Hydraulic FracturingSeparating Fact from Fiction on the Front LinesNicholas Deutsch | Associate | SHB Houston

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What is Hydraulic Fracturing?

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Benefits of Hydraulic Fracturing

• Economic growth• Jobs• Reduce dependence on foreign oil• The environment

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Perceived Harms

• Groundwater Pollution• Earthquakes• Vibrations• Noise• Air Emissions• Water Use• Destruction of Habitat and Landscaping

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Hydraulic Fracturing in the Media

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Public Opinion Currently Drives Hydraulic Fracturing Issues

• Environmental protection groups (NRDC, Sierra Club, etc.)• Gasland video• News reports• Reports of illness/cancer near oil and gas operations• New York Times newspaper articles• Local newspaper articles in producing areas• Congressional “leaks” and letters to EPA

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Federal Regulatory Environment

• EPA Memorandum of Agreement• Signed in 2003• Agreement arose because of drinking water concerns near coal bed

methane fields• Voluntary agreement with EPA, SLB, HLB, and BJS• Requires companies to notify EPA of change in corporate policy regarding

use of diesel fuel when fracturing in coal bed methane wells

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Federal Regulatory Environment

• Legal Environmental Assistance Foundation v. EPA• Safe Drinking Water Act

• The term ‘underground injection’ –(A) means the subsurface emplacement of fluids by well injection; and (B) excludes –

(i) the underground injection of natural gas for purposes of storage; and (ii) the underground injection of fluids or propping agents (other than diesel fuels) pursuant to hydraulic fracturing operations related to oil, gas, or geothermal production activities.

• FRAC Act

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Federal Regulatory Environment

• EPA’s Website Pronouncement

“While the SDWA specifically excludes hydraulic fracturing from UIC regulation under SDWA § 1421 (d)(1), the use of diesel fuel during hydraulic fracturing is still regulated by the UIC program. Any service company that performs hydraulic fracturing using diesel fuel must receive prior authorization from the UIC program. Injection wells receiving diesel fuel as a hydraulic fracturing additive will be considered Class II wells by the UIC program.”

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What is the EPA’s Game Plan?

• Hydraulic Fracturing Study• Enforcement Actions• Playbook For Previous Enforcement Initiatives

• Power Plant Enforcement Initiative• Refinery Initiative• Petroleum Extraction Initiative

• Rulemaking• Other Potential Enforcement Moves

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Disclosure Requirements

• Two Types of Disclosure• Full Disclosure• Modified Disclosure

• Disclosure Concerns• Hundreds of millions of dollars spent on Research and Development of

fracturing products• Companies want to protect trade secret or proprietary information• Third parties supply many products

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Current Trends in State Regulations

• Wyoming• New York• Pennsylvania• Arkansas• Oklahoma• Texas• Other states

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Hydraulic Fracturing Litigation

• Environmental Claims• Class Actions• Trespass• Negligence

• Water Contamination• Air Pollution• Noise• Vibrations• Earthquakes

• Nuisance

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Hydraulic Fracturing Litigation

• Breach of Contract• Leases need to take hydraulic fracturing into account

• Pooling clauses• Savings clauses

• “Commencement” clauses• Shut-in gas royalty clauses

• Operations clauses

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Takeaways

• Educate landowners and members of the community about hydraulic fracturing. Let them know what will be happening and how the well architecture protects USDW.

• Meet with landowners and test water wells before drilling.• Share data with landowners.• Ensure that water wells are tested after drilling.• Keep good records.• Know what products are being used for hydraulic fracturing.• Make sure that your leases take hydraulic fracturing into account.• Anticipate increased regulation and litigation.