Fracking Policy Monitor - July 2014 Issue

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.
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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

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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

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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

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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

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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

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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

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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

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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.

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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

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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.

Fracking Policy Monitor - July 2014 Issue

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Fracking Policy Monitor - July 2014 Issue