage, disposal, and processing of horizontal hydraulic fracturing wastes in Michigan.” At the same time, entities opposed to the proposed ban held a press event in Lansing to explain why the reasons behind the proposal are “misleading.” Brad Wurfel, communications director for the Michigan Department of Environmental Quality, said fracking has been done in the state since the ’60s, without ever having a confirmed contamination incident of surface water.
Dave Galt, Executive Director of the Montana Petroleum Association provided an op-ed in which he refutes many of the claims critics of hydraulic fracturing state. He also provides examples of the benefits of fracking to Montana: Montana Tech’s petroleum engineering department is at an all-time high of 350 students, the oil and gas industry has created nearly 30,000 jobs in the state and more than $200 million in production taxes alone are paid annually by the industry.
In the absence of finalized state regulations related to hydraulic fracturing, the Medical Society of the State of New York (MSSNY) adopted provisions related to hydraulic fracturing at its recent House of Delegates meeting held last weekend. Among the provisions adopted: a moratorium on high volume hydraulic fracturing; support for the planning and implementation of a health impact assessment to be conducted by a New York State School of Public Health; advocate for the establishment of an industry-funded, independently-arbitrated state trust fund for people that may be harmed as a result of hydraulic fracturing, and that the MSSNY oppose any non-disclosure provisions related to the practice of hydraulic fracturing that interfere with any aspect of the patient-doctor relationship and/or the ready collection of epidemiological data for future health impact studies.
The Three Affiliated Tribes, situated at the center of the state’s shale oil boom, have been pressuring state legislators to green light a renegotiation of a 2010 agreement that gives the tribes 20-50% of the tax revenue from drilling on their land. In a letter to Gov. Jack Dalrymple (R) and leaders of the Legislature this week, outgoing Interior Secretary Ken Salazar said the agreement had resulted in “inequities” for the tribe.
Crude oil production in North Dakota, the No. 2 U.S. oil-producing state, hit an all-time high in February but will really accelerate in May after bad weather and road restrictions end, the state’s Department of Mineral Resources said. The recent oil boom from the exploitation of the huge Bakken formation that straddles the U.S.-Canadian border now has North Dakota forecasting production of 850,000 barrels per day (bpd) by early 2014. Department statistics show output rose 41,184 bpd to 778,971 bpd in February after a rare drop in January.
Debate has continued on the proposal to increase the severance tax on oil and gas production. The Ohio Oil and Gas Association’s Executive Vice President, Thomas Stewart wrote an op-ed arguing against the increase tax. Mr. Stewart writes that the industry currently has more than 38,000 jobs related to energy development in the Utica Shale with expectations that the number could grow to more than 140,000 by 2020; and the oil and gas produced in the state typically stays in the state; the oil and gas industry has a fairly low profit margin of approximately seven percent. According to Mr. Stewart, the proposal would result in a 1,500 percent tax increase on oil production.
Dennison Disposal LLC has applied for a permit from the Ohio Department of Natural Resources (ODNR) to drill a Class 2 injection well in Union Township, OH to dispose of water used in the hydraulic fracturing process. The well would be drilled to a depth of between 7,900 feet and 9,000 feet and would have a maximum capacity of 5,000 barrels per day. ODNR is accepting comments on the proposed permit until April 24.
Consol Energy reports that is has completed hydraulic fracturing at its first multi-well pad in the Utica shale play. The first well at the site, designated the company’s MAH 7 pad, was drilled laterally 5,411 feet, Consol says. The second well, the MAH 7C, was drilled 5,290 feet horizontally. Consol currently has two drilling rigs in the Utica and expects to drill 11 wells, all in Noble County.
Locke Lord is hosting, Hydraulic Fracturing: New Issues, New Players & New Risks, on Thursday, May 2, 2013. Speakers include: Ben Cowan, Partner, Locke Lord LLP; Richard B. Farrand, Vice President, Oil & Gas Director, Western Solutions, Inc.; Jerry Higdon, Partner, Locke Lord LLP; Ryan Leatherbury, Client Service Manager, Western Solutions, Inc.; Susan T. Litherland, Senior Vice President and Southern Division Manager, Western Solutions, Inc.; Gerry Pels, Partner, Locke Lord LLP; and Blake Soyars, Gulf coast Air Consulting Service Leader, Western Solutions, Inc. For more information or to register, contact Allison Arbizu at email@example.com or 713-226-1386.
Plains All American Pipeline plans to build a 310-mile, 20 inch pipeline to move crude oil across West Texas, capitalizing on the renewed burst of exploration and production in the Permian Basin. The pipeline would have an initial capacity of 200,000 barrels per day and would move crude from McCarney, in Upton County to Gardendale in South Texas’ La Salle County. Plains said that its total investment in the project would be as much as $375 million.
Sen. Kel Seliger (R, District 31) introduced SJR 65, which proposes a constitutional amendment that allocates 3 percent of oil and gas severance tax revenue toward a Transportation Infrastructure Fund. It was referred to the Finance Committee. SJR 65 would work in conjunction with SB 1747, which addresses the concerns of residents in oil and gas producing counties by creating the Transportation Infrastructure Fund to provide grants to counties with significant roadway needs, establishing a practical approach for distributing funds to counties specifically impacted by recent increased wear and tear.
The Texas Railroad Commission, which oversees the state’s oil and gas production, is filing a formal complaint with the Environmental Protection Agency (“EPA”) over the makeup of its newly formed Hydraulic Fracturing Research Advisory Panel. The Commission has expressed its concern that most of the panel’s members are from universities and state regulatory agencies that have little experience with hydraulic fracturing while only two members have ties to Texas, where hydraulic fracturing is prominently used for oil and gas development. The advisory panel will assess EPA’s draft study on the potential impacts of hydraulic fracturing on drinking water resources.
The House Judiciary Committee passed SB 243, which calls for an operator or service provider, as part of its well completion report to the state Department of Environmental Protection (DEP), to list all of the additives used in fracking, including each additive’s specific trade name, supplier and purpose. They must also list each chemical of each additive, with concentrations expressed as a mass percent. The bill was also approved by the House but the Senate refused to concur and requested House recede (Voice vote) 4/12/13
Public interest groups, including the Powder River Basin Resource Council and the Wyoming Outdoor Council, who lost a suit about disclosing fracking chemicals are appealing that decision to the Wyoming Supreme Court. Natrona County District Judge Catherine Wilking recently sided with the state of Wyoming and ruled against environmentalists who sought to obtain lists of the ingredients that go into hydraulic fracturing fluids. 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.
Should the Federal Government Regulate Fracking? This question was posed in a recent Wall Street Journal Op-Ed. The pro-federal regulation was written by Jody Freeman, the Archibald Cox professor of law at Harvard while the opposite view was written by David Spence, associate professor of law, politics and regulation at the McCombs School of Business and School of Law at the University of Texas. Freeman’s main point is that there is a need for stronger regulation due to the impact fracking has on the entire nation, not just individual states and states aren’t “fully up to the task of regulating these risks.” Spence argues that both the benefits and the costs of fracking fall mostly upon the states and local communities and they are in the best position to figure out how best to balance fracking’s costs and benefits. “State oil and gas commissions have much more experience with permitting and overseeing natural-gas production than the EPA does.”
Ohio’s top oil and gas regulator, Rick Simmers, chief of Ohio’s Division of Oil and Gas Resources, appeared in Washington to endorse allowing states to oversee fracking and the disposal of wastewater from drilling instead of the federal government. Mr. Simmers testified at the “State Lands vs. Federal Lands Oil and Gas Production: What State Regulators are doing Right” hearing. He told committee members that, as of Friday, Ohio had issued 596 permits for horizontal drilling in the Utica Shale, 293 have been drilled and 81 have been completed and are producing. Fifty field inspectors are on staff, and Ohio is ready to hire more as demand requires, he said. At the same hearing, Texas Land Commissioner Jerry E. Patterson stated, “we see no reason to regulate an activity that’s not creating any kind of problem and fracking is not creating any kind of problem.” Utah Lieutenant Governor Greg Bell also stated, “I think you can talk about the need for federal regulation if you can identify the problem. In Utah, we don’t have a problem identified, so I don’t understand the impetus why Utah would be included in such a regime.”
In a recent speech at the Harris School of Public Policy, former Presidential advisor Hal Harvey, CEO of the energy and environmental policy firm, Energy Innovation, listed five steps the U.S. should take to ensure that it exploits the benefits of the natural gas boom and avoid the costs. The five steps are: control methane leaks; use gas to push out coal, not renewables; adopt strong well standards; prevent surface pollution; and zone gas fields to avoid ecological damage.
President Energy announced that three wells in Argentina were subjected to hydraulic fracturing to coax additional natural resources from the ground. The fracking operations are under way at the Puesto Guardian concession in Argentina. Two wells — PE7 and PE8 — have been idled for more than 20 years but showed signs of unrecovered oil. Well DP1001 was described as “relatively new” and produced small amounts of oil.
A trade delegation from Pennsylvania traveled to Brazil and one of the major areas of discussion was drilling and Pennsylvania’s experience exploring and extracting natural gas from the Marcellus Shale. Gov. Tom Corbett met with Rio de Janeiro State Governor Sergio Cabral and signed an agreement to collaborate, particularly on issues related to oil and natural gas.
Under duress from high natural gas import costs, India intends to allow hydraulic fracturing within the country. The Indian Oil Ministry sent a plan authorizing hydraulic fracturing to Prime Minister Manmohan Singh’s Cabinet for approval. From 2Q 2011 to 1Q 2012, India spent $140 billion importing natural gas. The country will not see producing wells for another few years, but the country is already planning to auction off 250 oil and gas lease blocks. A U.S. Geological Survey of three basins estimated that the country may have as much as 6.1 trillion cubic feet of gas.
The Irish government has put a hold on granting any more licenses for drilling by hydraulic fracturing for two years. But the Republic’s Communications Minister Pat Rabbitte said the government would be considering the “economics” as well as the environmental, geological and technological considerations in deciding future policy. He said no new licenses would be granted until the completion of an All-Ireland scientific study of the process by the Irish Environmental Protection Agency, which is likely to begin later this year.
Six companies have bid to build Jordan’s first oil shale power plant which is part of the country’s intended future energy mix as it attempts to lessen its dependence on imported fuel. The six companies and consortiums that submitted bids include Alstom/Daewoo E&C (France/Korea), Hyundai E&C/LG International (Korea), Samsung Engineering (Korea), Posco/Daewoo International (Korea), China Machinery Engineering Corporation (China), and Guangdong Power (China). The construction of the 500 megawatt plant is to commence next year and start generating electricity for local consumption by 2017.
Saudi Arabia & China
A recent article in the Christian Science Monitor about the potential of countries like Saudi Arabia and China attempting to replicate the U.S’s shale development brings up a number of aspects that may hinder the necessary investment in order to develop shale resources. Infrastructure investments, resource constraints, environmental concerns, and the risk of financial losses from temporary, price-depressing energy gluts could cause nations like Saudi Arabia and China to abandon shale energy before they reap its benefits. For Saudi Arabia, the biggest challenge is the need to develop the critical infrastructure necessary to make shale development a reality. China, while recently agreeing to partner with corporate entities that have experience in developing shale, also lacks the pipeline infrastructure necessary to bring the product to market. China, like Saudi Arabia also faces the challenge of having the necessary water supply needed to sustain the fracking process.
South Africa in September lifted a moratorium on hydraulic fracturing. However, it seems unlikely that any explorers will receive shale gas permits this year due to the potential legal appeals. A taskforce of government agencies including the Department of Mineral Resources is studying best practice on fracking and plans to complete a draft by July, to be followed by public consultation.
For additional information, contact Bo Ollison with HBW Resources. His contact information is below.
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