Sidley Shale and Hydraulic Fracturing Report

Energy and Environmental Update

Federal

EPA: Advanced notice of proposed rulemaking on TSCA reporting for chemicals used in hydraulic fracturing sent to OMB. On March 11, the Environmental Protection Agency (EPA) sent to the Office of Management & Budget for regulatory review a draft Advanced Notice of Proposed Rulemaking (ANPR) related to reporting on the health and safety of chemicals used in hydraulic fracturing fluid under sections 8(a) and 8(d) of the Toxic Substances Control Act (TSCA). EPA prepared the ANPR in response to petitions for a rulemaking submitted by environmental groups urging EPA to require disclosure of more information on hydraulic fracturing fluid chemicals. EPA previously rejected the groups’ request TSCA Section 4 rule that would have required manufacturers and processors to undertake toxicity testing for hydraulic fracturing fluid chemicals. EPA reported previously that it intends to use the ANPR to conduct a stakeholder outreach process to gather input on any TSCA reporting requirements before issuing a proposed rule. EPA may seek input on, for example, the need for a rule, as EPA stated it is not committed to a particular outcome. The ANPR would also likely seek input on the scope and type of information that users might be expected to gather and report, the ways in which information already collected may be used to avoid duplication of effort, and how to address information that contains confidential business information.

DOE: Updated study reports LNG exports still an economic benefit. NERA Economic Consulting updated its December 2012 macroeconomic study of the economic costs and benefits of LNG exports commissioned by the Department of Energy (DOE). The update, using more recent data on domestic natural gas usage, confirmed its initial finding that unlimited LNG exports will provide the greatest economic benefit to the U.S. It predicted that LNG exports would increase natural gas prices by about $1 per thousand cubic feet of gas, but that the increase would not dampen the ongoing revitalization of the U.S. chemical manufacturing industry, in part because of increases in natural gas liquid supplies that would not be exported. The update was funded by Cheniere Energy, which received approval for one LNG export terminal and is seeking approval for a second.

Congress: Bill would speed gas gathering lines. The Natural Gas Gathering Enhancement Act, proposed last week in the Senate, would speed consideration under the National Environmental Protection Act of new gathering pipelines that would cross most federal and tribal lands. The bill also proposes to require the Interior and Agriculture Departments to issue rights of way for gathering lines within 30 days of any request. The primary reason for seeking an expedited approval process for these gathering lines is to reduce flaring in North Dakota’s Bakken shale play and other tight oil fields where less valuable natural gas is often flared due to a lack of available infrastructure to take the gas. NGOs, state officials and mineral rights owners have criticized flaring practices in the Bakken where approximately 300 million cubic feet of natural gas is flared off as waste each day instead of sold. Flaring practices in Wyoming and Texas have also been questioned for similar reasons.

States

Wyoming: Supreme Court sends trade secret case back to trial court. NGOs challenging designations by Halliburton that its hydraulic fracturing fluid chemicals were trade secrets won a reprieve from the Wyoming Supreme Court. The petitioners had challenged the Wyoming Oil & Gas Conservation Commission’s determination that Halliburton’s designations protected the chemicals’ identities from disclosure. The lower court dismissed the case, but the Wyoming Supreme Court held that the trial court must perform a chemical-by-chemical review applying the federal definition of “trade secret,” as used under the Freedom of Information Act. This would, according to the Wyoming Supreme Court, require Halliburton to demonstrate a “direct relationship” between the chemicals as trade secrets “and the productive process.” This is a narrower standard than that initially adopted by the lower court.

Pennsylvania: Act 13 hydraulic fracturing regulations in doubt. Industry groups are pushing back against proposed regulations that would govern surface operations at wells, arguing that the Pennsylvania Supreme Court’s decision struck down the authorizing legislation for the rules, Act 13, as unconstitutional. The groups argue the Court’s opinion invalidated Chapter 78, the section of Act 13 that delegates authority to the Department of Environmental Protection and Environmental Quality Board to issue regulations. The groups also raised a number of substantive concerns with the proposed Chapter 78 regulations, including requirements to improve the quality of water wells above their initial condition when drilling began, special authorization where “species of special concern” may be present, and the general costs of the regulations on smaller oil and gas companies.

Ohio: State investigating seismic activities. The Ohio Department of Natural Resources (DNR) is searching for the cause of four small earthquakes in Poland Township. Ohio DNR ordered Hilcorp Energy to shut down seven nearby gas drilling operations until the agency can conduct further study. Although Hilcorp complied, it stated that there was no evidence that its drilling was the cause. Some have linked underground injection wells used to dispose of wastewater to increases in seismic activity in Ohio and other states, but in this instance Ohio DNR determined that there were no underground injection wells in the vicinity. The incident comes as the Utica shale play is increasing its production, producing more than 2 ½ times more natural gas in 2013 than it did in 2012 and with oil production doubling over that same period.

DRBC: NGOs push for permanent ban on development in Delaware River watershed. Environmental groups are lobbying the incoming executive director of the Delaware River Basin Commission (DRBC) to make permanent the current restrictions on hydraulic fracturing in the Delaware River watershed. The DRBC, created by a regional compact, has five voting members – one from each of the governments of Pennsylvania, Delaware, New York and New Jersey, as well as the federal government (the U.S. Army Corps of Engineers is the federal representative). The DRBC effectively imposed a moratorium on permitting natural gas development using hydraulic fracturing within the watershed in 2010, pending the issuance of new regulations governing development.

Business

Shell plans to reduce spending and divest assets in shale. Shell announced its intention to reduce its capital spending by 20% this year and to divest $15 billion in assets in the Americas by the end of 2015, including investments in U.S. tight oil and gas shale plays. Among the North American assets Shell may sell are holdings in Kansas, Texas and western Canada. Executives reported the company intends to focus on projects in Malaysia and the Gulf of Mexico, among others. The announcement came shortly after BP stated that it would reorganize its U.S. onshore operations as a separate business unit with independent management.

International

European nations seek expedited approval of U.S. LNG exports. In a letter to House Speaker John Boehner (R-Ohio) and Senate Majority Leader Harry Reid (D-Nevada), ambassadors from the Czech Republic, Hungary, Poland and Slovakia urged the U.S. Congress to adopt fast-track approval for LNG exports to Central and Eastern Europe. Concerned with the situation in Ukraine, the four countries are seeking to reduce their dependence on Russian natural gas to supply their energy needs. Amendments were introduced in the House and Senate last week as part of an aid package to Ukraine that would allow for faster approval of LNG exports to countries belonging to the World Trade Organization, but the amendments were ultimately dropped.

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