Energy and Environmental Update
EIA launches drilling productivity reports. The U.S. Energy Information Administration (“EIA”) issued its first Drilling Productivity Report that will show how efficient oil and gas companies are at developing shale resources. In its initial report, EIA found that the Bakken and Eagle Ford shale plays were responsible for 75% of the country’s crude oil production. Production in these plays increased by 700,000 barrels per day over last year. The Permian Basin is the biggest oil-producing region, with production increasing by 93,000 barrels per day over 2012. The Marcellus Shale play remains the largest gas-producing shale play and its production is also increasing. The reports will be issued each month, compiled from information provided by state agencies and Baker Hughes.
Judge rejects doctor’s challenge to chemical disclosure rules. A federal district court found that a Pennsylvania doctor lacked standing to challenge state rules requiring treating physicians to sign a confidentiality agreement before learning the identity of confidential chemicals used in hydraulic fracturing fluids. Dr. Alfonso Rodriguez claimed that being forced to sign a confidentiality order would infringe on his First Amendment rights and his professional ethical obligations by prohibiting him from sharing information about hydraulic fracturing fluid chemicals with colleagues. Although Dr. Rodriguez treated employees exposed to chemicals during a well blowout, the court dismissed his case because the company never asked him to sign a confidentiality agreement or otherwise interfered with his ability to provide medical care. The requirement is part of Pennsylvania’s Act 13, governing hydraulic fracturing. Under the law, chemicals that companies designate as trade secrets are not disclosed to the public but may be disclosed to physicians treating a person believed to be exposed to chemicals in hydraulic fracturing fluids if the physician signs a confidentiality agreement. Dr. Rodriguez’s attorney stated that he would appeal the decision.
Michigan drafting new rules for hydraulic fracturing. The Michigan Department of Environmental Quality (“MDEQ”) announced that it is considering proposing new regulations that would require a driller to collect groundwater samples six months before starting to drill a well in which hydraulic fracturing would be used, estimate the amount of water the well would withdraw from local waterbodies using a water withdrawal assessment tool, and disclose chemicals used in hydraulic fracturing fluid on the FracFocus.org website. A company would also be required to provide two days’ notice to MDEQ before starting hydraulic fracturing, as well as to monitor and report fluid volumes and pressures. Once published, the proposed rules will be available for public comment.
Texas Supreme Court declines to hear Houston drilling ban. The Texas Supreme Court declined to review an appeals court ruling that reversed a $17 million judgment after a trial court found that the City of Houston improperly imposed a ban on oil and gas development near Lake Houston. Trail Enterprises, Inc. sued the city, claiming that the ban on development, first implemented in 1967, was a regulatory taking of property rights without compensation. The trial court sided with Trail Enterprises and awarded $17 million in damages. The Fourteenth District Court of Appeals, however, reversed. It found that the environmental concerns surrounding oil and gas development were legitimate reasons for imposing a ban under the U.S. Supreme Court’s Penn Central test, given that Lake Houston serves as a source for drinking water, and because Trail Enterprises had no reasonable investment-backed expectation of developing its mineral rights given the longstanding ban.
Texas town sues to enjoin gas drilling. Denton, Texas, north of Fort Worth is asking a state judge to halt EagleRidge Energy from drilling oil and gas wells within its jurisdiction, alleging that the company lacks necessary permits. The court denied an application for a temporary restraining order but will soon hear the town’s argument that EagleRidge must first obtain a permit that complies with city ordinances regarding development planning and setbacks. EagleRidge claims that it previously obtained a municipal permit before the town changed its regulations doubling setback distances, and claims that the permit is still valid. The town acknowledged that EagleRidge obtained all of the required permits from the Texas Railroad Commission.
California groups planning for ballot measures. Environmental groups, failing to obtain a statewide ban on hydraulic fracturing from the California legislature, are now gearing up for an initiative to place municipal bans on the ballot. A spokesman for Food & Water Watch stated that local communities are now responsible for implementing moratoria and bans to protect local sources of drinking water. Several cities and counties have implemented bans already, including Santa Cruz County last month, however none of these municipalities are over the Monterey Shale formation targeted by oil and gas companies.
Youngstown hydraulic fracturing ban may return to this year’s ballot. Despite Youngstown, Ohio residents voting down a ban on hydraulic fracturing in May of this year, local environmental groups vowed to put the ban on the November ballot as well. Called a “community bill of rights,” the ban would exempt a local steel pipe manufacturer which would have been shut down under the prior version of the initiative that prohibited all manufacturing products related to hydraulic fracturing as well as shale gas development. Opponents cite the initiative as discouraging business investment in Youngstown, which is still trying to recover after the exit of coal, steel, and automobile manufacturing companies from the area decades ago. If passed, the initiative could trigger a lawsuit by opponents who argue that the Ohio Department of Natural Resources has exclusive regulatory authority over oil and gas development.
Train carrying oil and gas derails, explodes. A Canadian National Railway (“CN Rail”) tanker train derailed near Edmonton, Alberta and exploded. The CN Rail train was carrying four tankers of crude oil and nine with liquefied petroleum gas. A spokesman for Greenpeace Canada called railroad accidents involving crude oil “the new normal” and demanded new safety regulations. A spokesman for CN Rail countered that the crude tankers were not damaged during the derailment and did not cause the explosion. The accident occurred while rail shipments of crude oil have faced increasing scrutiny after a July 2013 train derailment and explosion in Lac-Megantic, Quebec. Following that incident, the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration has been considering new oil tanker car regulations.
Ukraine announces imminent shale gas development deal. Government officials in Ukraine stated that the country is on the verge of signing a production-sharing contract with Chevron that would allow the company to begin developing shale gas. Despite political resistance due to environmental concerns, Ukraine’s government has been seeking international partnerships to produce its own shale gas and ease its reliance on Russia’s OAO Gazprom.
Mississippi Lime output disappoints drillers. After an estimated $1 billion in investment, companies such as Shell oil and Tug Hill Operating are pulling out of the Mississippi Lime formation. The promise of significant crude development and the low cost of acreage attracted several independent companies to the area, as Kansas had promoted the Mississippi Lime as the “New Bakken.” Production wells, however, are either underperforming or inconsistent with total crude output in 2012 at 43.6 million barrels. SandRidge Energy, which banked heavily on the Mississippi Lime’s success, saw its board of directors shaken up after disappointing the company’s investors.
BASF, Yara planning ammonia plant on Gulf Coast. BASF and Norway’s Yara International announced plans to construct an ammonia plant to support the companies’ chemical businesses. The companies are currently eyeing the Gulf Coast of Louisiana, which has already seen a number of proposed new plants or plant expansions, including CF Industries’ announced $2.1 billion expansion of a nitrogen complex, EuroChem’s new $1.5 billion fertilizer plant, and Mosaic’s $700 million expansion of its existing ammonia plant. Louisiana’s proximity to cheap shale gas has made it a prime location for new chemical manufacturing facilities.
USGS, Oklahoma issue earthquake warning. The U.S. Geological Survey and Oklahoma Geological Survey warned of an “earthquake swarm” in central Oklahoma. The agencies stated that their study shows earthquakes are now six times more likely than in prior years and no longer follow familiar geological sequences. They stated that deep injection of hydraulic fracturing wastewater may be contributing to the change in earthquake patterns but is not the sole cause. The agencies’ statement noted the 2010 “Jones Swarm,” a series of small earthquakes east of Oklahoma City, was not attributable to underground injection. The agencies recommended that Oklahoma consider modifying its building codes to withstand more frequent low-level tremors.
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