UPDATE: Citadel Dumps Challenge to San Benito County Hydraulic Fracturing Ban

Citadel Exploration has abandoned its legal challenge to San Benito County’s Measure J, a voter-sponsored initiative that banned several enhanced recovery methods of extracting oil and gas, including hydraulic fracturing and cyclic steaming. Citadel’s plan to develop oil wells in a remote area of San Benito County are currently undergoing environmental review, and it filed a lawsuit last month seeking $1.2 billion in damages. Its motives for abandoning the claim are not clear.

For more detail on the history of this legal challenge, see this March 3, 2015 blog post.

- Kathryn Oehlschlager

For more information, contact Kathryn Oehlschlager at klo@bctlaw.com or (415) 228-5458

Federal Government Takes First Steps to Impose Regulation of Hydraulic Fracturing on Public Lands

On March 20, 2015, the Interior Department announced the issuance of a final rule regulating hydraulic fracturing on Federal and American Indian lands. The rule was initially proposed by the Bureau of Land Management (“BLM”) on May 11, 2012, and, on May 24, 2013, the BLM published a supplemental notice of the rulemaking due to significant public interest in the first draft of the rule. After the review of more than 1.5 million public comments, BLM has issued the final rule, which will take effect ninety days after publication in the federal register.

The Rule will regulate the use of hydraulic fracturing on Federal and American Indian lands and mineral estates managed by BLM. The Rule, therefore, will apply to future oil and gas extraction on approximately 700 million acres of sub-surface mineral estate underlying both Federal and non-Federal lands and an additional 56 million acres of American Indian lands. According to BLM, there are already approximately 100,000 oil and gas wells on public lands managed by BLM, and 90% of current wells placed on Federal lands involve the use of hydraulic fracturing.

The new requirements imposed on hydraulic fracturing will augment existing BLM regulations for oil and gas operations specified at 43 C.F.R. § 3162.3-1 and Onshore Oil and Gas Orders 1, 2 and 7. Most of these requirements have been in place for at least 25 years.

Key components of the Rule include:

• Provisions to ensure the protection of groundwater supplies by requiring validation of well integrity prior to hydraulic fracturing in new or any existing wells;
• Requirements to design and implement a casing and cementing program that follows best practices and meets performance standards to protect and isolate usable water (generally defined as those waters containing less than 10,000 parts per million of total dissolved solids). The Rule specifies that best practice includes cement return and pressure testing for surface casing, cement evaluation logs for intermediate and production casing, and remediation plans and cement evaluation logs for any surface casing that does not meet performance standards;
• Requirements to monitor cementing operations during well construction and take remedial action if cementing is inadequate;
• Disclosure of chemicals used in hydraulic fracturing to BLM through the FracFocus website within 30 days of completing the fracturing operations (similar to requirements imposed by several States already, including California). The rule provides limited disclosure exceptions for chemicals demonstrated to BLM, through affidavit, to be trade secrets;
• Specific standards for interim storage of recovered waste fluids from hydraulic fracturing operations. These requirements include management of fluids in “rigid enclosed, covered, or netted and screened above-ground storage tanks” with case-by-case exceptions;
• Measures to lower the risk of cross-well contamination by requiring companies to submit more detailed information on the geology, depth, and location of preexisting wells to allow for detailed assessment by BLM of site characteristics.

Operators with leases on Federal lands must comply both with the new BLM requirements and with any state operating requirements, including permitting and notice requirements to the extent they do not conflict with BLM regulations. The rule provides a variance option to states and tribes where equal or more protective regulations applicable to hydraulic fracturing have been adopted locally.

BLM has estimated that the cost of compliance with the new requirements imposed by the Rule will amount to less than one-fourth of 1 percent of the cost of drilling a new well.

The Rule does not adopt new enforcement or penalty requirements. In response to comments, BLM stated that these issues were outside the scope of the rulemaking and already addressed in existing regulations. Compliance with the rule, and enforcement for any violation of the new requirements, will be covered by existing regulations in 43 C.F.R. Subpart 3163. BLM’s remedies for an operator’s non-compliance with the new regulations are provided by the already existing 43 C.F.R. § 3163.1, and include written notices of violation, assessments, and the shut-down of operations. Repeated or continued non-compliance can result in civil penalties and possible lease cancellation pursuant to 43 C.F.R. § 3163.2. Finally, BLM notes in the rulemaking that criminal penalties may be sought for certain false statements made to the government in public land matters, whether sworn or unsworn, pursuant to 18 U.S.C. § 1001 and 43 U.S.C. § 1212.

This may be only the first iteration in the regulation of hydraulic fracturing on Federal lands, with BLM stating that it will evaluate the adequacy of the rulemaking seven years after the date of publication to ensure that the standards are adequately addressing emerging technological developments and providing acceptable protection for human health and the environment.

The final rule can be viewed here. 

- Tom Boer

For more information, contact J. Tom Boer at jtb@bcltlaw.com or (415) 228-5413.

US EPA Appears to Put TSCA Fracking Rule On Ice

A November 2014 report on anticipated regulatory actions by the US Environmental Protection Agency (“EPA”) indicates that development of a potential rule requiring manufacturers and processors of fracking chemicals to report chemical data, including health and safety studies, is a low priority and is unlikely to be pursued by EPA in the short-term.

In 2011, a coalition of environmental groups petitioned EPA to promulgate a rule specific to fracking chemicals and mixtures used in oil and gas exploration and production. The petition asked the agency to regulate fracking chemicals pursuant to its authority under the Toxic Substances Control Act (“TSCA”).

More specifically, the petition asked EPA to adopt a rule:

• Requiring, pursuant to Section 4 of TSCA, that manufacturers and distributors of fracking chemicals conduct toxicity testing and make those testing results available to the public; and
• Imposing, pursuant to Section 8 of TSCA, recordkeeping and reporting requirements for fracking chemicals used in oil and gas exploration and production.

Shortly after receiving the petition, EPA concluded that the petitioners failed to “set forth sufficient facts” to support the request for a rule pursuant to Section 4 of TSCA. EPA further explained the basis for rejecting the request for a Section 4 rulemaking in a July 11, 2013, Federal Register notice (78 FR 41,768). In the same notice, EPA announced its intent to proceed with the publication of an Advance Notice of Proposed Rulemaking (“ANPR”) as a first step in evaluating the petitioners’ request that EPA adopt recordkeeping and reporting requirements for fracking chemicals pursuant to EPA’s authority provided by Section 8 of TSCA.

EPA published its ANPR addressing the potential regulation of fracking chemicals in May 2014 (79 FR 28,664). According to EPA, the purpose of the ANPR was to “initiat[e] a public participation process to seek comment on the information that should be reported or disclosed for hydraulic fracturing chemical substances and mixtures and the mechanism for obtaining this information.” The public comment period for the ANPR was extended by EPA and closed in September of this year. Nearly 2,500 public comments on the ANPR were received by EPA and have been placed into the administrative record.

If EPA chooses to proceed with a rulemaking, the Agency’s next steps would entail: (i) reviewing the ANPR public comments; (ii) developing a specific proposed rule to address fracking chemicals pursuant to EPA’s authority under Section 8 of TSCA; and (iii) publishing the proposed rule in the Federal Register for public comment.

On November 21, 2014, EPA published its semi-annual Regulatory Plan, which highlights priority areas for regulatory development. The TSCA rulemaking for fracking chemicals was not included as a priority in the Regulatory Plan. EPA’s summary of the status of a potential rulemaking, instead, provides the following information:

• EPA placed the potential rulemaking into its “long-term action” category. In submitting regulatory plans, agencies generally categorize actions into one of five stages: pre-rule, proposed rule, final rule, completed action, or long-term action. It is generally accepted that EPA lists rules in the long-term action category when it does not expect to take any significant steps to advance a potential rule over the next twelve months, and thus considers the rule to be a lower priority in the short-term.
• EPA indicates that the “Next Action [is] Undetermined” for the potential rulemaking, states that no legal deadlines apply to a potential rulemaking, and provides no specific date for future agency action on a potential rule.
• EPA classifies a potential rulemaking as “Other Significant,” which applies to those regulations that are considered by EPA to have a “substantial impact on the public interest,” but are not “Economically Significant,” i.e., do not have an annual effect of at least $100 million.

It appears unlikely, therefore, that EPA will publish a proposed rule to impose recordkeeping and reporting requirements for fracking on the oil and gas industry anytime in 2015. In the meantime, a number of states -- including, recently, California and Colorado -- have adopted recordkeeping, reporting, and/or public disclosures requirements related to fracking operations. For the time being, therefore, it appears that States, and not EPA, will take the lead in regulating chemical usage related to fracking operations.

Although EPA has put the brakes on proposing a TSCA rule applicable to fracking chemicals, EPA will continue to evaluate fracking. The Agency, for example, is proceeding with a comprehensive study originally announced in March 2010 that is intended to “better understand any potential impacts of hydraulic fracturing for oil and gas on drinking water resources.”  According to EPA, “work is underway” to prepare a draft report for public comment and peer review. Further information on the status of that study, which was requested by Congress via a fiscal year 2010 Appropriations Committee Conference Report, is available by clicking here.

 

--Tom Boer

For more information, contact Tom Boer at jtb@bcltlaw.com, or (415) 228-5413.

Fracking Preemption Fight to Play Out in San Benito County

It appears that San Benito County will be the venue for the much-anticipated legal battle over whether local jurisdictions in California can ban hydraulic fracturing. In early November, San Benito County passed a voter-sponsored initiative banning fracking and related practices on a county-wide basis. Mendocino County also passed a ban, while a similar ordinance in Santa Barbara was soundly defeated.
 
On November 24, Citadel Exploration filed an administrative claim against the County seeking $1.2 billion in alleged damages caused by the ban, apparently based on the estimated 20-40 million barrels of oil Citadel says it could have extracted in the area over the next several decades. The claim is a prerequisite to a lawsuit against the County. County Supervisors have scheduled a press conference for Tuesday morning, November 25 at 9:30 a.m. to address the claim.

Whether local jurisdictions can ban fracking outright is not a simple question. It’s clear that the State Department of Oil, Gas, and Geothermal Resources (DOGGR) has exclusive authority to regulate subsurface activities relating to oil and gas extraction, and DOGGR takes the position that this authority extends to ancillary extraction activities on the surface.

Consistent with DOGGR’s position, the oil industry is expected to argue that: (1) a County-wide ban is not a proper exercise of police power, and (2) local fracking bans are preempted by the state’s passage of Senate Bill 4 and its comprehensive state regulatory scheme governing all aspects of hydraulic fracturing.

--Kathryn Oehlschlager

For more information, contact Kathryn Oehlschlager at (415) 228-5458 or klo@bcltlaw.com.

Fracking Contractor Sentenced to 28 Months in Prison for Clean Water Act Violation

A federal court in Ohio has handed down a 28-month prison sentence and imposed a $25,000 fine for dumping fracking waste in violation of the Clean Water Act.

 

The defendant, Benjamin Lupo, is the former owner of Hardrock Excavating, a Youngstown, Ohio oil and gas services contractor. Lupo had previously pled guilty  to one count of making an unpermitted discharge of fracking waste. In pleading guilty, Lupo admitted to ordering an employee to discharge wastewater to a tributary of the Mahoning River more than 30 times over a three-month period from a Hardrock Excavating facility. The discharge caused waste liquid that included a mixture of brine and oil-based drilling mud to enter the tributary and the Mahoning River.

 

The releases were discovered after the Ohio Department of Natural Resources received an anonymous tip in January 2013 reporting illegal after-hours discharges coming from the Hardrock Excavating facility. State inspectors went to the facility and discovered a hose releasing liquid into the storm drain. A sample of the discharge subsequently collected by the state contained benzene, toluene, and other pollutants, officials said.

 

The employee, Michael Guesman, pled guilty in August 2013, admitting to running a hose from a 20,000 gallon storage tank filled with fracking wastewater to a nearby storm drain and draining the contents of the tank into the drain in August 2013. Guesman received three years of probation at his sentencing in March 2014.

 

The aggressive prosecution of Lupo highlights the need for robust environmental compliance programs in the oil and gas industry. A comprehensive and consistently implemented compliance program is the best insurance against the fines, negative publicity, and in some instances, time in custody that well operators and consultants face following a conviction of an environmental crime. This is particularly true for fracking operations, given the intense public scrutiny—and the possibility of significant prison terms—that fracking operators currently face.

 

--Davina Pujari and Chris Jensen

 

For more information, contact Davina Pujari at (415) 228-5459 or dxp@bcltlaw.com, or Chris Jensen at (415) 228-5411 or cdj@bcltlaw.com.

 

Environmental Groups Petition EPA to Regulate Air Emissions from Oil and Gas Production and Fracking in Urban Areas

On Tuesday, May 13, 2014, a coalition of environmental organizations led by EarthJustice submitted a Petition to the United States Environmental Protection Agency calling for the regulation of air emissions associated with oil and gas wells, particularly fracking, under the federal Clean Air Act. The environmental groups allege that toxic pollutants emitted by these operations present health risks and that such health risks are increasing as fracking operations move closer to urbanized communities.

Due to the alleged risk to public health, the environmental groups:

urgently request[] EPA to exercise its authority under the Clean Air Act to list oil and gas wells (and associated equipment) located in the appropriate geographical areas as area sources, and set limits on hazardous air pollutant emissions from oil and gas wells and associated equipment in accordance with 42 U.S.C. §§ 7412(c), (d), (k), and (n)(4)(B).

The Petition also argues that EPA “has a responsibility under the Clean Air Act to protect people from the toxic air emissions [from oil and gas operations] nationwide, and under section 112(n)(4)B) it must do so.”

The Petition requests that EPA take two specific actions pursuant to the Clean Air Act:

1. Exercise its authority provided by the area source program of the Clean Air Act by listing oil and gas production wells (including fracking activities) as an area source. The Petition argues that the Clean Air allows regulation of “hazardous air pollutants from area sources [that] may individually, or in the aggregate, present significant risks to public health in urban areas,” that oil and gas activities can be properly classified as area sources, and that the Act provides authority to designate such area sources in metropolitan statistical areas (and/or consolidated metropolitan statistical areas) with a population in excess of one million; and
    
2. Set emissions standards for oil and gas production wells (and associated equipment) within the newly listed area source category in accordance with 42 U.S.C. §§ 7412(c)(2), 7412(d)(2)-(3), and 7412(k), that would require implementation of the “maximum achievable” degree of emission reduction.

Under the Clean Air Act, EPA is required to respond to the Petition. Although the Petition seeks a response within 180 days, the Clean Air Act imposes no specific deadline for EPA action.

There will almost certainly be future litigation over the issues raised in the Petition. The environmental groups that filed the Petition may sue EPA if the petition is denied, or if the Agency fails to act in response to the Petition. Alternatively, if EPA moves forward with some type of regulation of oil and gas production and fracking under the Clean Air Act, litigation would likely be brought by either environmental groups (claiming that the regulations are inadequate to protect human health), industry groups (challenging the basis and scope of any regulation of these activities), or both.

A copy of the petition is available here.

-- Tom Boer

For more information, contact Tom Boer at jtb@bcltlaw.com, or (415) 228-5413.

EPA Seeks Public Comment on the Potential Nationwide Regulation of Fracking Chemicals and Mixtures

On May 9, the Administrator of the United States Environmental Protection Agency (“EPA”) signed an advanced notice of proposed rulemaking (“ANPR”) seeking public input on whether the Agency should collect and publicly disclose information on hydraulic fracturing chemical substances and mixtures. The ANPR, titled Hydraulic Fracturing Chemicals and Mixtures; Advance Notice of Proposed Rulemaking [RIN 2070-AJ93; FRL-9909-13], will be published in the Federal Register shortly, and will provide 90 days for submission of public comments. 

EPA published the ANPR in response to an August 2011 citizen petition submitted under section 21 of the Toxic Substances Control Act (TSCA) by Earthjustice and a coalition of other environmental entities. 

The ANPR seeks input on a wide range of issues related to fracking chemicals and mixtures. Broadly summarized, EPA requests comment from the public and stakeholders on the following issues:

• Whether EPA should collect information on fracking chemicals and mixtures;
• If so, which legal mechanism(s) EPA should use to obtain such information from the regulated community and whether submission of the information would be mandatory or voluntary;
• What companies or practices would be subject to reporting requirements or other regulation of fracking chemicals;
• Information on best management practices for the generation, collection, reporting and/or disclosure of public health and environmental information, potentially including health and safety studies, from or by companies that manufacture, process, or use chemical substances or mixtures in hydraulic fracturing;
• What practices or operations can be implemented and verified to achieve protection of public health and the environment associated with fracking chemicals and mixtures;
• Whether voluntary third-party certification, and incentives for disclosure, could be valuable tools for improving chemical safety related to fracking;
• Whether incentives and recognition programs could be used to support the development and use of safer chemicals in hydraulic fracturing; and
• Identification of options to minimize reporting burdens and costs, avoid duplication of efforts, and maximize transparency and public understanding associated with fracking chemicals.

EPA will use the information collected during the public comment period to decide whether to proceed with the development of a proposed rule to regulate fracking chemicals and mixtures. If EPA proceeds with such a rulemaking, EPA will be required to publish a detailed copy of the proposed rule, including the justification and basis for the rulemaking, and seek comment from the public and stakeholders prior to adopting any final, enforceable regulation. 

The ANPR is particularly relevant to companies that manufacture, import, process, or distribute any chemical substances or mixtures used in any type of hydraulic fracturing. EPA indicates in the ANPR that future regulation could extend to chemical manufacturers, chemical suppliers who engage in processing, service providers mixing chemicals on site to create the hydraulic fracturing fluids, and service providers responsible for injecting the hydraulic fracturing fluid into the well to fracture a formation. This would likely include, at a minimum, businesses falling under the North American Industry Classification System codes 2111 (oil and gas extraction) or 2131 (support activities for mining). 

 

As part of its regulatory process, EPA is specifically considering the legal authority under which it would regulate fracking chemicals. EPA is evaluating whether regulation would be mandatory, pursuant to the Agency’s authorities under TSCA section 8(a) and/or section 8(d), or voluntary pursuant to the Pollution Prevention Act, 42 U.S.C. 13101, or a combination of both. If EPA proceeds to issue a rule under its TSCA authorities, the regulated community may be legally obligated to publicly report the “identity, quantities, types and circumstances of uses of chemical substances and mixtures used in hydraulic fracturing” and/or to conduct and disclose health and safety studies on the use of such chemicals.

The draft of the ANPR submitted to the Federal Register for publication is available on EPA’s website by clicking here. 

 

-- Tom Boer

 

For more information, please contact Tom Boer at jtb@bcltlaw.com or (415) 228-5413.