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Fracking Policy Monitor - July 2014 Issue
Fracking Policy Monitor - July 2014 Issue
Fracking Policy Monitor - July 2014 Issue
Fracking Policy Monitor - July 2014 Issue
Fracking Policy Monitor - July 2014 Issue
Fracking Policy Monitor - July 2014 Issue
Fracking Policy Monitor - July 2014 Issue
Fracking Policy Monitor - July 2014 Issue
Fracking Policy Monitor - July 2014 Issue
Fracking Policy Monitor - July 2014 Issue
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Fracking Policy Monitor - July 2014 Issue

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A quarterly publication from the Independent Petroleum Association of America (IPAA) and the PIRA Energy Group. It recounts the latest battles by out-of-control environmentalists in their attempts to …

A quarterly publication from the Independent Petroleum Association of America (IPAA) and the PIRA Energy Group. It recounts the latest battles by out-of-control environmentalists in their attempts to kill fossil fuels by demagoging and litigating against the miracle of hydraulic fracturing and shale drilling throughout the U.S. An excellent summary/rundown of the latest skirmishes in the fracking wars.

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  • 1. PIRA Energy Group July 10, 2014 Scenario Planning Service PIRA Energy Group, 3 Park Avenue, 26 th Floor New York, NY 10016-5989 (Tel) 212-686-6808 (Fax) 212-686-6628 www.pira.com For authorized subscribers only. Copyright © 2014 PIRA Energy Group. All rights reserved. 1 Fracking Policy Monitor Federal regulations with potentially significant impacts on fracking production could result from the implementation of President Obama’s Methane Strategy. A decision on whether to regulate is expected this fall, with possible regulations to follow by end-2016. Federal regulations in the pipeline with more limited impact on production include final rules for fracking on federal and Indian lands (expected in September after years of delay); and potential regulation of fracking chemicals under TSCA. On the state level, the ability of localities to ban fracking via zoning authority will continue to be a hot issue – with New York’s highest court upholding the practice and Governor Hickenlooper attempting to craft a legislative compromise in Colorado. The ability for localities to ban fracking via a 3-2 city council vote could dampen future drilling in some areas. An issue to watch is the potential rise of private lawsuits against producers, following the first jury award for personal injury in a fracking-related case in Texas. Overseas, the UK has taken steps to eliminate local obstacles to production via regulation altering property rights (despite public opposition), while German policy-makers are proposing to delay any possibility of production until at least 2021. Overview – Recent Developments Federal State and Local Regulatory Actions • Commerce Department’s Bureau of Industry and Security issued classification request orders to Pioneer and Enterprise to allow them to export processed condensate as a product without a license. • EPA released an ANPR concerning the possible regulation of fracking fluid under TSCA. There is not yet a timetable for a proposed regulation. = • North Dakota enacted new regs to tackle flaring. Well operators must now file a gas capture plan as a prerequisite for new wells. Stringent flaring targets have also been adopted for existing wells. • The CA Air Resources Board remains on schedule to adopt regulations to reduce methane and other pollutants from the oil and gas sectors by November. = • The city of Denton, TX is considering a fracking ban. If passed, it would be the first in the state. Legislative Initiatives • The bi-partisan Super Pollutants Act of 2014 looks to reduce emissions of three super pollutants, including methane. The bill requires FERC to study leaks and venting while directing EPA to identify leaks throughout the production chain and make effort to replace or monitor leaking equipment. • CO Gov. Hickenlooper is attempting to settle ongoing disputes regarding local authority to ban fracking via compromise legislation. • NC Gov. McCrory signed a law which lifts the moratorium on issuing fracking permits, in place since 2012. Litigation • The D.C. Circuit unanimously struck down EPA’s methods for aggregating the emissions of nearby oil and gas activities to determine whether sources meet the threshold for “major sources” requiring stricter restrictions under the CAA. The result is less facilities likely to be categorized as major sources. • The NYCA (NY’s highest court) upheld local authority to ban fracking via zoning laws. • A Dallas jury awarded nearly $3 million in damages to a Texas family that complained of negative effects from nearby drilling activities. This marks the first jury award for personal injury in a fracking-related case. Policy Statements • 5 White Papers on strategies to reduce Methane from the oil and gas sector under the President’s Methane Strategy took comment. Should regulations be required they would be expected by 2016. • Democratic challenger Tom Wolfe said that if elected, he would work to impose a 5% severance tax on drilling in PA. Incumbent Governor Corbett is considered very vulnerable in the upcoming election. Incidents / Studies / Etc. • EPA has called into question the results and methods of the National Academy of Sciences study “Anthropogenic emissions of methane in the United States” which found ambient methane levels 1.5-1.7 times higher than assessed by EPA. = • A TRRC report officially cleared Range Resources of methane contamination, despite increased levels found in water wells in Park County from 2010-2013. • A spill from a ND saltwater pipeline potentially endangers a nearby reservoir. Tightened regs are possible. bullish production volume influence = neutral influence bearish production volume influence
  • 2. Fracking Policy Monitor July 10, 2014 Scenario Planning Service PIRA Energy Group, 3 Park Avenue, 26 th Floor New York, NY 10016-5989 (Tel) 212-686-6808 (Fax) 212-686-6628 www.pira.com For authorized subscribers only. Copyright © 2014 PIRA Energy Group. All rights reserved. 2 Key National Developments Regulatory Actions • In late June, the Commerce Department Bureau of Industry and Security (BIS) issued two classification request orders to Pioneer and Enterprise to allow them to export processed condensate as a product. This means they do not need to seek a license under the Export Administration Regulations (EAR) ban on crude and condensate export. The companies petitioned BIS to confirm that specific facilities operated by Pioneer and Enterprise qualified as distillation towers within the meaning of the EAR. As a result, the material flowing through these facilities does not require a license to export, since it does not qualify as crude oil under the regulation definition. Because the decisions are not precedential, it remains in the hands of BIS to decide on a case-by-case basis whether refining equipment from individual producers can be considered a “crude oil distillation tower,” and therefore allow product processed through that tower to be exported without a license. If this does represent the beginning of an easing of export restrictions, it will be directionally positive for wellhead price and incentives for development. • The final 2014 U.S. GHG inventory report, covering emissions from 1990-2012, was submitted to the UNFCCC by the April 15th deadline. The inventory once again contained a write-down of methane emissions from the natural gas sector, this time to account for controls at fracked wells. This continues the back-tracking from the large upward adjustment made in the 2011 GHG inventory. As of January 2015, methane’s Global Warming Potential factor will increase from 21 to 25 x CO2, with the IPCC now calling for a GWP of 34. • On May 9th , EPA published an Advanced Notice of Proposed Rulemaking (ANPR) regarding the potential regulation of fracking chemical substances and mixtures under the Toxic Substances Control Act (TSCA). In this case, the ANPR solicits comment from interested parties before EPA decides if or how such chemicals should be regulated. At this point, EPA is open to the possibility that compliance could be voluntary: “this mechanism could be regulatory (under TSCA section 8(a) and/or section 8(d)), voluntary, or a combination of both and could include best management practices, third-party certification and collection, and incentives for disclosure of this information.”1 TSCA section 8 requires broad reporting of information, including the nature, amount and manner of disposal of the materials, as well as all existing health and safety studies regarding chemicals or any mixtures. At least twenty states already have some form of fracking chemical disclosure requirements. As a result, a rulemaking will only have an impact beyond the status-quo should it be mandatory (rather than voluntary) and stricter in regard to what information can be withheld under the widespread ‘trade secret’ exception found in all state rules. Comment was originally being taken until August 7th , but has since been extended to September 18th . There is no timetable for a proposed rule at this point. • According to the most recent Unified Agenda, the re-proposed Bureau of Land Management’s (BLM) rules for fracking on federal and Indian land is expected to be finalized in September. This is the first mention of a finalization date since comments closed last August. There has been no discussion of what changes could be seen in the final version vs. the proposed rule. Based on the concessions we saw to industry between the first and second proposals, it is unlikely there should be a dramatic expansion of requirements in the final rule that would impact production significantly. • On May 13th , 64 environmental groups joined to petition2 the EPA to list oil and gas wells (and associated equipment) located in populated geographical areas as area sources, and set limits on their hazardous air pollutant emissions. The petition focuses on population centers in 1 http://www.epa.gov/oppt/chemtest/pubs/prepub_hf_anpr _14t-0069_2014-05-09.pdf 2 http://earthjustice.org/sites/default/files/files/OilGasToxi cWellsPetition51314.pdf
  • 3. Fracking Policy Monitor July 10, 2014 Scenario Planning Service PIRA Energy Group, 3 Park Avenue, 26 th Floor New York, NY 10016-5989 (Tel) 212-686-6808 (Fax) 212-686-6628 www.pira.com For authorized subscribers only. Copyright © 2014 PIRA Energy Group. All rights reserved. 3 California, Colorado, Pennsylvania, Texas, Ohio and Louisiana, but lists active oil wells near population centers in several other states as well. EPA is obligated to respond to such petitions, but the time period for doing so is fluid and can take years. The eventual denial of such a petition can form the basis for a lawsuit. Any impact will likely be years away. Legislative Initiatives • In late June, Senators Chris Murphy (D-CT) and Susan Collins (R-ME) announced plans to introduce a bi-partisan bill called the Super Pollutants Act of 2014. This bill aims to reduce emissions of three super pollutants: hydrofluorocarbons (HFCs), black carbon, and methane. With regard to methane, the planned bill sets out three specific areas with special attention paid to oil and gas emissions. First, it would direct various U.S. agencies to provide other countries with technical guidance on emissions controls from gas drilling and elsewhere. Second, the bill requires FERC to study leaks and venting across facilities under its jurisdiction while directing EPA to create an inspection and maintenance program focused on identifying leaks throughout the production chain. Lastly, the bill directs the U.S. Export- Import Bank to give priority to projects that take significant steps to reduce gas leakage and venting. • As expected, neither The Federal Lands Jobs and Energy Security Act (HR 1965) introduced by Rep. Lamborn (R-CO) nor the The Protecting States’ Rights to Promote American Energy Security Act (HR 2728) introduced by Rep. Flores (R-TX) were ever considered by the Senate after passing the House last year. Both bills were aimed at streamlining bureaucratic requirements and limiting regulation regarding fracking on federal and Indian lands. Policy Statements • Recall that on April 15th , as part of the President’s Methane Strategy announced in March, EPA released five white papers regarding efforts to reduce methane and VOC emissions in the oil and natural gas sector. The comment period for those papers ended on June 16th . Those five papers covered efforts to reduce emissions from: 1) compressors; 2) completions and ongoing production of fracked oil wells; 3) leaks along the supply chain; 4) liquids unloading; and 5) pneumatic devices such as controllers and pumps. With specific regard to the white paper aimed at fracking, it considers data and mitigation techniques for emissions from completions and associated gas from ongoing production at fracked oil wells (which are not covered by the 2012 NSPS). In addition to considering use of flaring and green completion technology, the paper also considers gas conserving technologies such as reinjection, NGL recovery, and increased use of gas for power generation for local use. In PIRA’s view, a likely regulation is an expansion of the NSPS for fracked gas wells (which require green completion technology starting in 2015) to fracked oil wells. Under the strategy, the EPA is required to decide if and what they will regulate by the fall, and finalize any regulations (including a fracked oil well NSPS) by end- 2016. That suggests a proposal by mid-2015 at the latest. Litigation • On May 30th , the D.C. Circuit issued a unanimous opinion striking down the EPA’s methods of aggregating emissions for oil and gas sites – a practice which can push them over the emissions threshold for “major” sources, subjecting them to stricter restrictions under the CAA. From 2009 to August 2012, EPA used the “functional interrelatedness” test to determine whether facilities are contiguous or adjacent, whether they are in common control, and whether they are part of the same industrial grouping, in deciding whether they should be aggregated. In August 2012, the 6th Circuit Court of Appeals invalidated that test and EPA stopped using it within the 6th Circuit states of Michigan, Ohio, Tennessee and Kentucky, but maintained in a memo that it would continue to be used everywhere else. The Court found that EPA’s policy in the memo “is plainly contrary to EPA's
  • 4. Fracking Policy Monitor July 10, 2014 Scenario Planning Service PIRA Energy Group, 3 Park Avenue, 26 th Floor New York, NY 10016-5989 (Tel) 212-686-6808 (Fax) 212-686-6628 www.pira.com For authorized subscribers only. Copyright © 2014 PIRA Energy Group. All rights reserved. 4 own regulations, which require EPA to maintain national uniformity in measures implementing the CAA, and to identify and correct regional inconsistencies by standardizing criteria, procedures, and policies.”3 The lack of consistency and uniformity in interpretation of the aggregation policy led to facilities outside the 6th Circuit being at a competitive disadvantage. Given this ruling, EPA will need to find a new method of deciding when aggregation of sources is appropriate – impacting which sources are currently subject to stricter major source CAA requirements. Incidents/Studies/Etc. • According to recent reports, the EPA had finished a study containing recommendations on the concerns over induced seismicity from wastewater disposal in Ohio, Oklahoma, Texas, Arkansas and Colorado in January, but has yet to release it. It is said to contain the final recommendations of a workgroup convened in 2011 for use by state officials in dealing with injection wells linked to earthquakes. It is unclear when the report will be released, but it could recommend that certain Class II disposal wells (those that inject brines and other fluids associated with oil and gas production, and hydrocarbons for storage) be tested for seismic dangers. These, however, would merely be recommendations for state officials – not requirements or mandates. • In the January 2014 edition of the Fracking Policy Monitor, we discussed a study released by the Proceedings of the National Academy of Sciences entitled “Anthropogenic emissions of methane in the United States,” which found ambient methane levels 1.5-1.7 times higher than assessed by EPA, calling into question EPA’s large write-down of methane emissions from the natural gas sector for the 2013 GHG Inventory. More recently, EPA has questioned the results of the study, unclear how such a “top- down” study would be able to ensure emissions 3 NATIONAL ENVIRONMENTAL DEVELOPMENT ASSOCIATION'S CLEAN AIR PROJECT, v. EPA. D.C. Cir. No. 13–1035., May 30, 2014. are being attributed to oil and gas wells only, particularly in areas that also have large coal mining and agriculture activities that also contribute significantly to methane emissions. Key State and Local Developments Pennsylvania • A key issue that will be impacted by upcoming elections is whether Pennsylvania will move to enact a severance tax on natural gas development. To date, they are the largest gas producing state without such a tax. PA does have an impact fee, which differs from a severance tax in that it is a set fee per well drilled, rather than a set tax per mcf of gas produced. Vulnerable sitting Gov Tom Corbett (R) has been vocal in his opposition to a severance tax, but Democratic opponents introduced four bills that would enact such a tax and are making the issue a key point in campaigning thus far. (Democratic gubernatorial challenger Tom Wolfe has proposed a 5% severance tax rate). Republicans currently hold a majority in both state houses keeping all four bills from leaving committee, so a change in leadership and membership would be required before any of these changes could be enacted. • On April 22nd , a trial judge in southwestern Pennsylvania issued a ruling that will clarify the nature of leases in Pennsylvania. At issue were ‘dual purpose’ leases, which allow the lessee to conduct both oil and gas production and natural gas storage. The question was whether the mere storage of gas was sufficient to hold the lease in effect for both purposes. The judge ruled that this, in fact, was the case and such leases must be construed as written. The ruling is unlikely to find much success in the appeals process and will curb efforts by landowners experiencing ‘buyer’s remorse’ to get out of their leases to re-negotiate more favorable ones. • On May 23rd , Governor Corbett issued an executive order (overturning a previous executive order) which lifted the moratorium on new gas leases in state parks and forests that had been in
  • 5. Fracking Policy Monitor July 10, 2014 Scenario Planning Service PIRA Energy Group, 3 Park Avenue, 26 th Floor New York, NY 10016-5989 (Tel) 212-686-6808 (Fax) 212-686-6628 www.pira.com For authorized subscribers only. Copyright © 2014 PIRA Energy Group. All rights reserved. 5 place since 2010.4 According to Corbett, lifting the ban could generate $75 million in additional revenue for Pennsylvania. New York • On June 30th , the New York Court of Appeals – New York’s highest court – upheld the ability of localities to ban fracking within their jurisdictions by zoning laws. In a 5-2 decision, the Court upheld the dismissal of cases brought by producers against the towns of Dryden and Middlefield. The Court found that the banning of fracking constituted a reasonable exercise of zoning authority. Coming from the state’s highest court, this represents the final word on whether fracking can be banned in NY localities via zoning laws. This decision draws serious questions about whether there may be a chilling effect on future operations in NY, if a mere 3-2 ruling of a town council could ban fracking even after it has already begun. Currently over 175 towns, villages, and cities in NY have passed a ban or moratorium. With the law now clear, more are expected to follow. However, the vast majority of bans and moratoria do not exist in the counties along the PA border – considered the most gas-rich region of the state. • State Environmental Conservation (DEC) Commissioner Joe Martens confirmed in January that he will not be issuing regulations to allow fracking until at least April 2015. Such a date suggests that Gov. Cuomo will not be making a decision on this contentious issue before the November elections. In the past, Gov. Cuomo has tethered his decision to the completion of a health impact review, launched in 2012. Though initially expected to take just a year, there remains no timetable for completion of that review. • The November election could prove to have major consequences for the future of fracking in NY. Recall that the state assembly has passed a number of bills that would extend the moratorium 4 http://www.portal.state.pa.us/portal/server.pt/gateway/PT ARGS_0_2_785_708_0_43/http%3B/pubcontent.state.pa. us/publishedcontent/publish/global/files/executive_orders/ 2010___2019/2014_03.pdf (including most recently in June), only to see them fail to be considered by the Republican- controlled Senate. Should Democrats re-take the Senate, the chance of a prolonged state-wide moratorium increases dramatically. For example, a bill to extend the statewide fracking moratorium for another three years (until 2017), passed the NY Assembly (96-37) on June 16th . The Senate has been less likely to consider such bills in the past, and the Governor’s signature would be uncertain. To date, the bill has seen no action in the Senate Rules Committee since it was received from the Assembly. • Oral arguments were taken on April 25th for the case in which New York had been sued by pro- fracking landowners. The Joint Landowners Coalition of New York in February filed a suit alleging that the state is violating the New York Environmental Quality Act and Environmental Conservation Law by failing to issue an EIS in a timely manner. This is the second lawsuit filed trying to force New York’s hand. Attorney General Eric Schneiderman has filed a motion to dismiss for both actions. That motion was the subject of the hearing. Reports of the hearing suggest that this may be a political issue for voters rather than something the judge would like to decide. A decision on the motion to dismiss can take months. Should the case survive, it would then proceed on its merits. Texas • On April 22nd , a Dallas jury awarded nearly $3 million in damages to a Texas family that complained of negative effects from nearby drilling activities. This marks the first jury award for personal injury in a fracking-related case. Though the offending wells were fracked, the injuries were not specific to fracking and could be present during any type of oil and gas extraction activity. Aruba Petroleum – the defendant – had appealed the verdict and in May, filing a motion for the judge to disregard the jury and issue a new verdict in their favor. That motion was denied in mid-June and the verdict was upheld. With an appeal sure to follow, the question then becomes one of precedence. This case was brought as a
  • 6. Fracking Policy Monitor July 10, 2014 Scenario Planning Service PIRA Energy Group, 3 Park Avenue, 26 th Floor New York, NY 10016-5989 (Tel) 212-686-6808 (Fax) 212-686-6628 www.pira.com For authorized subscribers only. Copyright © 2014 PIRA Energy Group. All rights reserved. 6 nuisance – a type of tort that is very dependent on the facts of any specific case. What is clear is that plaintiffs seeking redress for injuries from drilling activities, may have more luck if the issue reaches a jury, rather than settles beforehand, or is decided solely by a judge. • Two other sets of plaintiffs in Texas have seen jury verdicts in (non-heath related) nuisance lawsuits since May. Titan Operating in Parker County was assessed $36,000 in damages for failure to respect priori representations on where the drill pad would be placed and how it would handle traffic and other disruptions: the drill was placed just 300 feet from plaintiff’s property, did not use promised sound mufflers, and caused flooding of their property. A Tarrant County jury awarded plaintiffs $20,000 in a similar suit in May. The result shows a willingness of juries to consider claims by landowners, and may result in more comprehensive contractual provisions, possibly accompanied by additional payments for land leases in the future. • The city of Denton, Texas is considering a permanent ban of fracking. If passed by the city council, this would make it the first permanent ban in the state. Should the motion fail, it would be presented to voters in the November election as an initiative. Such a measure could present a test case, as Denton has been one of the more supportive towns of the practice in the past 15 years. Whether such a ban could be upheld as legal is another question. Industry claims that – starting in 2000 – the city issued permits “in perpetuity”, and thus are not subject to a ban. • On May 28th , the TRRC released a report officially finding that although methane levels in water wells in Park County have increased from 2010-2013, that the “evidence is insufficient to conclude that Barnett Shale production activities have caused or contributed to methane contamination beneath the neighborhood.” This puts to rest four years of complaints against Range Resources that had suggested that their drilling activities had contaminated water in Parker County, TX. Recall that EPA had issued an emergency order against Range, only to withdraw it in March 2012. Late last year, EPA Office of Inspector General suggested EPA should continue to assess the risks of contamination but EPA took no further action. The TRRC initially cleared Range of any wrongdoing in 2011, but reopened its investigation in late 2013 after new complaints were brought. The report found that five of the eight wells monitored had increasing methane levels over time. Pursuant to the report, this is the final word on the issue and the agency will not investigate further. • On Monday, May 12th , a Texas House subcommittee held a hearing on induced seismicity (quakes caused by human activity), and encouraged the TRRC to take swift action to study and understand the potential implications. The committee urged the TRRC to issue a finding once and for all whether disposal wells are to blame for the quakes detected in the Azle region of the Barnett shale. The subcommittee noted that that changes to TRRC rules may be required if a link to induced seismicity is found. Such changes could include increased frequency of record keeping for volumes injected; and importantly, increased ability of the TRRC to shut down a disposal well pending a hearing and other due process. A TRRC seismologist suggested that he might have a definitive statement regarding the source of quakes within a year. Oklahoma • In July, Science Magazine published an article entitled “Sharp increase in central Oklahoma Seismicity Since 2008 Induced by Massive Wastewater Injection.” The report uses seismicity and hydrogeological models to link four of Oklahoma’s most prolific wastewater wells to a “swarm” of 2,547 small earthquakes near Jones, Oklahoma. This study comes on the heels of the USGS study released in March, which found that a 5.7 magnitude earthquake outside of Prague, Oklahoma in November 2011 was triggered by a foreshock quake (registering 5.0M), which was itself caused by fracking wastewater injection. As discussed in our last issue of the Fracking Policy Monitor, Oklahoma has already passed regulations to
  • 7. Fracking Policy Monitor July 10, 2014 Scenario Planning Service PIRA Energy Group, 3 Park Avenue, 26 th Floor New York, NY 10016-5989 (Tel) 212-686-6808 (Fax) 212-686-6628 www.pira.com For authorized subscribers only. Copyright © 2014 PIRA Energy Group. All rights reserved. 7 enhance their ability to monitor and study induced seismicity. North Dakota • Flaring continues to be a major issue in North Dakota, and the North Dakota Industrial Commission continues to take steps to address it. As of June 1st , new flaring regulations took effect impacting new wells (and will be phased in for existing sites over the next few months). Before a well will be granted a permit, well operators must file a gas capture plan. After the first year of production a new well must either be: 1) capped; 2) connected to a gas gathering line; 3) equipped with a generator that consumes at least 75% of the gas; or 4) equipped with a compression or liquefaction system that consumes at least 75% of the gas. Recall that EPA’s rules on fracked gas wells – requiring the utilization of green completion technology to recover all gas produced – go into effect on January 1, 2015, but only apply to fracked gas wells (not oil wells). These new state rules are part of ND’s goal to reduce the amount of gas flared to 10% by 2020, from the current 33-36% level. Industry groups, such as the Petroleum Council, have claimed they could cut flaring to 5%, if new state laws are passed to encourage pipeline development. • On July 1st , the North Dakota Industrial Commission adopted additional stringent rules designed to reduce flaring for existing wells. These flaring rules require flaring to be decreased to 26% by October 1st , and 90% within six years. It is hoped that by then, infrastructure to take the gas to market catches up with production. Key to whether the rules are effective is how they will be enforced. The new rules allow the Commission to set production limits on oil companies if targets are not met, limiting production to as little as 100 barrels a day, depending on how much gas is being flared. • A number of spills of varying types took place in North Dakota over the last quarter. On July 8th , a spill from a saltwater pipeline was reported. Saltwater is a byproduct of oil and gas drilling and is typically sent through pipelines to underground disposal wells. It is unclear how much water spilled or if there is any contamination of a nearby reservoir. North Dakota produced 25.5 million barrels of salt water in 2012, spilling about 3,000 barrels in the process. Proposed legislation to mandate flow meters and cutoff switches on saltwater pipelines were overwhelmingly rejected last year in the legislature. Should the problem persist and/or impact drinking water, we could see regulations on saltwater transportation and disposal which could provide a potential bottleneck for production. • On June 17th , the North Dakota Department of Health was notified of a 2000 barrel spill of fracking water from a flow line owned by Denbury Offshore. The spill occurred as a result of a leak in the flow line and most of the water was absorbed into the soil. The Department is expected to help draft a remediation plan for Denbury. • On May 9th , an Emerald Oil well named “Ron Burgundy” located near Tioga, ND caused an unknown amount of oil, gas, and water to discharge. The well took three days to get under control as trucks were called in to bring excess spilled liquid to disposal sites. The amount of spillage remains unknown as Ron Burgundy is a “confidential well” – which means that only the well operator, name, file and ID number, location and date of expiration of the company’s confidentiality agreement can be released to the public. The full details of the spill will be known after August 4, 2014 – when the confidentiality agreement expires. According to North Dakota officials, roughly 18% of all wells in the state are confidential. California • On May 21st the U.S. Energy Information Administration (EIA) confirmed that they had strongly downgraded the amount of oil recoverable from the Monterey Shale due to unique geological difficulties presented by the formation that make any oil difficult to extract. The EIA revised the estimate down by 96% from 13.7 billion barrels to just 600 million. The EIA
  • 8. Fracking Policy Monitor July 10, 2014 Scenario Planning Service PIRA Energy Group, 3 Park Avenue, 26 th Floor New York, NY 10016-5989 (Tel) 212-686-6808 (Fax) 212-686-6628 www.pira.com For authorized subscribers only. Copyright © 2014 PIRA Energy Group. All rights reserved. 8 left open the possibility that new production methods could eventually tap the potential of the formation, making it possible to economically extract the resources. • A fracking moratorium bill (SB1132) was killed in the California Senate, failing to pass despite a plurality of support 18-16 (21 votes are needed to pass). Even after being granted reconsideration, the bill could not find the votes needed to pass into the Assembly. The bill would have imposed a moratorium pending the results of: a scientific study to be conducted by state agencies; and the issuing of findings by the governor that measures are in place to ensure that well stimulation treatments do not pose a risk to the public health or the state. This will likely not be the last moratorium bill we see in California and it has progressed further each time. • The Air Resources board remains on schedule to adopt its regulations to reduce methane and other pollutant emission from the oil and gas sectors by November. The rule will cover production, processing, storage, and crude oil transmission, and will add several different types of emissions from fracking and other well stimulation treatments to the regulation. Colorado • Governor Hickenlooper is taking steps to attempt to head off the ongoing disputes regarding local authority to ban fracking by attempting to broker legislation that will address the issue in a manner that satisfies both environmentalists and industry. He has put forth two different versions of a bill, drawing varying levels of support. The most recent bill – released in late June – would effectively eliminate the ability of local governments to ban drilling activity. Instead, local governments may only impose a moratorium “for an amount of time that is reasonably necessary to facilitate informed decision-making and planning to regulate oil and gas operations.” Moreover, local governments are given just 180 days to act on a completed application (or it will be deemed approved). However, local governments would retain the ability to: 1) impose setbacks in a manner that reasonably balances the recovery of the oil and gas resource, the interest of the surrounding community, and the interests of the surface and mineral estates; and 2) conduct inspections or monitor operations. So far the bill has drawn tepid support from both sides. Once he has the requisite support, Gov. Hickenlooper would need to call a special session of the legislature to get the bill passed. • A driving force behind the bill discussed above, is a pending set of ballot measures being driven by U.S. Rep. Jared Polis (D-CO). Rep. Polis has put forth two ballot measures, which seek to expand the powers of localities to control fracking activity within their borders. Initiative 88 would mandate a 2,000 foot setback between wells and all inhabited structures; and Initiative 89 would assert a local right to clean air, water and scenic values – empowering localities to take measures to preserve them. The initiatives require 86,000 signatures each by August 4th to be considered on the ballot. As of late June, the initiatives appeared to be well below that threshold. • On Tuesday, June 24th , voters in Loveland, CO struck down a ballot measure which would have placed a two year moratorium on fracking and require a study of potential health impacts of the process. Loveland was the sixth city in Colorado to put a moratorium to a vote, but is the first and only city to vote against fracking restrictions. The vote was close: of over 20,000 ballots cast, the measure failed by just 900 votes. • Another of the state’s local bans – in Longmont – remains in Boulder County District Court, as Longmont has asked for a full evidentiary hearing. The Colorado Oil and Gas Association (COGA) maintains that any ban is tantamount to a ban on drilling entirely – suggesting only the state can regulate the methods used. Longmont suggested that since there currently are no regulations of fracturing on the books, there cannot be a conflict between local rules on the practice. Litigation also remains pending as COGA filed lawsuits against the cities of Fort Collins and Lafayette alleging their bans to be illegal.
  • 9. Fracking Policy Monitor July 10, 2014 Scenario Planning Service PIRA Energy Group, 3 Park Avenue, 26 th Floor New York, NY 10016-5989 (Tel) 212-686-6808 (Fax) 212-686-6628 www.pira.com For authorized subscribers only. Copyright © 2014 PIRA Energy Group. All rights reserved. 9 • A minor earthquake in Greely, CO caused the Colorado Oil and Gas Conservation Commission to shut down a wastewater injection well. The company agreed to a 20-day halt of injection. This is the town’s second earthquake since the end of May. The COGCC plans to conduct a detailed review and investigation of the incident to examine injection rates, pressures, and volumes to attempt to better understand the cause. Other • North Carolina – In June, Governor McCrory signed the Energy Modernization act into law which lifts the moratorium on the issuing of fracking permits that had been in place since 2012. The bill moves the previous July 2015 deadline to lift the moratorium to a date 61 days after drilling rules are approved. As a result, depending on the speed of completion of the still- pending fracking regulations, we could see permits being issued in North Carolina as early as March 2015 – though the summer/fall are somewhat more likely. As per the terms of the bill, the Mining and Energy Commission is required to complete its fracking rules by January 1, 2015. Delays are possible. • Illinois – The legislature failed to pass proposed legislation which would have sped up the use of fracking in Illinois. The practice, generally, was authorized in May 2013, but any permits are still pending finalized regulations. The Department of Natural Resources has spent many months on hearings and responding on comments. They have until November to publish rules for fracking. Selected Global Developments Following are summaries of selected global developments regarding unconventional gas and oil production policies that can provide a sense of international fracking regulatory trends. • EU – Election were held for the European Parliament’s 2014-19 term, with strong losses by the largest center- right European People’s Party (EPP), and strong gains by less mainstream parties more supportive of national policies (and more critical of the EU). This comes against the backdrop of a renewed focus on energy security and talk of lowering dependence on imports such as Russian gas and oil. The European Commission also has a new President: Jean-Claude Juncker (EPP member and former PM of Luxembourg). His election came despite the fact that British PM David Cameron publicly opposed his candidacy – in part, because of his stance on fracking. In statements in Presidential debates, Juncker has said that he does not support fracking personally, “but the energy mix of a country is a sovereign national decision.” Thus, he would not get in the way of a country’s decision to engage in fracking – roughly in line with the status quo we have seen from the EU on the issue. • United Kingdom – After being discussed for months, on May 23rd , the UK Department of Energy and Climate Change (DECC) launched a consultation5 aimed at altering land use right as they relate to underground extraction of oil and gas. Under current UK law, any producer engaging in horizontal drilling would need to obtain permission from every single landowner whose land they must go below in order to frack wells. Failure to get permission means the producer has committed a trespass. Every single landowner has the right to take a producer to court over access to those rights, which can result in a few month delay per owner - a major barrier to development. The DECC has suggested that they would eliminate the requirement to gain permission from landowners, instead offering a right of access to producers by statute. In the proposal, producers would voluntarily decide what nominal amount of money they would give to each landowner or community for 5 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/313576/Consultation_on_Underground_Drilli ng_Access__final_web_version.pdf
  • 10. Fracking Policy Monitor July 10, 2014 Scenario Planning Service PIRA Energy Group, 3 Park Avenue, 26 th Floor New York, NY 10016-5989 (Tel) 212-686-6808 (Fax) 212-686-6628 www.pira.com For authorized subscribers only. Copyright © 2014 PIRA Energy Group. All rights reserved. 10 access, after providing adequate notice. The consultation is open for comment until August 15th . The move is expected to encounter strong public opposition. • Poland – The bill that would regulate shale gas extraction in Poland is expected to be finally passed later this summer. Environment Minister Maciej Grabowski has suggested that the first well producing large scale commercial quantities could be launched by the end of the year. According to the Minister, so far there have been 60 exploratory wells, and another 40 are expected by the end of the year. • Germany – In early July, new guidelines on fracking were sent to German MPs detailing how the government would be dealing with the practice in the short-to- medium-term. According to the guidelines, fracking can be conducted in a scientifically supervised exploratory fashion over the next six years as a means to gather evidence on the potential impact of the process. However, the guidelines also extend the ban on commercial fracking until at least 2021, at which point the process will be reviewed based on latest scientific data and the data gathered during any exploratory operations. The guidelines are expected to be adopted after the government returns from summer recess. • Spain – Spain’s Constitutional Court invalidated a local fracking ban in the northern region of Cantabria in late June. Cantabria passed a law prohibiting both exploration and production via fracking back in April 2013. The central government was the one who contested this law, claiming that such regulation is under their exclusive jurisdiction and that the law violates Spain’s national law on hydrocarbons. The Court found for the central government entirely, finding that the law infringed on the central government’s powers. While Spain currently produces no oil or gas, there is a shale region stretching across the northern part of the country – including Cantabria. • Argentina – Federal and provincial officials are undergoing talks on ways to change the country’s oil framework to stimulate shale development and better encourage cooperation between federal and provincial governments. Since 2006, the oil and gas regime has been decentralized and provincial governments have largely been in charge of leasing and royalty procedures – and a more uniform regime for taxes and tenders could help investment. The meeting reportedly also focused on creating incentives for developing unconventional and mature fields that could be clearly set out in a regulatory framework.

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