Maryland Enacts Legislation On Liability for Damage Caused By Oil And Gas Exploration

On May 22, Maryland Governor Martin O’Malley signed House Bill 1123, which addresses the state legal standards for civil liability for damages caused by exploration and production activity in deep shale deposits in the Marcellus Shale formation. The Marcellus Shale territory stretches into significant portions of the western parts of Maryland. The Maryland legislature passed HB 1123 in April; the bill takes effect July 1, even though Maryland permitting authorities have issued no drilling permits in the Marcellus Shale region.

HB 1123 establishes the presumption that contamination of a water supply in the area around a gas well is caused by the gas exploration or production activity, unless the driller rebuts the presumption to the Maryland Department of the Environment (MDE) by a preponderance of the evidence. The “presumptive impact area” covers “a radius of 2,500 feet from the vertical wellbore” and applies “for 365 days after the last event of well drilling, completion, or hydraulic fracturing”. Within this presumptive impact area, HB 1123 requires holders of drilling permits to replace landowners’ water supplies that have been contaminated “as a result of the permittee’s drilling or operation of the gas well.” However, a permittee can escape this presumption if the permittee requests a property owner’s permission to conduct baseline testing of the water supply before commencing drilling activities, volunteers to share the testing results, and the property owner refuses to grant permission.

Per an executive order Gov. O’Malley issued exactly one year ago today, no drilling permits are being issued in Maryland pending the completion of a comprehensive study by the MDE and the Maryland Department of Natural Resources (MDNR) of the impacts of hydraulic fracturing activities in the state. The study is due to be completed in August of 2014. HB 1123 contemplates, though, the possibility of drilling permits being issued in the future, once the state’s study is complete. The 2011 executive order also directs MDE and MDNR to issue an interim report by August 1, 2012 addressing “best practices for all aspects of gas exploration and production in the Marcellus Shale in Maryland.” This blog will provide analysis of the agencies’ interim report once it is published.