Illinois’ new hydraulic fracturing regulations

On June 17, 2013, Illinois Governor Pat Quinn signed into law hydraulic fracturing legislation that is possibly the strongest in the nation. The Hydraulic Fracturing Regulatory Act (S.B. 1715) (the “Act”) went into effect immediately and is being enforced by the Illinois Environmental Protection Agency (IEPA) and the Illinois Department of Natural Resources (IDNR). The disclosure of hydraulic fracturing chemicals is an important part of the Act. The Act requires the disclosure of hydraulic fracturing chemicals both before the process takes place and after the process is complete.

The hydraulic fracturing operation must be fully described in the permit application along with a chemical disclosure report identifying all chemicals anticipated to be used in each stage of the process (§1-35(b)(8)); or, if not included with the application, then the disclosure must be made at least 21 days prior to initiating hydraulic fracturing work (§1-77(a)). This report requires identification of chemicals and proppants, including: (a) the total volume of water anticipated to be used or the type and total volume of the base fluid anticipated to be used; (b) each hydraulic fracturing additive anticipated to be used, including the trade name, vendor, a brief descriptor of the intended use or function, and the Material Safety Data Sheet, if applicable; (c) each chemical anticipated to be intentionally added to the base fluid, including the Chemical Abstracts Services number, if applicable; and (d) the anticipated concentration in the base fluid, in percent by mass of each chemical to be intentionally added to the base fluid. §1-35(b)(8)(A)-(D). Within 60 days of finishing hydraulic fracturing activities, the operator must file a completion report with a chemical disclosure report providing the actual volume of chemicals and fluids used. §1-35(f).

Chemicals claimed to be trade secrets can be protected if the person files a justification of the claim containing the following: (a) a detailed description of the procedures used to safeguard the information from becoming available to persons other than those selected by the person to have access to the information; (b) a detailed statement identifying the persons or class of persons to whom the information has been disclosed; (c) a certification that the person has no knowledge that the trade secret information has ever been published or disseminated or otherwise became a matter of general public knowledge; (d) a detailed discussion of why the person believes the information to be of competitive value; and (e) any other information to support the claim. §1-77(g).

These claims can be challenged through the state’s freedom of information law. An exemption can be made for disclosure to a health professional who states why the information is needed. §1-77(l).

In addition to the above, the Act sets out an application process for hydraulic fracturing (§1-35), a public notice requirement (§1-40), a public comment period before fracturing can begin (§1-45), well preparation, construction, and drilling requirements (§1-70), hydraulic fracturing operations requirements (including casing, cementing, and handling of flowback) (§1-75), water quality monitoring (§1-80), and a presumption of pollution (§1-85).
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Pennsylvania House of Representatives unanimously passes bill requiring certain information in royalty statements

On Tuesday, June 11, 2013, the Pennsylvania House of Representatives gave unanimous consent to H.B. 1414, which would amend Pennsylvania’s law regarding oil and gas royalties, commonly-known as the Guaranteed Minimum Royalty Act. The amendment won’t change the net-back method of royalty calculation or change the minimum royalty amount. But, it would require producers to provide a detailed check stub or other document detailing the following information:

(1) A name, number or combination of name and number that identifies the lease, property, unit or well or wells for which payment is being made and the county in which the lease, property or well is located.
(2) Month and year of gas production.
(3) Total barrels of crude oil or number of Mcf of gas or volume of natural gas liquids sold.
(4) Price received per barrel, Mcf or gallon.
(5) Total amount of severance and other production taxes and other deductions permitted under the division order, lease, servitude or other agreement with the exception of windfall profit tax.
(6) Net value of total sales from the property less taxes and deductions from paragraph (5).
(7) Interest owner's interest, expressed as a decimal or fraction, in production from paragraph (1).
(8) Interest owner's share of the total value of sales prior to deduction of taxes and deductions from paragraph (5).
(9) Interest owner's share of the sales value less the interest owner's share of taxes and deductions from paragraph (5).
(10) Contact information, including an address and telephone number.

Plus, the bill adds an Apportionment section which allows an operator to develop contiguous leases by horizontal drilling, unless expressly prohibited from doing so in the particular leases. In such a situation, royalties would be determined, unless agreed otherwise by all affected royalty owners, by allocation “in such proportion as the operator reasonably determines to be attributable to each lease.”

Moreover, the bill allows for accumulation of royalties annually if the royalties total less than $100. There are certain exceptions to this allowance and the proposed law imposes certain escrow account requirements.

The bill now goes to the Pennsylvania Senate for consideration. As drafted, the bill would take effect 60 days after enactment.

This article was prepared by Jeremy Mercer (jeremy.mercer@nortonrosefulbright.com or 724 416 0440) from Norton Rose Fulbright's Energy Practice.
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New study shows no evidence of water contamination from shale gas drilling in Arkansas

Duke University and the U.S. Geological Society (USGS) investigated the possible degradation of water quality in shallow aquifers overlying the Fayetteville Shale formation in north-central Arkansas, where approximately 4,000 wells have been drilled since 2004 to extract unconventional natural gas.

The study which was released in mid-May 2013 found no evidence of groundwater contamination from shale gas production in Arkansas.  The scientists sampled 127 shallow drinking water wells in areas overlying the gas-producing Fayettevile Shale formation.  The samples were taken at various locations by personnel from the Arkansas Oil and Gas Commission.  The samples were analyzed for major and trace elements and hydrocarbons.  Isotropic tracers were used to identify the sources of possible contamination.  The chemical composition of any contaminants in the water samples was compared to those found in gas samples from the nearby shale gas drilling sites. The comparisons showed no spatial relationship between methane and salinity occurrences in the shallow drinking wells located in proximity to the sites.  The low concentrations of methane that were found in the water did not match the isotopic fingerprint of the methane in the gas samples in all but two cases, showing that the methane in the water was primarily produced by biological activity in the shallow aquifers.

The scientists concluded that “systematic monitoring of multiple geochemical and isotopic tracers is necessary for assessing the possible groundwater contamination in areas associated with shale gas exploration as well as the possible hydraulic connectivity between shallow aquifers and deeper production zones.”   The scientists indicated that variations in local and regional geology as well as human factors, such as drilling techniques and the integrity of the well bore, play major roles in determining the possible risk of groundwater impacts from  shale gas development and in preventing or allowing gas leakage from drilling sites to shallow aquifers.

This article was prepared by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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