Final Hearing Officers' Report

Report of Proceedings on Proposed Rules to Regulate the Management of Oil or Gas Exploration and Development
For the November 6, 2014 Meeting of the North Carolina Mining and Energy Commission
Prepared by the Oil and Gas Program of the Division of Energy, Mineral, and Land Resources and the Appointed Hearing Officers

TABLE OF CONTENTS
Introduction…………………………………………………………………………………..........1
Summary of Comments and Responses…………………………………………………………...3
General Comments on the Rules…………………………………………………………….3
Ban or Moratorium on Hydraulic Fracturing……………………………………………......3
Opposition to Compulsory Pooling…………………………………………………………4
Air Emission Regulations Missing from the Rules………………………………………….5
Road and Infrastructure……………………………………………………………………...6
Geology……………………………………………………………………………………...7
Terms of Reference………………………………………………………………………….8
Administrative Rules………………………………………………………………………..8
Variances…………………………………………………………………………………….9
Declaratory Ruling…………………………………………………………………………10
Petition for Rulemaking……………………………………………………………………10
Rulemaking Hearings………………………………………………………………………11
Hearings for Drilling Units, Variances, and Confidential Information……………………11
Preemption Hearing Procedure…………………………………………………………….12
Enforcement………………………………………………………………………………..13
Civil Penalties……………………………………………………………………………...14
Exploration and Geophysical Surveys……………………………………………………..14
Drilling Units and Well Spacing…………………………………………………………...15
Permitting…………………………………………………………………………………..16
Financial Assurance………………………………………………………………………..19
Site Infrastructure and Construction……………………………………………………….21
Well Construction and Completion………………………………………………………..24
Chemical Disclosure……………………………………………………………………….33
Environmental Testing……………………………………………………………………..34
Water Acquisition and Management………………………………………………………36
Oil and Gas Site Exploration and Production Waste Management………………………..36
Reclamation………………………………………………………………………………..39
Operation and Production………………………………………………………………….39

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Introduction
Session Law 2012-143 reconstituted the Mining Commission as the Mining and Energy Commission (MEC) and directed the MEC to develop and adopt a modern regulatory program for the management of oil and gas exploration and development activities in the State, including the use of horizontal drilling and hydraulic fracturing. As part of that directive, the MEC was charged with adopting rules that would protect public health and safety; protect public and private property; protect and conserve the State’s air, water, and other natural resources; promote economic development and expand employment opportunities; and provide for the productive and efficient development of the State’s oil and gas resources. After reviewing the current regulations of the State, the mandate in SL 2012-143, and information from studies on the operation and potential impacts of modern oil and gas exploration and production activities, the MEC proposed to adopt 124 new rules and to repeal 10 other rules in order to appropriately regulate the oil and gas industry for the purpose of oil and gas exploration and development.
This document responds to public comments on the MEC’s proposed rules implementing SL 2012-143, SL 2013-365, SL 2014-4, and proposes changes to the draft rules for consideration by the MEC. This document serves to summarize and respond to the criticisms, suggestions, and comments raised by interested persons while proposing amendments to the draft rules in consideration of those comments. The actual comments will be posted to the MEC website as soon as possible.
The MEC and DEMLR anticipated a high level of public interest in the proposed rules. To facilitate public communication, DEMLR provided multiple channels for receiving public comments, including: four public hearings across the state, an online comment submission platform, traditional U.S. mail, and in person delivery. The comments vary considerably in format, ranging from handwritten letters to petitions, studies, and reports. The comment period began July 15, 2014 and was extended to September 30, 2014. The Mining and Energy Commission held four public hearings to receive oral and written comments on the draft rules. Hearing dates and locations were as follows:
 August 20, 2014: Raleigh, NC from 10:00 am to 2:00 pm;
 August 22, 2014: Sanford, NC from 5:00 pm to 9:00 pm;
 August 25, 2014: Wentworth, NC from 5:00 pm to 9:00 pm; and
 September 12, 2014: Cullowhee, NC from 5:00 pm to 9:00 pm.
A total of 341 people spoke at the hearings. Additionally, 1,416 hard-copy written comments were submitted for commissioner consideration. In order to give fair and thorough consideration of each comment, DEMLR staff sorted all comments based on areas of concern and rules. For example, if a comment pertained to the use of pits for exploration and production waste, it was grouped with the other comments on the same issue. Most letters, emails, and public hearing comments addressed several issues. Each individual comment was copied and sorted into a file containing like comments. Some comments were broader and addressed many or all of the proposed rule sections. A general category was created to group these comments. The total number of comments received was 217,285. This number reflects each individual comment, but does not

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represent the number of citizens or organizations that submitted comments. DEMLR staff’s best estimate is that 30,029 individuals and entities submitted comments. The hearing officers were given access to all original comments and the spreadsheets that organized the comments in order to complete their analysis. Copies of the spreadsheets containing all comments organized by topic were also sent to each member of the MEC for their review.
Through sorting and analyzing, the hearing officers and DEMLR staff found that most of the comments in an issue area made similar points, and thus could be grouped into sub- groups. This report summarizes the essence of these sub-groups, so that responses are concise and useful to the MEC and the public. These summaries will inevitably leave out some of the detail made in the comments, but the hearing officers did review and did consider all comments when reevaluating the proposed rules. Because of the volume of comments, the number of issues presented by individuals and entities, and the inevitable duplication, individual responses are impossible. The report follows the organization of comments, provides a summary of the comments, and a discussion of the hearing officers’ recommendations with respect to the proposed rules.
Please note: this document is a limited document arising from the N.C. Administrative Procedure Act and is not an environmental impact study, a comprehensive report, or a scholarly treatise, all of which would have taken a different approach. This document was created to facilitate a conversation about the proposed rules and represents the hearing officers’ answers to comments and questions from the public. The hearing officers and DEMLR truly value the input from the organizations and individuals who commented. The input was heard, was considered, and in many cases resulted in recommended rule amendments. The MEC and the DENR would like to thank all those who participated in this public comment process.

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Summary of Comments and Responses
General Comments on the Rules
Ban or Moratorium on Hydraulic Fracturing
Comment: Many comments stated that there should be a moratorium on natural gas exploration, development, and production in North Carolina. Many of those comments expressed concern that there was not enough yet known on the long-term health and environmental threats of hydraulic fracturing. There were also comments in support of a permanent ban on hydraulic fracturing in the state based on the assumption that it cannot be done in a safe and environmentally responsible manner, regardless of the regulations in place.
Response: In 2012, the General Assembly passed the Clean Energy and Economic Security Act and stated its intent to authorize oil and gas exploration and development activities using horizontal drilling and hydraulic fracturing treatments. The law recognized that the Department of Environment and Natural Resources completed a comprehensive study of the issue and concluded that information available to date suggests that production of natural gas by hydraulic fracturing can be done safely as long as the right protections are in place. See North Carolina Oil and Gas Study under Session Law 2011-276, N.C. Department of Environment and Natural Resources, April 30, 2012, available at http://portal.ncdenr.org/web/guest/denr-study.
The Clean Energy and Economic Security Act also created a de facto moratorium in 2012 by prohibiting the issuance of permits until the General Assembly determined that the proper protections were in place. Session Law 2012-2014, Section 3.(d). In 2014, the Energy Modernization Act lifted that prohibition effective after review of the rules by the General Assembly in the 2015 legislative session. Session Law 2014-4, Section 3(b).
The 2012 Clean Energy and Economic Security Act, the 2013 Domestic Energy Jobs Act, and the 2014 Energy Modernization Act all express the intention of the General Assembly to allow the practice of horizontal drilling and hydraulic fracturing after the development of a modern regulatory program for the management of oil and gas exploration and development in the state. See S.L. 2012-143, Part I and § 3.(d); S.L. 2013-365, § 1.(c); S.L 2014-4, § 3.(b).
The Mining and Energy Commission is not given the authority by any of the above legislation to ban or place a moratorium on horizontal drilling or hydraulic fracturing in the state. A formal ban or moratorium would be in contravention of the stated intent of the Clean Energy and Economic Security Act.
A ban or a moratorium is a subject more appropriately addressed by the General Assembly upon review of the rules to ensure the rules as developed by the Mining and Energy Commission satisfy the intent of the General Assembly to develop a modern

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regulatory program for oil and gas exploration that ensures that proper protections are in place for protection of public health and the environment.
Opposition to Compulsory Pooling
Comment: The Commission received 8,235 comments on compulsory pooling, 412 of which directly expressed opposition to compulsory pooling. A number of comments stated that compulsory pooling is a violation of their private property rights. Commenters further argued that if compulsory pooling orders are issued by the Mining and Energy Commission, there should be a requirement for a high amount of voluntary agreement and protections put in place to limit the liability of landowners compelled into a pool.
Response: Pooling is “the joining together of small tracts or portions of tracts for the purpose of having sufficient acreage to receive a well drilling permit under the state or local spacing laws and regulations.” Bruce M. Kramer & Patrick H. Martin, The Law of Pooling and Unitization § 1.02 (LexisNexis Matthew Bender 2011). Under certain circumstances, pooling is a mechanism used to compel landowners, who have not elected to participate in a pool or drilling unit voluntarily through private contract, to join the pool. Compulsory pooling is also referred to as integration, forced pooling, or statutory pooling.
In the process of modernizing existing state oil and gas law, the General Assembly directed the Mining and Energy Commission to study current North Carolina law on the issue of integration or compulsory pooling and other states’ laws on this same issue in conjunction with the Department of Environment and Natural Resources and the Consumer Protection Division of the North Carolina Department of Justice. The Clean Energy and Economic Security Act, S.L. 2012-143, § 2.(l). To fulfill the legislative mandate, the Mining and Energy Commission formed the Compulsory Pooling Study Group to research the issues and make recommendations regarding compulsory pooling in the context of a modern oil and gas regulatory program. The Study Group was comprised of four commissioners and developed recommendations to the General Assembly for statutory changes on compulsory pooling and related landowner protections.
The North Carolina Oil and Gas Conservation Act currently authorizes the use of voluntary and compulsory pooling under G.S. § 113-393. In addition to recommending the continued authorization of compulsory pooling, the Compulsory Pooling Study Group recommended that any applicant for a pooling order obtain 90% voluntary agreement based on surface acreage within a proposed drilling unit. The report to the General Assembly made additional cost sharing recommendations that would require statutory changes. See Final Report of the Compulsory Pooling Study Group of the Mining and Energy Commission under S.L. 2912-143, September 2013, available at http://portal.ncdenr.org/web/mining-and-energy-commission/compulsory-pooling- agendas.

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The General Assembly did not act on the Study Group’s recommendations during the 2014 legislative session and directed the Department of Environment and Natural Resources to continue to study the issue. The Department of Environment and Natural Resources’ report on specific recommendations for legislative action related to compulsory pooling and dormant minerals statutes is due to the General Assembly on or before October 1, 2015. Energy Modernization Act, S.L. 2014-4, § 25.(c).
The Mining and Energy Commission is not currently proposing rules on compulsory pooling as it anticipates the Department of Environment and Natural Resources will make recommendations to the General Assembly and the General Assembly may choose to enact specific proposals for legislative action at that time.
Air Emission Regulations Missing from the Rules
Comment: Some comments argued that the Commission should develop rules specific to air quality impacts created by oil and gas development. Some of those commenters argue that current air quality rules are insufficient to protect the public from emissions on-site including from engines, open pits, and venting and flaring. Some commenters request that permitting of oil and gas operations include emissions limitations and fence line monitoring of well pads
Response: The Mining and Energy Commission recognizes the importance of concerns for air quality and the potential impact of oil and gas operations. The United States Environmental Protection Agency (EPA) and the Department of Environment and Natural Resources, Division of Air Quality acknowledges that there are air quality impacts including increases in emissions of methane, volatile organic compounds (VOCs), and hazardous air pollutants (HAPs) in areas with oil and gas development. In 2012, the EPA issued regulations to reduce emissions from the oil and natural gas industry including for wells that are hydraulically fractured. Those regulations are NSPS OOOO for the control of VOC and SO2 emissions and NESHAP HH/HHH for the control of HAPs. Those regulations are incorporated by reference into state rules at 15A NCAC 02D .0524 and 15A NCAC 02D .1111, respectively.
In reconstituting the Mining and Energy Commission, the Clean Energy and Economic Security Act reserves certain powers and duties to remain with the EMC with respect to developing a modern regulatory program for oil and gas exploration and development, including regulation of air emissions. S.L. 2012-143, § 2.(c).
G.S. § 113-391(a) states: “The Mining and Energy Commission, created by G.S. 143B- 293.1, in conjunction with rule-making authority specifically reserved to the Environmental Management Commission under subsection (a3) of this section, shall establish a modern regulatory program for the management of oil and gas exploration and development in the State and the use of horizontal drilling and hydraulic fracturing treatments for that purpose.” S.L. 2012-143, § 2.(c).

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Section (a)(3) provides that the EMC shall adopt rules for the regulation of toxic air emissions from drilling operations. S.L. 2012-143, § 2.(c), amending G.S. § 113- 391(a)(3). The law also provides a new section to the powers and duties of the EMC to adopt rules “[f]or matters within its jurisdiction that allow for and regulate horizontal drilling and hydraulic fracturing for the purpose of oil and gas exploration and development.” S.L. 2012-143, § 2.(h) amending G.S. § 143B-282.
On August 8, 2014, The Blue Ridge Environmental Defense League, Inc. (BREDL) filed a Petition for Rulemaking, asking the Commission to develop rules for air quality monitoring. On October 17, 2014, the MEC’s Petition Committee heard presentations from BREDL, DEMLR, and the Division of Air Quality on the petition. BREDL’s Petition for Rulemaking is currently under consideration at this time.
Road and Infrastructure Damage
Comment: Some comments, most notably from the North Carolina Department of Transportation, expressed concern over high volume heavy truck traffic associated with oil and gas development.
Response: As oil and gas wells are completed, many heavy truck trips occur over a short period of time and sometimes over rural roads and secondary roads not originally designed to handle such traffic. These issues tend to be at their height during drilling and fracturing activities rather than during the production phase. See North Carolina Oil and Gas Study under Session Law 2011-276, N.C. Department of Environment and Natural Resources, April 30, 2012, available at http://portal.ncdenr.org/web/guest/denr-study.
The Coordinated Permitting Study Group of the Mining and Energy Commission discussed this issue as it pertains to the permitting authority of the Commission and the Department of Environment and Natural Resources. With the participation of the North Carolina Department of Transportation as stakeholders, it was decided that the Commission would develop rules and a coordinated permitting process for environmental permits only. Report of the Coordinated Permitting Study Group, North Carolina Mining and Energy Commission, February 28, 2014, available at http://portal.ncdenr.org/web/mining-and-energy-commission/study-group-reports.
In response to concerns about heavy truck traffic, the Department of Transportation has been tasked to study whether additional statutory authority may be necessary or recommended for the Department of Transportation to regulate energy-related traffic, including authority that relates to permitting and assessment of fees. Energy Modernization Act, S.L. 2014-4, Section 23(a). The Department of Transportation shall also study whether there should be a coordinated permit with the Department of Environment and Natural Resources and whether performance bonding or other surety mechanisms, including road use agreements, to repair roads that are damaged due to heavy vehicle traffic is necessary or recommended. Id.
The Department of Transportation will report on whether additional statutory authority is necessary or recommended to the General Assembly on or before January 1, 2015.

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Geology
Comment: There were 135 comments that expressed issues related to geology. In descending order by size, the largest number of comments -- 63, thirty-eight percent, was the concern for the potential to trigger or induce earthquakes from the hydraulic fracturing process. The next largest number was 14 comments, ten percent, which expressed concerns about the size of the shale gas resource. The third group of 12comments addressed concerns with the existing faults located within the Mesozoic basins. Next were nine comments on the shallow depth of the shale resource, which was followed with seven comments on two topics, the distance of separation between the shale resource / water table and the need for further studies. There were four comments on two issues, the landslide potential in the western portion of the state and the hydraulic fracturing process, two comments each on deep well injection and earthquakes, the potential for problems from diabase dikes, need for higher pressures to fracture the source rocks, and eight single comments on aquifers, Radium, unique geology, roads, lack of jobs, broken-up basin, coal removal, and new job opportunities.
Response: From the largest number on concerns, the potential to trigger or induce earthquakes from the hydraulic fracturing process has been reported in the media in Ohio, Oklahoma, Texas, Arkansas and Kansas. Studies are ongoing and suggest a strong correlation with the large volume injection of flowback and formation in deep wells for disposal. Issues with the volume of the disposal water and the rates of injection have resulted in both temporary closures of disposal wells and reductions in the injection rates. The geology in North Carolina is not suitable for deep well injection.
The size of the shale gas resources was calculated by the U.S. Geological Survey quantitatively assessed the technically recoverable, undiscovered resources within five of the total petroleum systems and associated assessment units that demonstrated the most potential for generating and accumulating hydrocarbons (Fact Sheet 2012-3075, issued June 2012). The data for the Deep River basin and Dan River-Danville basin were based on the information provided to the USGS in July 2011. As additional data are gathered, the need for a re-evaluation may be warranted.
The existing faults in the Deep River and Dan River basins have been geologically mapped. In addition, two large studies, the safety analysis of the proposed Harris Nuclear Power Station and the Proposed Low-level Radioactive Waste Disposal Site in Chatham County provided tens of thousands of pages of reports on the geology, structure and hydrology of those two sites, both located in the Mesozoic basin. The N.C. Geological Survey is the repository for some of this extensive research material. This information can also be accessed by the companies that may explore in the basins.
The depth of the potential shale gas resource is addressed in the Mining and Energy Commission (MEC) draft rules. Multiple layers of steel and cement are required to protect the environment from the shale gas resource.
The MEC did not receive funding for further studies into the issues raised by the

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comments received on geology during the rule comment period.
Section .0100 Terms of Reference
Comment: 717 comments were received asking to add terms that were not currently defined or to edit definitions of existing terms. The most frequently received comment asked to define “barrel”.
Response: The hearing officers read each comment and made many edits to existing terms as well as added 2 new terms, all of which are reflected in the new draft Rule .0102. “Barrel” was defined in the rule set that was published for public comment and is included in the current rule at .0102(9).
Section .0200 Administrative Rules
Rule .0201 – Forms
Comment: Several commenters requested that the forms be available for review during the public comment period.
Response: The N.C. Administrative Procedure Act (N.C. Gen. Stat.§ 150B) requires that the contents of each form be described in the rule. All information that will be requested on each form is stated in the draft rules or in statute.
Rule .0202 – Record Keeping and Reporting
Comment: 134 commenters disagreed with the requirement that permittees maintain records for 5 years after the release of the permit. Commenters requested that all records and documents be retained by the permittee for 50 years. In addition, commenters requested that permitees file both electronic and hard copies for all required documentation and that the documents be posted on the Department website. In addition, many commenters requested that the Department retain the records in perpetuity.
Response: Rule .202 states that “[t]he permittee shall retain all data, records, logs, and smaples associated with oil or gas well drilling, completion, production, and plugging and abandonment for a period of five years following the release of an oil or gas permit.” The timeline provided in the rule requires the permittee to retain all records for 5 years after the life of the well, not five years from the start of drilling. DENR will also post non-confidential information to its website and will retain all records it receives in perpetuity. The hearing officers agree that long-term retention of records is essential. Considering the public’s concern and the intent of the rule, the hearing officers recommend one change to this rule.
Hearing Officers’ Recommendation: Amend Rule .202 to include permanent archiving of all records with the State Geologist.

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Rule .0203 – Inspections
Comment: 237 individuals and organizations commented on this rule. Many commenters stated that there is too much reliance on self-inspection and self-reporting by the industry and that announced inspections are not sufficient to regulate this industry. Commenters stated that only certified DENR staff or contractors, with proper safety equipment and no conflicts of interest should conduct inspections. In addition, commenters noted that DENR inspectors should be present for drilling, casing, and well stimulation and should verify all pressure tests. Lastly, commenters suggested that inspectors speak to citizens in the vicinity of the well site to ensure that regulations are being followed on a consistent basis.
Response: The hearing officers agree that inspections are a critical component of a regulatory program and that unannounced inspections must be allowed.
Hearing Officers’ Recommendation: Remove the language “upon notice” from the rule, to allow unannounced inspections.
Section .0300 Variances
Comment: Many commenters requested that the option of variances be removed from the proposed rules as variance should not be granted in under any circumstance. Others requested that variances be limited to rare circumstances where the landowner consents to the request. Others requested that the variance rule be amended to require a substantial demonstration of the need for a variance and a showing that the variance will provide equal or greater protections for public health, safety or the environment. Commenters disagreed with the proposed rule language that a “good faith effort to comply” or economic hardship should be factors for consideration in granting a variance. Lastly, other commenters were concerned about the process for granting a variance and requested more public involvement and the opportunity to challenge a variance.
Response: Rule .301 outlines the procedures for granting a variance and provides the generally applicable standards that should be applied by the MEC when it considers whether to approve or deny a variance. Consideration of additional factors may be required by specific rules that allow variances. Variances are only permitted from the following rules: Rules .1205 and .1206, which allow a variance of the drilling unit boundary; Rule.1504 for pit or tank construction standards; Rule .1603, which provides a limited variance for some setbacks; and Rules .1608, .1609, .1610, or .1610, which pertain to well installation. The MEC will consider variance requests as a public body and its deliberations will be public. When the MEC drafted the proposed rules, it considered the ability to grant site-specific variances critical to account for unanticipated conditions. The MEC limited the circumstances pursuant to which a variance could be granted. The hearing officers agree, however, that the variance language was not clear with respect to the fundamental criteria for granting a variance—that the variance provide equal or greater protection for public health, safety, and the environment.

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Hearing Officer’s Recommendation: Amend Rule .301 and other variance rules to clarify that no variance will be granted unless the variance or conditions on the variance provide equal or greater protection of public health, safety, and the environment as the original rule.
Section .0400 Declaratory Ruling
Comment: All declaratory ruling requests should be available to the public once received by the MEC and all declaratory ruling hearings should be noticed and open to the public. Further, a local government should be notified if a declaratory ruling affects property within its jurisdiction and given the address of the affected land. Lastly, the MEC’s rationale and decision should be available to the public.
In addition, a few commenters requested that the full MEC, rather than the Chair, determine whether a request for a declaratory ruling is complete and whether to issue or decline to issue a declaratory ruling. Lastly, commenters requested the full MEC, rather than the Chair, determine whether other parties may intervene.
Response: A declaratory ruling interprets the application of either statutes or rules to a specific set of facts and is authorized by N.C. Gen. Stat. 150B-4. Declaratory ruling petitions, hearings, and final decisions are all open to the public in the same manner as all other MEC meetings and decisions. Once a decision is made, all MEC decisions, including any legally required rationale, will be posted to the MEC website.
The proposed rules largely mirror the statute (N.C. Gen. Stat. 150B-4) and the declaratory ruling rules used by the Environmental Management Commission. The Chair of the MEC is granted the authority to establish the basic procedural components including making a determination whether the petition is complete and whether interveners meet the legal standard for intervention. The full MEC makes a decision on the merits.
Hearing Officers’ Recommendations: The hearing officers recommend one change in Rule .0402(c)(3) to clarify that interveners are able to give oral arguments in the declaratory ruling hearing.
Section .0500 Petition for Rulemaking
Comment: The three commenters that responded to this rule identified the following concerns: (1) the procedures do not allow for a petition to strengthen the rules; (2) the Director of DEMLR should not decide if a petition is complete; (3) the MEC Chair should not be able to limit the number of opponents to a single speaker; (4) there is no recourse for those other than the petitioner to oppose the MEC’s decision; (5) the rules should identify criteria for denial of a party wishing to speak against the petition; and (6) the rules should allow interested parties to speak to the full MEC during its deliberations on the petition.

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Response: Petitions for rulemaking are intended to provide an opportunity for interested parties to initiate rulemaking to adopt new rules, amend existing rules, or repeal existing rules. Petitions for rulemaking are governed by the N.C. Administrative Procedure Act, N.C. Gen. Stat. 150B-20. Rule .0501 explains the minimum information needed within a petition and additional information that would be helpful in deciding a petition for rulemaking. Rule .0502 assigns the task of hearing a presentation on the petition to a committee. The committee then presents its recommendations to the full MEC. The MEC makes a determination whether to grant a petition for rulemaking.
Hearing Officers’ Recommendations: The hearing officers recommend one change to Rule 0.501 (b)(2) in order to clarify that these procedures are to be used for adopting new rules or amending or repealing existing rules.
Section .0600 Rulemaking Hearings
Comment: A few comments were received about rulemaking hearings and most were focused on ensuring that the MEC conducted rulemaking hearings in an open and public manner. One commenter expressed that delegating to the Director of DEMLR the ability to conduct rulemaking hearings meant that the MEC doesn’t have to “face the public” before voting on rules.
Response: Rulemaking hearings are public hearings that are designed to provide opportunity for public comment on proposed rules. MEC deliberations are also public meetings and conducted pursuant to the open meetings law pursuant to N.C. Gen. Stat. 143-318.10.
Section .0700 Hearings for Drilling Units, Variances, and Confidential Information
Comment: Several commenters questioned whether Rules .0701, .0702, .0703, .0704, .0705, and .0706 excluded interested persons from participating in drilling unit or variance hearings and requested direct engagement with surface owners, lease owners, and others with an interest in the drilling unit or variance.
Response: These rules use the legal standard for intervention as the criteria for determining whether an interested person can intervene in the proceeding. Both variance requests and drilling unit requests will be heard at scheduled MEC meetings, which are required to be held in accordance with the North Carolina public meetings laws. In addition, the drilling unit rules (Rule .1202) require notice to surface owners and mineral rights owners, as well as copies of surface use agreements. All of which provide potentially interested persons with notice of the hearings.
Comment: Many comments focused Rules .0707, .0708, and .0709, which explain the procedure by which information is granted confidential status, and most were in opposition to any confidential status being granted for this industry. Some comments requested a time at which confidential status would expire or directed the MEC to deny

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confidential status if denied by another state. Others requested criteria for the award or denial of confidential information status, a procedure for challenging the MEC’s determination, and a penalty for falsely obtaining confidential information status. Additionally, commenters requested that confidential information be released immediately to a health care provider, fireman, policeman, EMT, or other first responder during an emergency. One commenter asserted that the proposed rules exceeded the MEC’s statutory authority.
Response: Session law 2014-4 establishes the procedure by which trade secrets and confidential information are protected and disclosed. S.L. 2014-4 states that information submitted to the MEC and the Department will be considered public information, unless the holder of that information has satisfied the MEC that the information is entitled to be protected as confidential information. Rules .0707, .0708, .0709 establish the procedure and the information needed to make a showing to the MEC to protect information as confidential. S.L. 2014-4 sets the procedure for appeal of the MEC’s decision with respect to confidential information with the Business Court.
Section .0800 Preemption Hearing Procedure
Comment: Over 6,900 comments were received in opposition to any interference with local government authority and in strong support of the preservation of local autonomy and the need for local governments to address concerns that are specific to their jurisdiction. Many of those comments were objections to preemption of local authority. Others expressed support for local enforcement actions without violation of trespassing laws. Commenters also expressed some confusion about the preemption hearing procedure.
Response: The Local Government Regulations Study Group submitted its findings to the N.C. General Assembly on Oct. 1, 2013. Among its recommendations, were several recommendations in support of local government’s existing authority, including existing zoning and land use authority. S.L. 2014-4 created new statutory authority for the MEC. The new law prohibits local governments from exercising its authority in a manner that prohibits the siting of wells, prohibits the use of horizontal drilling or hydraulic fracturing, places restrictions on oil and gas exploration beyond those placed by statute, or is in conflict with the oil and gas statutes. N.C. Gen. Stat. 113-415.1 (a) (2014). In addition, S.L. 2014-4 grants the MEC the authority to determine whether to or to what extent local government ordinances are preempted.
The proposed rules establish the procedure by which the MEC will implement its mandate from S.L. 2014-4. Rule .0802 lists the minimum requirements for a complete petition to preempt a local government ordinance. Rule .0803 explains how notice of the preemption petition and public hearing will be given to the local government. The MEC will conduct a special public hearing in the affected locality, including the opportunity for citizens to comment. Rule .0808 sets the criteria that the MEC will use to make its determination of whether an ordinance is preempted and, if so, to what extent.

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Hearing Officers’ Recommendations: The hearing officers recommend several wording changes in Rule .0802 and .0808. In Rule .0802, the hearing officers recommend deleting the word “unreasonable” to ensure that health and environmental risks are fully considered. In addition, the hearing officers recommend that all information that the permittee has submitted to obtain federal or state permits be submitted, not merely described, to the Commission in support of its compliance with federal and state law. In Rule .0808, the hearing officers recommend a slight wording change to clarify that the MEC also has the authority to determine that a local ordinance is not preempted and will continue in effect.
Section .0900 Enforcement
Comments: Over 14,100 comments were received emphasizing the need for strong enforcement and requesting stronger enforcement rules. Comments stated that the rules are too reliant on self-inspection and self-correction. Other comments requested a defined ratio of Department inspection staff to number of wells. Many comments requested joint enforcement authority for local authorities and the Department.
Many of these comments focused on the violations and expressed concern that the rules give too much discretion to the Department in issuing notice of violations, setting a timeline for corrective action, and fail to provide adequate public notice for violations. Many comments also identified stop work orders as a critical enforcement tool.
Response: The hearing officers agree that enforcement is a critical component of a modern regulatory system. An effective enforcement program has sufficient staff and funding. The Funding Levels and Potential Funding Sources Study Group presented its recommendations to the N.C. General Assembly Oct. 1, 2013. In its report, the Funding Study Group analyzed and recommended staffing levels for DEMLR and identified specific personnel, equipment and training expenses. The report can be found at: http://portal.ncdenr.org/c/document_library/get_file?uuid=f7ff4382-fe0a-4308-8a97- 82875f7dcb9e&groupId=8198095. The hearing officers support the Department’s fiscal analysis and need for full staffing to implement this regulatory program.
As stated in N.C. Gen. Stat. 113-391 (a4), enforcement of violations is largely in the Department’s discretion. The rules support the Department’s discretion in issuing notices of violation in order to account for site-specific concerns and to allow the Department to exercise its best professional judgment. The hearing officers agree that the authority to stop work on a drill site is critical. The draft rules do provide a mechanism for getting an injunction to stop work on a site. The rules do not, however, have an explicit stop work mechanism. The Department has explicit statutory authority to issue stop work orders for violations of the Sedimentation Pollution Control Act. No comparable authority has been granted to the MEC or the Department for the regulation of oil or gas exploration or development. N.C. Gen. Stat. 113-391 (a4) does provide that the MEC and the Department may “issue orders as may be necessary [for the] enforcement of this Article.”

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Hearing Officers’ Recommendation: The hearing officers agree that stop work authority is a critical component of enforcement. In the absence of explicit statutory authority, it is unclear that the MEC can propose rules to establish a stop work procedure. The hearing officers recommend that stop work authority be added to the proposed rules as subparagraph .901(g).
Section .1000 Civil Penalties
Comment: Over 6,900 comments were received on the civil penalties rules. Most of the comments focused on the amount of penalties and recommended a consistent penalty schedule, with a minimum penalty, to deter violations. Some comments emphasized the need for the ability to impose criminal sanctions, including incarceration, on violators. Others stated that remission of penalties is inappropriate for this industry and requested that remissions be disallowed. A few commenters asked that notices of violations only be sent via certified mail.
Response: N.C. Gen. Stat. 113-410 sets the penalty amounts for oil and gas exploration and development. The maximum penalty is $25,000 per day per violation. The Department may reduce the penalty amount in consideration of six factors explained in N.C. Gen. Stat. 113-410 (c)(1). Because the penalty statue sets both the amount and the factors to be considered in reducing a penalty, the proposed rules do not repeat the statute.
The proposed rules do establish the process by which civil penalties can be remitted. Rule .1004 creates the process for requesting penalty remission, but the remission factors and the authority for remissions is set by N.C. Gen. Stat. 143B-293.6. The proposed rules do not repeat the statutory provisions.
Section .1100 Exploration and Geophysical Surveys
Comment: There were 27 comments on this rule, with more than half writing that they were unable to view the 15A NCAC 05C rule which is referenced in this new rule. The remaining comments addressed the need for notification to surface landowners and local governments.
Response: The North Carolina Administrative Code is available on-line at the N.C. Office of Administrative Hearings website where the NCAC can be viewed be chapter and section. Notification of surface owners, local governments, and state agencies is set in state statute.
Hearing Officers’ Recommendation: Amend Rule .1100 to add the language “shall be made”, therefore making all notifications as required by G.S. 113-420(b2).

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Section .1200 Drilling Units and Well Spacing
Rule .1202 – Application for Drilling Unit Requirements
Comment: There were 87 comments on this rule, with concerns about forced pooling, the need for a surface use agreement, additional geological and engineering data to accompany the drilling unit application, defining the term “optimal and efficient recovery”, notification, and the need for some of the required information to be prepared by a licensed geologist or professional engineer.
Response: The hearing officers agree that including one or more surface use agreement(s) in the required material for an application should be required. In addition, information prepared by the applicant would likely be prepared by an officer or employee of a petroleum company and would be exempt from the licensure for engineers or geologists.
Hearing Officers’ Recommendation: Amend Rule .1202 to remove language “or pooling orders” and add an additional subparagraph(10) which states “copies of surface use agreement(s) or equivalent documentation.” to the list of required documents on an application for the creation of a drilling unit or modification of an existing drilling unit.
Rule .1203 – Drilling Unit Public Notification Requirements
Comment: There were 22 comments on this rule, with most questioning the geographic area in which the notification must be made.
Response: Additional language has been proposed to clarify those that are required to receive direct notice.
Hearing Officers’ Recommendation: Amend Rule .1203 to add language to provide direct notice to (1) all surface owners, (2) all local governments with the proposed drilling unit, and (3) state, federal, or tribal agencies owning land with the area of the proposed or existing drilling unit.
Rule .1204 – Denial or Modification of Drilling Unit Application
Comment: There were 23 comments on this rule, with ninety percent urging the factors to modify a drilling unit be spelled out.
Response: Since all applications for a drilling unit or modification of an existing drilling unit are brought before the full Commission, that body has the latitude to require additional information from the applicant to use in their deliberations on the application.
Hearing Officers’ Recommendation: Amend Rule .1204 to add a third criterion “(3) the surface use agreement or equivalent documentation fails to meet the requirements of the rules in this subchapter”.

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Rule .1205 – Well Spacing Requirements for Resources in Unconventional Reservoirs
Rule .1206 – Well Spacing Requirements for Resources in Conventional Reservoirs
Comment: There were a combined 1,223 comments on these two rules. Over ninety percent of the comments addressed the need to increase the well spacing from the drilling unit boundary. The remaining nine percent addressed the variance to reduce the distance.
Response: The distance of 500 horizontal feet for unconventional and 200 horizontal feet for conventional is consistent with the horizontal distance used by other states. In addition, the requirements to reduce the distance by variance must meet or exceed the existing protection of health, safety and the environment.
Hearing Officers’ Recommendation: Added “The variance, if granted, shall provide equal or greater protection of public health, safety, and the environment” to both Rule .1205(c) and .1206(c).
Section .1300 Permitting
Rule .1301 – Scope
Rule .1302 – Oil and Gas Operations Financial Responsibility Ownership
Comment: There were 5,183 comments addressing permitting overall. Some comments are asking for a delay in issuing permits due to health and safety concerns. Others are asking that requirements for road use maintenance agreements be required as part of the permitting process. Some other comments question the ability of DENR to maintain permitting records and to make those records available to the public. Comments requested stricter permitting conditions numbered more than 95 percent of those addressing permitting overall.
Response: In other rules in this section, thousands of comments were received which were in favor of the draft permitting rules.
Rule .1303 – Oil and Gas Well Permit Application
Comment: There were 15,902 comments on this rule of which 15,888 (99.9%) were in favor of the draft rule. Some commenters recommended that all compliance reviews be limited to final determinations regarding exploration and production operations in the United States within the past three (3) years. Different commenters suggested longer periods of compliance history (i.e. 10 years) and that history should extend to subcontractors working for industry (i.e. truck drivers). Other commenters asked for local municipalities to be notified when permits were modified and still others opined that foreign companies should not be allowed to operate in NC.
Response: N.C. Gen. Stat. 113-395.3 proscribes the five year time period for which an applicant must provide its environmental compliance history. The MEC cannot change that time period.

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Rule .1304 – Contents of Oil and Gas Well Permit Application
Comment: Specific to this rule, only a handful of comments were received.
Response: During a review of the rules, the hearing officers reviewed letters from both industry and environmental organizations. These detailed rule-by-rule proposed changes were reviewed by the hearing officers and from that discussion over several days, the issue of proppant dust management and mitigation, technical amendments to the well construction design, and a road impact plan were discussed.
Hearing Officers’ Recommendation: Amend Rule .1304 to include a new item (a)(14) in the list of permit application contents, which provides “an indication that the applicant or permittee has a proppant dust management and mitigation plan.” In addition, under (c)(1)(E) change the word “anticipated” to “planned”; insert a new (c)(1)(F) which reads “the main design parameters for each casing string including the maximum anticipated pressures, compressive and tensile loads and drilling or completion fluid density;”; (c)(1)(new J) add the following phrase “and the pressure rating of each that is to be installed before drilling out each casing string;”; (c)(8) insert “road impact” so that (8) reads “ a road impact plan . . .”; and add a new (c)(13) which reads “(13) a plan that manages and mitigates proppant dust.”.
Rule .1305 – Emergency Response Planning
Comment: Several of the general comments on this Section urged all chemicals to be disclosed.
Response: In coordination with state emergency management and first responder agencies, the MEC has briefed the leadership of those agencies on the draft rules. All of these briefings occurred after the rule comment period. Those organizations are fine with the requirements in this rule.
Hearing Officers’ Recommendation: To improve the grammar of Rule .1305, change (2) from reading “the nearby location of occupied dwellings . . .” to “the location of nearby occupied dwellings . . .”
Rule .1306 Fees
Comment: Over 4,980 comments were received that request the addition of impact fees to allow for cost recovery for local communities. Commenters noted that impacts to roads and infrastructure, the need for special training for emergency responders, and other community impacts create a strong need for cost recovery by local governments. Many commenters noted that the Potential Funding and Funding Sources Study Group recommended a cost recovery mechanism and asked for that recommendation to be implemented.

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Response: The MEC does not have the authority to set impact fees. All fees are set by statute. The Potential Funding and Funding Sources Study Group report sets out recommendations for impact fee amount and a mechanism for disbursement. The report can be accessed at: http://portal.ncdenr.org/c/document_library/get_file?uuid=f7ff4382- fe0a-4308-8a97-82875f7dcb9e&groupId=8198095
Rule .1307 – Application Review Process
Response: During a review of the rules, the hearing officers reviewed letters from both industry and environmental organizations. In order to comply with SL 2014-4, the hearing officers added in language requiring that each permit application be reviewed by the county and municipality in which the proposed permit is located. The permit application will also be subject to a 30-day public comment period. Due to these additional requirements, the hearing officers also recommend that the permit review period be extended from 60 days to 90 days.
Hearing Officers’ Recommendation: Amend Rule .1307 to add a new (b)(10) to read “The county and municipality in which the permit application is located”.
A new paragraph (c) states “(c) Public Notice. Public notice of receipt of a complete oil or gas well application(s) submitted pursuant to this rule shall be given prior to permit issuance.
(1) Such notice shall:
(A) be posted on the Division website;
(B) provide 30 days for public comments to be submitted to the Director; and
(C) include the permit applicant;
(2) After the public comment period has ended the Director shall:
(A) consider the comments submitted; and
(B) post notice on the Division website as of the final permitting action.”
In addition, in new (e) 60 calendar days is to change to 90 days and the phrase “and public comment received pursuant to paragraph (c) of this rule” inserted before the existing text “. . . when approving, approving with conditions, or denying any application.”
In the new (g) strike “On approval of an application, the” and replace with “The”. Further in the new (g) strike “the performance bond” and replace with “the bond” and strike “that is to be”, so that the new (g) reads “The Department shall set the amount of the bond or other security required pursuant . . .”.
In the next sentence, strike “deposit” and substitute “provide”, strike “with” and insert “instrument to”. That sentence would now read in part, “. . . notice to provide the required bond or security instrument to the Department.”

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In the last sentence of the new (g) strike the word “deposit” and substitute the word “instrument”.
In the new (i) delete the word “approved”.
Rule .1310 – Permit Modifications
Response: During a review of the rules, the hearing officers reviewed letters from both industry and environmental organizations. These detailed rule-by-rule proposed changes were reviewed by the hearing officers and from that discussion over several days, the hearing officers recommend clarifying the rule.
Hearing Officers’ Recommendation: Amend Rule .1310 to add a third sentence under (a) to read “The Department may review, approve, approve with conditions, or deny the application for modification in accordance with the rules of this Section.”
Section .1400 Financial Assurance
General Section Comments:
Comments: Over 15,800 comments were received that generally supported the financial assurance section and specifically supported the disturbed land bond and the well plugging and abandonment bond. Approximately 300 comments were received in opposition to the financial assurances rules. Many commenters expressed general opposition to the financial assurances rule and recommended that operators be responsible for the actual cost and for correcting any damage they cause. Most commenters who expressed general opposition, however, commented on specific rules. Those comments are summarized for each rule below.
Rule .1401 – Scope and .1402 – Bonding Requirements and Rule
Comments: Many comments recommended stronger standards for surety bonds and letters of credit. In addition, many comments suggested that bonding should be done largely in a cash deposit. Other comments suggested that a savings account should not be allowed. Many commenters requested clarity about the Department’s internal procedures for handling bonding.
Response: Rule .1401 and .1402 set out the bonding requirements, including the acceptable instruments for any bond required by statute. The MEC does not have the authority to require additional bonding outside that required by statute. The financial assurance instruments allowed by the proposed rules are in keeping with instruments required for other bonded industries in this state.

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Rule .1403 – Oil or Gas Well Plugging And Abandonment Bond
Comments: Comments generally stated that the plugging and abandonment bond is insufficient. Many commenters requested that the method for determining the bond amount of $5,000 plus $1.00 per linear foot be put out for public comment. Other comments asked the rules to set the bond amount at $50,000.00 plus $10.00 per linear foot. Other comments noted that the current statutory requirement of $5,000 plus $1.00 per linear foot for well plugging is far less than many state programs or industry estimates of ($80,000 or more) for routine closure assuming no well failure has occurred.
Response: The plugging and abandonment bond amount is set by N.C. Gen. Stat. 113- 378. The MEC does not have the authority to set the bond amount in the proposed rules.
Rule .1404 Disturbed Land Bond
Comments: Many comments noted that the disturbed land bond amount will not be set until the “Reclamation Cost Table” is approved by the MEC. These comments opposed the proposed rules because this cost table was not provided for public review. In addition, many comments opposed the Department setting the amount of the disturbed land bond. Other comments disagreed with a partial release of the disturbed land bond, recommending instead that the entire bond be retained until the reclamation is complete. One commenter, generally in favor of the rules, suggested a blanket bond to cover multiple sites and the ability to combine all the bonds into a single bond.
Response: N.C. Gen. Stat. 113-421 (a3) requires the permittee to reclaim all surface areas and to provide a bond sufficient to cover the reclamation of the surface owner’s property. Bonding costs to reclaim all surface areas will vary by site and the statute authorizes the MEC to set the amount of the bond. Further, the statute authorizes the MEC to request information about the oil or gas exploration and development activities in order to set the bond on a site-by-site basis. The MEC considered the most efficient method for setting reclamation costs and determined that a cost recovery table would enable the MEC to modify the table in response to rising remediation costs without amending the rule.
Rule .1405 Environmental Damage Bond
Comments: Most comments were supportive of this type of bond, but expressed that $1,000,000 was insufficient to address the environmental damage associated with this industry. Many comments also requested that the rules define “environmentally sensitive area.”
Response: S.L. 2014-4 created the requirement for an environmental damage bond and sets the amount. The MEC may increase, but not decrease the amount, for environmentally sensitive areas. The proposed rules do not define environmentally sensitive areas so that unique characteristics of an area can be considered in the definition. Instead, the proposed rules identify factors that will aid the MEC in making a

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determination of an environmentally sensitive area and setting an appropriate environmental bond amount.
Rule .1406 Inspection and Approval of Reclamation or Bond Release or Forfeiture
Comments: Many comments opposed partial release of the disturbed land bond. Some comments requested that local government staff be allowed to inspect the property prior to release of the bond. Other comments requested that the surface owner approve the final reclamation prior to release of the bond.
Response: This proposed rule establishes the procedure by which the reclamation plan will be enforced and the circumstances pursuant to which the disturbed land bond will be forfeited. During the development of the proposed rules, the MEC considered how to connect the bond to the implementation of the reclamation plan.
Rule .1407 Bond Forfeiture
Comments: Many comments stated that the permittee should have less than 60 days to take corrective action prior to bond forfeiture. Some comments requested that local governments be included in the site reclamation process prior to release of the bond.
Response: The proposed bond forfeiture rules are substantially similar to those used by the Department to enforce bonds for similarly situated industries.
Comments Requesting Other Bonds
Comments: Many comments requested additional bonds, including a worker safety bond and bonding to address legacy issues.
Response: The MEC may only establish bonds for which it has been given explicit statutory authority. The proposed rules have a bond for all categories identified by statute.
Section .1500 Site Infrastructure and Construction Standards
Rule .1502 – Well Site Construction Standards
Comment: There were 45 general comments on site infrastructure and construction standards. Comments agree with stock piling and re-using of topsoil. Other comments recommended that DENR staff perform frequent and unannounced inspection of site liners and that more specificity is needed with respect to inspections. Other comments provided suggestions to include locations of occupied buildings, water wells, etc. on plats. Others noted that either a Professional Geologist or a Professional Engineer should be required to identify the seasonal high groundwater table and bedrock.

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Response: During our review of the rules with the public comments, the hearing officers also reviewed several letters from both industry and environmental organizations which provided detailed rule-by-rule comment and proposed changes. During a series of day- long group discussions, the hearing officers examined each of the proposed changes. From a consensus, one of the proposed changes to the rule was made to make the rule easier to understand.
Hearing Officers’ Recommendation: Amend Rule .1502 in (a)(10) by striking the word “the” and substituting the word “proposed”. The revision reads “(10) a description of proposed well site construction sequence and stabilization techniques”.
Rule .1503 – Access Road Construction Standards
Comment: There were 24 comments specific to access roads. Some commenters stated that, “Since you are proposing that existing roads be used when feasible, you should require the permittee to submit plans regarding how they will provide upkeep and maintenance for these roads. It is one thing to keep them clear of mud and debris (and that is appreciated), but it is quite another to have them repair pot holes caused by heavy machinery and increased truck traffic, and those explicit plans should be required.” Other commenters suggested verbiage requiring turn-around or pull-off sections within access roads. Finally, one commenter stated, “The rule should be amended to add that neither flowback water nor produced water should be used for dust suppression on dirt access roads or other dirt roads, regardless of any surface use agreement to the contrary.”
Response: During our review of the rules with the public comments, the hearing officers also reviewed several letters from both industry and environmental organizations which provided detailed rule-by-rule comment and proposed changes. During a series of day- long group discussions, the hearing officers examined each of the proposed changes. From a consensus, one of the proposed changes to the rule, the elimination of the use of existing roads for access put a potential hardship on a surface rights owner who does not want to participate in oil and gas exploration or production being forced to share a private driveway or unimproved road with heavy trucks without a surface use agreement with the applicant or permitee.
Hearing Officers’ Recommendation: Amend Rule .1503 by striking (b)(1) which said “(1) Existing roads shall be used as access routes when feasible”.
Rule .1504 Pit and Tank Construction Standards
Comments: Over 2,380 comments strongly requested that open pit storage be banned. Many comments cited to the recent coal ash spill and flooding of waste storage pits used for swine waste. Many comments proposed that pits only store water, rather than waste. Many comments requested that waste storage be restricted to closed tanks and that tanks have an interior liner for additional protection. Some comments suggested changes to the proposed pit and tank construction rule to strengthen the standards if the MEC maintains pits as storage containment in the proposed rules.

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Response: Open pits can fail in a number of ways. Open pits are susceptible to flooding, faulty construction, leaking liners or liner failure. The storage of exploration and production waste in open pits can lead to air emissions adversely affecting air quality in the surrounding area. In addition, pits can be a hazard to wildlife and migratory birds. Other states, including Illinois, have restricted the storage of flowback waters to closed tanks. Other states have restricted the use of pits. Additional examples of state regulation of pits include:
 Michigan allows pits to be used only for drilling fluids, muds, and cuttings; tanks must be used for produced water, completion fluids, and other liquid wastes, and in all areas zoned residential.
 Mississippi allows temporary brine storage pits only if “no other means of storing or disposing of salt water is available.”
 Kentucky (among other states) distinguishes between the type of pit that may be used to store flowback and produced fluids (holding pits) versus that which may be used for other drill fluids, such as drilling muds (drilling pits).1
Many states allow the use of modular tanks, which is an aboveground tank that is field assembled and used to support a synthetic liner for containment of fluids. The MEC had extensive discussions about pits and modular tanks, ultimately deciding to propose liquid containment be in either pits or permanent tanks. The proposed rules require all liquid containment to be in either lined pits and tanks constructed to API permanent tank standards. The hearing officers, however, agree that regulation is moving towards differentiating containment based on the source, i.e., that different types of vessels should be designed and regulated for specific liquid containment. For example, it may be environmentally protective to store fresh water in lined pits. Flowback water, however, may need to be contained in a closed tank with secondary containment. The hearing officers recognize that significant research and restructuring of this rule is necessary in order to develop a new standard. In addition, the hearing officers agree that strengthening the existing rule is necessary to address concerns specific to North Carolina.
Hearing Officers’ Recommendation: The hearing officers recommend two changes to the pit construction standards: (1) Freeboard is recommended to be three feet (2) Increased monitoring of the liner and leak detection system. The hearing officers recommend three changes to the tank construction standards: (1) the addition of a fiberglass tank standard (2) additional construction standards to more easily detect leaks in tanks (3) requiring an impermeable material below tanks to decrease impact if leaks occur. Finally, the hearing officers recommend clarifying the variance standard to require that, at a minimum, variances to pit and construction standards, provide equal or greater protection of the environment.
1 Richardson, Nathan, et.al., The State of State Shale Gas Regulation, (Washington, DC: Resources for the Future, 2013)

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Section .1600 Well Construction and Completion
Rule .1601 Setback Distances
Comments: Approximately 2500 comments were received that disagree with the proposed setbacks. Most of the comments proposed alternative distances, although some noted that no setback would be completely safe. Most comments proposed setbacks that would increase the setbacks to 1,000 feet. Many comments also noted additional setbacks that should be required. For example, some comments noted that the proposed rules failed to establish a setback from Sherron Harris nuclear plant, landslide prone areas, geologic faults, agricultural buildings, and livestock areas. Some commenters requested that the setbacks be measured from the edge of pad disturbance rather than from the production facility, pit, tank, or tank battery. Some comments noted that the rules do not address vertical separation distances and recommended that a vertical setback requirement be established.
15,889 comments that generally support the setbacks were also received.
Response: The proposed rule sets a series of setbacks from five categories of features: (1) occupied dwellings; (2) edge of public roads or right-of-ways; (3) streams and other surface waters; (4) intermittent streams; (5) public or private water wells. In developing the proposed rules, the MEC considered a variety of features and the likely risk from oil or gas exploration and development. As the MEC noted, any setback distance is somewhat imprecise; current science does not support specific setbacks. Many commenters included scientific, peer-reviewed studies or media reports that identify risks to public health from air emissions, groundwater contamination, and explosive risk at distances beyond the setbacks established by the proposed rules.
The proposed setbacks are within the midrange of setback provisions that other states have adopted. For example, Illinois,2 Michigan,3 North Dakota,4 and Wyoming5 have minimum setbacks of 500 feet from occupied dwellings. Maryland6 and Colorado,7 however, have 1,000 feet setbacks, which is greater than the proposed 650 feet. States also have wide ranges of setbacks from water supplies, including Michigan, which varies its setbacks between 800 and 2,000 feet depending on the type of water supply.8
Hearing Officers’ Recommendations: The comments identify significant public concern about the sufficiency of the setbacks. The hearing officers considered the significance of
2 225 ILCS 725 and 62 Ill. Adm. Code 240
3 Mich. Admin. Cd. § 324.201.
4 N.D. Cen. Cd. 38-08-05(2).
5 3 Wyoming Cd. §22(b).
6 Maryland C.O.M.A.R. § 26.19.01.09(g)
7 Col. O.G.C.C.R. § 604(a).
8 Mich. Admin. Code r. 324.301(b)(5).

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the public concern, the proposed setbacks, and the current range of setbacks applied in other states. The hearing officers acknowledge that a great deal of uncertainty underpins the policy decisions in setting setbacks. The hearing officers agree that additional research is necessary to identify environmental and public health impacts and determine whether setbacks or other regulatory mechanisms are effective in addressing those impacts. The hearing officers are recommending only one amendment of the proposed rules at this time. The hearing officers recognize that the surface water category does not distinguish surface waters that serve as drinking water supplies from other surface waters. Many comments identified a concern about protecting drinking water supplies, in particular. The hearing officers agree that municipal drinking water supplies warrant additional protection and propose amending the proposed rule to include the following language:
The permittee shall ensure a minimum setback of 1500 feet downgrade from each oil or gas well, tank, tank battery, pit, or production facility to the edge of any surface water impoundment that serves as a municipal drinking water supply or to the edge of any river upstream of a municipal drinking water supply point having a drainage area greater than 140 square miles.
The hearing officers also propose to amend the setback rules to clarify that measurement points for surface water features should be from “nearest point of the most landward limit of the normal water level or the rooted herbaceous vegetation.”
The hearing officers recommend two changes for clarity to ensure that production facilities are appropriately considered in establishing setbacks and to emphasize that local authority is not preempted by this rule, subject to the new preemption statute.
Rule .1602 Production Facility Safety Setback Distances
Comments: Two comments expressed concern that the facility setbacks and setbacks between tanks were insufficient.
Response: The production facility setback distances are based on best practices.
Rule .1603 Variances for Setbacks
Comments: Comments generally opposed the use of variances for setbacks. Some comments noted that some surface users, such as renters, would not have sufficient notice and would be unable to oppose shorter setbacks for occupied dwellings.
Response: The hearing officers recommend changes to clarify that all variances must provide equal or greater protection of public health, safety, and the environment.

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Rule .1604 Diesel Fuel Use
Comments: Comments across the rule set identify BTEX contamination of surface and ground water as one of the most significant public concern. Comments on Rule .1604 recommend clarifying the proposed rule to ensure that BTEX chemicals are prohibited rather than just diesel fuels. Some commenters noted that confusion may arise from incorporating the EPA guidance by reference.
Response: The proposed rule relies on EPA’s document “Permitting Guidance for Oil and Gas Hydraulic Fracturing Activities Using Diesel Fuels,” which was finalized February 5, 2014. The memorandum attached to the guidance document explains that by prohibiting the five CASRN associated with diesel fuels, the EPA is addressing concerns about benzene, toluene, ethylbenzene, and xylene (BTEX) compounds in hydraulic fracturing fluid. The hearing officers agree that additional wording is necessary to clarify the MEC’s intent to prohibit BTEX in hydraulic fracturing fluids drilling fluids.
Hearing Officers’ Recommendation: The hearing officers recommend that a new paragraph (c) be added to Rule .1604 that prohibits any BTEX constituent from being used in the formulation of fracturing fluids and drilling muds. In addition, the hearing officers recommend changing the title to “Prohibited Chemicals.”
Rule .1605 – Casing and Equipment Requirements
Comment: Specific to this rule, only a handful of comments were received. Some comments expressed concern that oil or gas wells will fail. Other comments were technical in nature and suggested specifics for casing off corrosive zones, pricing of API documents, and recommendations for modifying well integrity testing. 15,888 comments expressed support for the current (draft) rules related to well construction and completion.
Response: During a review of the rules, the hearing officers reviewed several letters from both industry and environmental organizations. These detailed rule-by-rule proposed changes were reviewed by the hearing officers. Following a group discussion, over several days, of each proposed change were examined. From a consensus, a proposed change to the rule was made.
Hearing Officers’ Recommendation: Amend Rule .1605 and insert the phrase “or exceed” after the word “meet” in (a). The revision reads (a) “All casing and tubing installed in oil or gas wells shall be steel, steel alloy, or other material that has been manufactured to meet or exceed the American Petroleum Institute (API) standards.”
Rule .1609 – Well Installation for Surface Casing
Comment: One comment stated that requirements for inspection and testing of well casings did not exist in the rules. Other comments addressed technical aspects of casing cementing, with recommendations for “bottom to top” cementing and requests for the

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rule section to be re-written to reflect Pennsylvania’s rules. Comments mostly expressed concern about wells lacking construction integrity, leaking casing, and groundwater contamination due to oil or gas wells.
Response: During a review of the rules, the hearing officers reviewed several letters from both industry and environmental organizations. These detailed rule-by-rule proposed changes were reviewed by the hearing officers. During a series of group discussion over several days, the hearing officers examined each of the proposed changes. From a consensus, several proposed changes to the rule were made.
Hearing Officers’ Recommendation: Amend Rule .1609 to strike the word “uniform” and insert the phrase “with return to surface” in paragraph (b). The revision reads “(b) Surface casing shall be cemented from bottom to top with return to surface.”
In (c)(3) strike the phrase “. . . , completion, and production” and insert the phrase “to the next planned casing setting point” after the word “operations”. The revision reads “(3) contain pressures and fluids from subsequent drilling operations to the next planned casing setting point.”
Rule .1610 – Well Installation for Intermediate Casing
Comment: Some commenters suggested that intermediate casing be mandated for all wells. Other commenters expressed concern about leaking of contaminants due to insufficient casing practices. Still other comments provide information for proposed technical language for rule updating.
Hearing Officers’ Recommendation: Amend Rule .1610 to strike the word “unanticipated” in paragraph (2) so that the revised phrase reads “if used to mitigate geologic hazards, such as heaving shale . . .”
In addition, insert the phrase “across such hazards and from” between the phrases “cemented from” and “the bottom to” in paragraph (2).
In (8) change the word “operation” to “operational” and add the word “parameters” after “operational”.

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Rule .1613 – Well Stimulation Requirements
Comment: Most comments propose technical corrections to the rule text. Other comments express concern about notifying residents of groundwater contamination caused by stimulation, resulting remedial action, and silica dust.
Response: During a review of the rules, the hearing officers reviewed several letters from both industry and environmental organizations. These detailed rule-by-rule proposed changes were reviewed by the hearing officers. During a series of group discussion over several days, the hearing officers examined each of the proposed changes. From a consensus, two proposed changes to the rule were made.
Hearing Officers’ Recommendation: Amend Rule .1613 to insert the word “immediately” in paragraph (f) and the phrase “and the Department shall be notified within 24 hours of the occurrence of an excess pressure”. The revision reads “The well stimulation treatment shall be immediately terminated if the pressure exceeds the limits set in Subparagraphs (f)(1) through (f)(3) of this Rule and the Department shall be notified within 24 hours of the occurrence of an excess pressure.”
In (g)(2) strike the word “slurry” and insert the word “fluid”. In addition, insert the word “/injection” after the word “pumping” and change the word “rate” to “rates”. The revision reads “(2) fluid pumping/injection rates in barrels per minute (BPM);”.
Rule .1614 – Wellhead Requirements
Comment: Comments address suggestions for performing site inspections, as well as recommendations for check valve requirements. Other comments suggest requirements for vapor recovery, as opposed to flaring.
Hearing Officers’ Recommendation: Amend Rule .1614 to insert the word “production” in (a) so that the line reads “(a) All production wellhead assemblies . . .”
In (b) insert the word “other” so that the line reads “(b) All other wellhead assemblies shall be . . .”
In (c) strike the word “no” and the phrase “is able to” and insert the words “does not” before the word “leak”. The revision reads “(c) All oil and gas wells shall be equipped so that oil, gas, or condensate does not leak.”

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In (d) insert the sentence “The Christmas tree shall also be similarly equipped to allow pressure monitoring of the production tubing.” at the end of the paragraph.
In (g) insert the phrase “in the flowline downstream of the Christmas tree” after the word “install”. The revision reads “(g) A check valve shall be installed in the flowline downstream of the Christmas tree to prevent the return of fluids into the oil or gas well.”
Rule .1615 – Well Site Maintenance and Security
Comment: Most commenters stated that variances for well site security and maintenance should not be allowed. Others expressed concern about noise levels, fencing requirements, and locking requirements.
Response: During a review of the rules, the hearing officers reviewed several letters from both industry and environmental organizations. These detailed rule-by-rule proposed changes were reviewed by the hearing officers. During a series of group discussion over several days, the hearing officers examined each of the proposed changes. From a consensus, two proposed changes to the rule were made.
Hearing Officers’ Recommendation: Amend Rule .1615 in paragraph (i) by inserting the phrase “of this Subchapter” after the phrase “in accordance with Rule .0301”. The revision reads “. . . may grant a variance to the permanent fencing requirements in accordance with Rule .0301 of this Subchapter.”
In (j) strike the word “valves” and insert the phrase “valves controlling the flow of production”. The revision reads “(j) All gates, electrical boxes, and valves controlling the flow of production fluid for a site under production shall be locked unless in use, under repair, or if the permittee . . .”
Rule .1616 – Well-Control and Blowout Prevention
Comment: Comments expressed concern over proper notification of emergency management officials. Additionally, one comment suggested the following rule text, “The permittee will provide a detailed description of any oil or gas blowout event and emergency measures taken, including timelines.
Hearing Officers’ Recommendation: Amend Rule .1616 add a new paragraph (e), revise paragraph (old e) to (new f), add a new paragraph (g), and reordering the other two paragraphs in the Rule to the letter (h) and (i).

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The new paragraphs are:
“(e) A diverter system will be installed while drilling the surface casing wellbore in geographic areas that have not yet been drilled unless waived by the Department based on prior drilling data that confirms shallow gas and other drilling hazards are not present.”
“(f) If drilling with air or drilling to formations where the expected reservoir pressure exceeds the weight of the drilling fluid column, a rotating diverter system shall be installed to divert any wellbore fluids away from the rig floor to a pit or tank at least 80 feet from the wellbore.”
“(g) All diverter systems shall be maintained in effective working condition and shall be function tested when installed and at regular intervals during drilling operations. There must be two diverter control stations, one on the drilling floor and one located at a safe distance and readily accessible from the drilling floor. No well shall continue drilling operations if a test or other information indicates the diverter system is unable to function or operate as designed.”
In addition (a)(3) has the phrase “as required in (1) above” inserted after the word “tested” and a new sentence “The BOP shall be retested as required in (1) above prior to drilling the cement plug in each subsequent casing string” added to the end of that subparagraph.
Finally, in (a)(4) the word “daily” is changed to “weekly”.
The revision of the two subparagraphs reads as:
“(3) the BOP shall be installed and tested as required in (1) above prior to drilling the surface-casing cement plug. The BOP shall be retested as required in (1) above prior to drilling the cement plug in each subsequent casing string;”
“(4) during drilling operations, the shear-ram BOP shall be tested by closing the BOP at least once weekly in open hole conditions; the annular BOP shall be tested by closing on the drill pipe at least once each week;”
Rule .1617 – Visual Impact Mitigation
Comment: One comment asked about standards for noise, traffic, and odor.
Response: During a review of the rules, the hearing officers reviewed several letters from both industry and environmental organizations. These detailed rule-by-rule proposed changes were reviewed by the hearing officers. During a series of group discussion over several days, the hearing officers examined each of the proposed changes. From a consensus, one proposed change to the rule was made.
Hearing Officers’ Recommendation: Amend Rule .1617 paragraph (a) insert the word “or” between the words “berm” and “tree” in paragraph (a). The revised sentence reads “(a) The permittee shall mitigate visual impacts using visual screening. Visual screening shall include existing natural vegetation, vegetated earthen berms, or tree plantings at staggered spacing to be installed and . . .”

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Rule .1618 – Requirements for Permanent Closure of Oil and Gas Wells
Comment: Multiple commenters noted that .1618 seems to require a drilling rig on location until a non-producing well bore has been plugged and abandoned. These comments noted that doing so is impractical. Other commenters expressed concern with methane leaking from abandoned wells. Still another commenter noted, “15A NCAC 05H .1618 (h): Cutting off well casing three feet below ground elevation seems very lax. Subsequent land users or their equipment could easily be injured/damaged by steel/concrete well casings left in the ground.”
Hearing Officers’ Recommendation: Amend Rule .1618 by inserting the word “Parts” in (g)(5) before the phrase “(g)(4)(A) through (g)(4)(D)”and the word “Part” before the phrase “(g)(4)(A) of this Rule”. In addition in (g)(6) by inserting the word “Parts” before the phrase “(g)(4)(A) through (g)(4)(D)”.
In (h) insert the phrase “a minimum of” between the words “off” and “three”. The revision reads “(h) All casing remaining in the wellbore shall be cut off a minimum of three feet below ground surface.”
In (k) strike the phrase “wellheads shall be disconnected from gathering lines” and insert the phrase “flowlines shall be flushed with freshwater and the ends of the lines shall be capped and buried at least three feet below the ground surface.” The revision reads: “(k) All flowlines shall be flushed with freshwater and the ends of the lines shall be capped and buried at least three feet below the ground surface”.
Rule .1619 – Notification and Reporting Requirements for Permanent Closure of Oil or Gas Wells
Comment: Comments included suggestions of notifying local governments when a well is permanently closed, identify other abandoned wells, and confusion over the submission of Form 11.

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Hearing Officers’ Recommendation: Amend Rule .1619 in (a)(6) insert the word “that” after the word “casing” and insert the phrase “and depth below ground surface at which it will be cut” after the word “wellbore”.
The revision reads “(6) identification of casing that will be removed from wellbore and depth at which it will be cut;”.
In (d)(g) insert the word “the” after the phrase “was removed from” and insert the phrase “and the top of each casing string remaining in the wellbore”.
The revision reads “(6) the length and type of casing that was removed from the wellbore and the top of each casing string remaining in the wellbore”.
Rule .1620 – Requirements for Shutting-In Oil or Gas Wells
Comment: No comment was received specific to this rule.
Response: During the rule by rule review of Chapter, the hearing officers identified places where the rules reference other rules. One such change was need in this Rule.
Hearing Officers’ Recommendation: Amend Rule .1621 paragraph (f) insert the phrase “Rule .2201(j), (k) and (l) of this Subchapter” between the phrases “in accordance with” and “and submit the test”.
Rule .1621 – Requirements for Temporary Abandonment of Oil or Gas Wells
Comment: Only a handful of comments were made on this Rule.
Hearing Officers’ Recommendation: Amend Rule .1621 by striking the word “completed” and substituting the word “constructed”. Also amend by striking the phrase “equipped with a wellhead according Rule .1614 of this Section and are”. Insert the phrase “completed immediately after being drilled but may be” before the phrase “capable of production”.
The revision reads “(a) Oil or gas wells that are constructed according to Rule .1607 of this Section, but are not completed immediately after being drilled but may be capable of production may be temporarily abandoned in accordance with this Rule.”
Paragraph (c) “(c) Oil and gas wells shall be temporary abandoned according to Rule .1618(g)(4)(A) – (D) of this Section for vertical wellbores and Rule .1618(g)(5) of this

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Section for horizontal wellbores” is proposed to be deleted since Rule .1618 is for permanent closure.
Rule .1624 – Well Stimulation Report
Comment: Specific to this rule, only a handful of comments were received. Comments expressed concern over the timing of well stimulation reports, the reporting of annulus pressures, and the calibration of stimulation models.
Response: During a review of the rules, the hearing officers reviewed several letters from both industry and environmental organizations. These detailed rule-by-rule proposed changes were reviewed by the hearing officers and from the discussion of each proposed change over several days; proposed changes to the rule were made.
Hearing Officers’ Recommendation: Amend Rule .1624 by striking the word “stimulating” and inserting the phrase “the conclusion of stimulation operations on” in (a). the revision reads (a) “Within 30 calendar days after the conclusion of stimulation operations on an oil or gas well, the permittee shall submit Form 18 – Well Stimulation Report . . .”.
Section .1700 Chemical Disclosure
Comments: Over 15,880 comments were received supporting the chemical disclosure rules, including using the FracFocus website, the confidential information protection provision and the statutory process for disclosing confidential information to state agencies and emergency personnel.
Over 940 comments in opposition to the chemical disclosure provisions were received. Many of these comments strongly requested that North Carolina require full disclosure, with no trade secret protections, of all chemicals in the fracking fluid and drilling mud. Many comments also disagreed with the use of FracFocus as a disclosure database and cited to the studies finding that FracFocus is does not provide consistent reporting, it does not aggregate data, and that the records can be amended multiple times without oversight. Many comments also addressed disclosure to emergency or health personnel. Many comments recommended removing the confidentiality agreement for health care providers and emergency responders. Many comments also opposed the criminal penalty for disclosure.
Response: The MEC is prohibited from requiring disclosure of confidential information. The exemption for confidential information is statutory and the proposed rules comply with all relevant statutes. Elimination of the confidential information provisions would need to occur legislatively, and not through rules. In addition, the disclosure of confidential information, including the requirement for confidentiality agreement, to the Department, Division of Emergency Management, treating health care providers, and Fire Chief is also established by statute. The proposed rules describe the procedure for

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disclosing all non-confidential chemicals in hydraulic fracturing fluid. The proposed rules require disclosure both to FracFocus and identical disclosure to the Department.
Hearing Officers’ Recommendations: The hearing officers recommend using its previous definition for health professional to define “treating health care provider.” The hearing officers also recommend adding a requirement to submit a copy of the FracFocus submittal to the Department as part of the chemical disclosure requirements.
Section .1800 Environmental Testing
General Comments on Section
Comments: Many comments focused on the burden to water supply owners of the testing. Comments noted that water supply owners should not have to contact a certified laboratory to schedule testing. Other comments expressed confusion about whether the operator was responsible for paying for the testing. Some comments recommended that groundwater-monitoring wells be installed at no greater than 50% of the setback distance from the gas wellhead to water wells.
Over 15,880 comments generally supporting the environmental testing rules were received.
Response: The environmental testing requirements, including the testing frequency, testing distance are set by statute.
Rule .1802 – Water Supply Testing Notifications
Comments: Many comments were received that indicated a lack of clarity as to whether the operator is required to pay for the testing and whether the water supply owner was responsible for contacting a certified laboratory to arrange the testing.
Response: The proposed rule did not clearly set forth the statutory requirements for the process and payment of costs.
Hearing Officers’ Recommendations: The hearing officers are recommending language changes that reflect the statutory requirement that operators pay for the costs of testing and that water supply owners only waive the presumptive liability provisions by refusing access to the contract water supply tester. In addition, the hearing officers recommend that the statement that water supply owners contact the certified laboratory be removed. To address concerns about test results that indicate an immediate hazard, the hearing officers are recommending language that requires immediate notification of the Department, local health director, surface owner, and owner of the water supply if methane, BTEX, or TPH is found.

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Rule .1803 – Water Supply Testing Procedures
Comments: Many comments in opposition to the proposed rules stated that the testing frequency should address the possibility of long-term contamination. Many comments also requested that all underground water sources be tested. Many comments also proposed expanding the testing distance from within one-half mile to five miles of the proposed wellhead and along the proposed horizontal wellbore.
Response: The testing distance is set by statute and the MEC does not have the authority to alter that distance by rule. Also, the revised statute requires testing “within 30 days after completion of production activities at the site,” which should include testing after the well is removed from production.
Rule .1804 – Request for Investigation of Water Supply
Comments: Many comments noted that the permittee should be responsible for all expenses and coordination of water supply testing. Other comments requested that Rule .1804 be clarified to require a replacement water supply to be of the same quantity as the previous water supply and to require replacement in perpetuity.
Response: Please see the response for Rule .1802 to see the recommended changes for clarity. N.C. Gen. Stat. 113-421 (a5) requires replacement water supplies to “be adequate in quantity and quality.” The MEC does not have the authority to change this standard.
Rule .1805 – Reporting of Test Results
Comment: Some comments requested that all hydraulic fracturing wells within 2000 feet of a contaminated well stop operations immediately and permanently if any exceedance of the maximum contamination levels are reported. Other comments requested that the timeframe for reporting be reduced from 30 days to 15 days.
Response: Please see the response and recommended changes for Rule .1802.
Rule .1806 – Record Keeping and Reporting
Comment: Some comments requested that all records be available for public review and that test results be submitted within 15 days of sampling.
Response: The proposed rules require the Department to make the results available to the public within 30 days of the Department’s receipt of the results. Results will be submitted directly to the surface owner and the owner of the water supply.
Rule .1807 – Tracer Technology
Comment: Some comments noted that tracers may give a false sense of security and recommend that tracers not substitute for groundwater monitoring.

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