Environment Canada reviews oil and gas industry reporting

Environment Canada is reviewing the National Pollutant Release Inventory (NPRI) reporting requirements for oil and gas activities in Canada, including the reporting of substances released during hydraulic fracturing.

The NRPI is a legislated, publically accessible inventory of pollutant releases to air, water and land. It captures data on over 300 substances of concern, including many substances declared as toxic under the Canadian Environmental Protection Act, 1999 (CEPA).

Under CEPA, the federal Minister of Environment issues a notice each year to require facilities to report information for the purpose of creating the inventory of data. The data is then made available for free to the public on the internet. The annual notice specifies the chemicals which need to be reported and sets minimum quantities for reporting. As such, the NPRI does not require reporting on all pollutants in Canada or require information from all facilities.

Although some sectors of the oil and gas industry currently report, such as the oil sands sector, many operators of oil and gas batteries, compressor stations and gas gathering systems are not required to report because their emissions are below the NPRI minimum reporting thresholds. Also, exemptions currently exist for oil and gas exploration and drilling, and the NPRI does not require the reporting of certain releases of substances under the ground, such as occurs during hydraulic fracturing or enhanced oil recovery.

Environment Canada has recently announced that it is undertaking a review of the NPRI reporting requirements for the oil and gas industry. The review will look at the perceived gaps within the NPRI data for the oil and gas industry and the factors contributing to those gaps. The review will include consideration of whether the current exemption which does not require the reporting of releases of substances underground during hydraulic fracturing, as well as the broader exemption from reporting releases from oil and gas exploration and drilling, should continue.

Environment Canada has promised to consult with industry and the public during the review. The review is anticipated to be completed in 2015.
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Nevada drafts hydraulic fracturing regulations

In January 2014, the Nevada Commission on Mineral Resources and the Division of Minerals proposed regulations to manage hydraulic fracturing and to establish procedures for water quality sampling. These proposed regulations are a result of Nevada’s Governor signing Senate Bill 390 in June 2013, which requires regulations to implement a hydraulic fracturing program by January 1, 2015.

Under the proposed regulations, for the fluids used in hydraulic fracturing, the operator must insure that only chemicals listed on the Division’s website are used unless an exception is requested at least 30 days in advance of the activity and approved. To obtain an exception, the operator must file a sundry notice that specifically describes all aspects of the hydraulic fracturing process, including the number of stages to be utilized, the measured depth/true vertical depth below land surface to each stage, the length of each state, all intervals to be perforated in measured depth/true vertical depth below land surface, the number and diameter of perforations per foot, and the estimated hydraulic pressures to be utilized. Within 60 days of completion of the hydraulic fracturing operation, all chemicals used must be identified by amount and type on the FracFocus.org website.

The proposed regulations require initial baseline samples and subsequent monitoring samples from all available water resources, up to a maximum of four, within a one mile radius of the hydraulically fractured well (designated the “Area of Review”). The initial sampling must take place within 12 months of the hydraulic fracturing operation, and the subsequent samplings must be taken between 6 and 12 months and then between 60 and 72 months. With the drilling permit application for a well that is to be hydraulically fracked, the operator must submit the location of each water source within the Area of Review, maps denoting surface and subsurface geology including location of known or suspected faults, a map showing the location of all known water sources within the area, and the source and estimated volume of water required for each well hydraulic fracturing process.

At the well site, flowback or produced water is required to be enclosed in steel tanks and cannot be moved for final disposal until the Division approves. Additional casing and cementing requirements are also included in these proposals.

For the spring of 2014, the Division and the Nevada Department of Environmental Protection are planning workshops and a public hearing to develop and discuss a program for hydraulic fracturing and to gather public and industry recommendations and comments concerning the proposed regulations.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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Emergency order requires testing and classification of crude oil transported by rail

On February 25, 2014, the U.S. Department of Transportation (DOT) issued an emergency order requiring rail shippers of crude oil to test the crude’s makeup before shipping it and to classify the crude as Packing Group I (high danger) or Packing Group II (medium danger) hazardous material until further notice.

The DOT’s emergency order recognizes that the misclassification of petroleum crude oil as a Packing Group III (low danger) material is an “imminent hazard…that presents a substantial likelihood that death, serious illness, severe personal injury, or a substantial endangerment to health, property, or the environment may occur.” This order requires that any person who wants to ship by rail a “large bulk quantity of petroleum crude oil” must conduct testing to verify its classification and must retain these records. “At a minimum, the tests shall be capable of determining the petroleum crude oil’s flash point; boiling point; corrosivity to steel and aluminum; presence and content of compounds such as sulfur/hydrogen sulfide; percentage presence of flammable gases; and the vapor pressure at 50°C.” To further ensure safety, Packing Group III can no longer be used for crude oil, requiring crude to be classified as either Packing Group I or Packing Group II material, both of which require the use of a stronger tank car than Packing Group III.

This order results from the dramatic growth in the quantity of petroleum crude oil being shipped by rail in recent years, with the resulting increase of incidents involving trains carrying crude. Recent incidents include (a) a December 30, 2013 derailment of 21 tank cars in Casselton, North Dakota resulting in an explosion which required the evacuation of 1,400 people; (b) a November 8, 2013 derailment of more than 20 cars in a 90-car petroleum crude oil train near Aliceville, Alabama; and (c) the catastrophic accident in Lac-Mégantic, Quebec, Canada on July 6, 2013 when an unattended freight train derailed, resulting in multiple explosions and fires and the deaths of more than 40 people. The Canadian authorities investigating the Lac- Mégantic incident analyzed the Bakken petroleum crude oil from nine of the undamaged tank cars and found that the crude had been incorrectly labeled Packing Group III rather than Packing Group II.

In the months after these incidents, the Pipeline and Hazardous Materials Safety Administration (PHMSA) and Federal Railroad Administration (FRA) have issued several safety alerts and advisories, including:-
  • FRA’s Emergency Order No. 28 (EO 28) establishing securement requirements for certain unattended trains and rail equipment, including petroleum crude oil unit trains;
  • PHMSA and FRA’s Safety Advisory 2013-06 recommending that railroads and shippers evaluate their processes to ensure that hazardous materials such as petroleum crude oil be properly classed and described and that safety and security plans be reviewed; and
  • PHMSA and FRA’s supplemental Safety Advisory 2013-07 emphasizing the importance of proper characterization, classification, and selection of Packing Group for the crude being shipped.
In addition, in August 2013, PHMSA and FRA started their Operation Classification program, which includes “unannounced inspections requesting samples of the transported petroleum crude oil and testing the oil samples to verify” that the materials being shipped have been properly classified and described.

For additional information on Operation Classification, click here; and for information on meetings between the DOT and representatives of the railroads and oil industry, click here.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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New York landowners sue state officials over delays in hydraulic fracturing decision

In mid-2008, the New York legislature passed regulations covering high volume hydraulic fracturing. Then-governor David Patterson ordered the DEC to conduct an environmental evaluation of fracking and horizontal wells and ordered the well approval process halted until the study was completed which was anticipated to be November 2009. A draft report was published in September 2009, but the DEC spent more than one year reviewing public comments. In December 2010, Patterson issued an executive order requiring further environmental review. Gov. Andrew Cuomo kept the order in place when he took office. In September 2012, the DEC and the Department of Health began a study of the health impacts associated with hydraulic fracturing. At a news conference on December 16, 2013, Gov. Cuomo and Dr. Nirav R. Shah, the New York State Health Commissioner, stated that there was no time-line to complete the study. Gov. Cuomo said, “My timeline is whatever commissioner Shah needs to do it right and feel comfortable.” The governor said he did not want “to put undue pressure on them that would artificially abbreviate what they’re doing.”

With no deadline in sight, on February 14, 2014, a group of more than 70,000 landowners and several other individual landowners filed a lawsuit against Gov. Cuomo, the DEC, the New York Department of Health (DOH), and Dr. Shah, complaining that the failure to finalize the supplemental generic environmental impact statement (SGEIS) has prevented them “from developing their mineral estates…or otherwise leasing or conveying their mineral estate, all of which has been detrimental and contrary to environmental and energy policies in the State of New York and the guarantees found in the Fifth and Fourteenth Amended to the United States Constitution.” The petitioners seek an order compelling completion of the SGEIS within a court-ordered deadline. They argue that Gov. Cuomo has exceeded his authority by orchestrating the delay in the SGEIS process and that the referral to the DOH was arbitrary, capricious, and an “improper delegation of the DEC’s substantive and procedural Lead Agency responsibilities” as required by the State Environmental Quality Review Act.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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Montana disclosure regulations, effective August 26, 2011

In Montana, before a well can be hydraulically fractured, acidized, or chemically treated, either in the drilling permit application or in a notice of intent to stimulate a well, the owner, operator, or service company must fully describe the activity by providing:
  • the estimated total volume of treatment to be used;
  • the trade name or generic name of the principle components or chemicals;
  • the estimated amount of the principal components such as viscosifiers, acids, or gelling agents;
  • the estimated weight or volume of inert substances such as proppants; and
  • the maximum anticipated treating pressure or a written description of the well construction specifications which demonstrate that the well is appropriately constructed for the proposed fracture stimulation.
Upon completion of a well, the owner or operator must provide additional information relating to the hydraulic fracturing fluids used, namely (a) a description of the fluid identified by additive type (e.g., acid, biocide, brine, proppant, etc.) and (b) the chemical ingredient name and the Chemical Abstracts Service (CAS) Registry number for each ingredient of the additive used, including the rate or concentration for each additive. This information is to be posted by the owner or operator on the FracFocus website.

An owner, operator or service contractor need not disclose proprietary chemicals and trade secrets unless the information is needed to respond to (1) a spill or release or (2) a written request from a health professional who is treating a person who may have been exposed to the chemical concerned. The health professional must acknowledge verbally that he or she will maintain the confidentiality of the information and may be asked later to execute a nondisclosure agreement. In the case of a spill or release, upon request from the Montana Board of Oil and Gas, the trade secret information must be disclosed to Board members and staff or to a laboratory or other third-party, all of whom may be required to sign a nondisclosure agreement.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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Crude by rail safety initiative announced by U.S. Department of Transportation and the Association of American Railroads

On February 21, 2014, the U.S. Department of Transportation (DOT) and the Association of American Railroads (AAR) announced a rail safety initiative to institute new voluntary operating practices for moving crude oil by rail. This initiative relates to crude by rail operations and does not include tank car standards or proper shipper classification of crude oil, both of which are being handled separately. The voluntary practices agreed to by the railroads include:
  • Increased Track Inspections – Beginning March 25, 2014, the railroads will perform at least one additional internal-rail inspection per year above those required by new Federal Railroad Administration (FRA) rules on main line routes over which trains moving 20 or more carloads of crude oil travel. The railroads will also conduct at least two high-tech track geometry inspections each year on main line routes over which trains moving 20 or more cars of crude oil are moving. Current federal regulations do not require high-tech track geometry inspections.
  • Braking Systems – No later than April 1, 2014, the railroads will equip all trains with 20 or more carloads of crude oil with either distributed power or two-way telemetry end-of-train devices. These technologies allow brakes to be applied from both ends of the train.
  • Use of Rail Traffic Routing Technology - No later than July 1, 2014, the railroads will begin to use the Rail Corridor Risk Management System (RCRMS) to help determine the safest and more secure rail routes for trains with 20 or more cars of crude oil.
  • Lower Speeds – No later than July 1, 2014, the railroads will operate trains with 20 or more tank cars carrying crude oil that include at least one older DOT-111 car no faster than 40 miles-per-hour in the federally designated 46 high-threat-urban areas as established by the Department of Homeland Security. “In the meantime, railroads will continue to operate trains with 20 or more carloads of hazardous materials, including crude oil, at the industry self-imposed speed limit of 50 miles per hour.”
  • Community Relations – The railroads will work with communities through which crude oil trains move to address local concerns.
  • Increased Trackside Safety Technology – No later than July 1, 2014, railroads will begin to install additional wayside wheel bearing detectors every 40 miles along tracks with trains carrying 20 or more crude oil cars.
  • Increased Emergency Response Training and Tuition Assistance – The railroads have committed to provide $5 million by July 1, 2014, to develop specialized crude by rail training and tuition assistant program for local first responders.
  • Emergency Responsive Capability Planning – By July 1, 2014, the railroads will develop “an inventory of emergency response resources for responding to the release of large amounts of crude oil along routes over which trains with 20 or more cars of crude oil operate. This inventory will include locations for the staging of emergency response equipment and, where appropriate, contacts for the notification of communities."
The railroads plan to work with the DOT and their rail customers to address other key shared responsibilities, including federal tank car standards and the proper classification and labeling of crude oil moving by rail.

For additional information from our prior blogs, please click here.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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Court finds Alberta Regulator has statutory immunity from hydraulic fracturing suit

Alberta's Court of Queen's Bench has ruled that the Energy Resources Conservation Board (ERCB) has statutory immunity to a claim by a landowner that it was negligent in protecting the landowner's water supply from hydraulic fracturing. The ERCB, or the Alberta Energy Regulator as it is now known, is responsible for regulating Alberta's oil and gas industry. 

Jessica Ernst, an activist well known in Canada for opposing hydraulic fracturing, alleged that between 2001 and 2006 oil and gas company undertook shallow drilling to extract coal bed methane and, in doing so, used hydraulic fracturing, which included the use of toxic chemicals resulting in contamination of a local aquifer and Ernst's water well. Ernst brought her suit against the ERCB, the Province of Alberta and the company.

The claim against the ERCB alleges that the ERCB was negligent in that it failed to respond to Ernst's concern about water contamination from the drilling, that it knew that the oil and gas company had drilled into and fractured the aquifer from which she withdrew her drinking water and that it failed to take reasonable steps to protect her water supply. The claim also alleged that, by its conduct, the ERCB breached the Canadian Charter of Rights and Freedoms by barring Ernst from communicating with the ERCB through the usual public channels, and thereafter ignored her for a period of time until she agreed to communicate with the ERCB directly only, and not publically through the media or through communications with other citizens.

The ERCB applied for Summary Judgment dismissing the case against it. 

The Court found that the ERCB did not owe Ernst a private duty of care in the circumstances of this case but did owe her a public duty derived from the Energy Resources Conservation Act (ERC Act). However, as section 43 of the ERC Act expressly provides that no proceedings may be brought against the ERCB in respect of any act or thing done by it under the ERC Act, the Court ordered the allegations of negligence against the ERCB in the Statement of Claim struck out.

Although the Court found Ernst's Charter claim as "novel" and "not necessarily doomed to failure", it felt that the ERC Act also provided immunity to the ERCB from personal claims for damages under the Charter. It felt that otherwise, aggrieved parties would come to the litigation process dressed in their Charter clothes whenever possible.

This post was written by Alan Harvie (alan.harvie@nortonrosefulbright.com or +1 403.267.9411) from Norton Rose Fulbright's Calgary Energy Practice Group.
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California drought being used to push for a moratorium on hydraulic fracturing

With most of the state of California under abnormally dry to extreme drought conditions, opponents of hydraulic fracturing are focusing their efforts on curtailing these operations to preserve the state’s water supply. California assemblyman Marc Levine is co-sponsoring a bill that would place a moratorium on all fracking activities, arguing these activities require too much water and deplete the state’s limited water resources. Last year a moratorium bill failed (37 to 24) while a bill requiring disclosure of the fluids used in hydraulic fracturing was passed.

As of yet, California has not done much fracturing, with the Department of Conservation estimating that last year the entire oil and gas industry used about as much water as 300 households or nearly 1,000,000 gallons. According to industry representatives, hydraulic fracturing in California uses very small amounts of water and the period of pressuring the reservoir rock is much shorter. Also the industry states that its members are sensitive to the drought conditions and can make adjustments to their operations to compensate for water shortages.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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EPA defines “diesel” in hydraulic fracturing under the Safe Drinking Water Act

On February 12, 2014, the Environmental Protection Agency (“EPA”) published notice in the Federal Register of final guidance implementing the Safe Drinking Water Act (“SDWA”) requirements for oil and gas hydraulic fracturing operations utilizing diesel fuels. The final guidance is a revised version of draft guidance issued by EPA in May 2012, on which EPA received hundreds of comments. One of the main purposes of the new guidance is to clarify which materials may qualify as diesel fuels. The guidance also recommends to permit writers the factors EPA to consider when issuing permits for hydraulic fracturing operations that use diesel fuels to ensure protection of underground sources of drinking water (“USDWs”).

Under 2005 amendments to the Safe Drinking Water Act, the definition of “underground injection” excludes the underground injection of fluids or propping agents “other than diesel” for hydraulic fracturing operations. 42 U.S.C. § 300h(d). Hydraulic fracturing operations are therefore exempt from the requirement to obtain an underground injection control (“UIC”) permit unless the injectate contains diesel. According to the final guidance, hydraulic fracturing activity requires a UIC permit if any portion of the injectate contains “diesel fuels.” The type of UIC permit required would be a Class II permit.

Through an analysis of data on hydraulic fracturing fluids on FracFocus, EPA found that diesel fuel was used in under two present of the wells for those posted to the site in 2012. Industry representatives had expressed concern, however, that EPA’s original intention (before the draft guidance was issued) was to interpret the term “diesel fuels” to be broad enough to cover substances not traditionally considered diesel, such as highly refined mineral oils and vegetable oil.

In the final guidance, EPA interprets the statutory term “diesel” to mean any of the following five Chemical Abstract Service Registry Numbers (“CASRNs”):
  • 68334-30-5 Primary Name: Fuels, diesel Common Synonyms: Automotive diesel oil; Diesel fuel; Diesel oil (petroleum); Diesel oils; Diesel test fuel; Diesel fuels; Diesel fuel No. 1; Diesel fuel [United Nations-North America (UN/NA) number 1993]; Diesel fuel oil; European Inventory of Existing Commercial Chemical Substances (EINECS) 269-822-7.
  • 68476-34-6 Primary Name: Fuels, diesel, No. 2 Common Synonyms: Diesel fuel No. 2; Diesel fuels No. 2; EINECS 270-676-1; No. 2 Diesel fuel.
  • 68476-30-2 Primary Name: Fuel oil No. 2 Common Synonyms: Diesel fuel; Gas oil or diesel fuel or heating oil, light [UN1202] No. 2 Home heating oils; API No. 2 fuel oil; EINECS 270-671-4; Fuel oil No. 2; Home heating oil No. 2; No. 2 burner fuel; Distillate fuel oils, light; Fuel No. 2; Fuel oil (No. 1,2,4,5 or 6) [NA1993].
  • 68476-31-3 Primary Name: Fuel oil, No. 4 Common Synonyms: Caswell No.14 333AB; Cat cracker feed stock; EINECS 270-673-5; EPA Pesticide Chemical Code 063514; Fuel oil No. 4; Diesel fuel No. 4.
  • 8008-20-6 Primary Name: Kerosene Common Synonyms: JP-5 navy fuel/marine diesel fuel; Deodorized kerosene; JP5 Jet fuel; AF 100 (pesticide); Caswell No. 517; EINECS 232-366-4; EPA Pesticide Chemical Code 063501; Fuel oil No. 1; Fuels, kerosine; Shell 140; Shellsol 2046; Distillate fuel oils, light; Kerosene, straight run; Kerosine, (petroleum); Several Others.”
In the draft guidance issued in May of 2012, EPA had listed six CASRNs. The sixth CASRN was not included in the final guidance. It was:
  • 68410-00-4 Primary Name: Distillates (petroleum), crude oil; Common Synonyms: Fuel, diesel (VDF) (EPA SRS14), Straight PWN diesel (EPA SRS), Aruba gas oil; EINECS 270-072-8 
Industry representatives had expressed concern about the inclusion of this CASRN for petroleum distillates in the definition of diesel because it was overly broad and included many substances not considered diesel. See, e.g., API's Comment to Draft Guidance at page 23.

EPA’s UIC Directors will implement the guidance directly in some states, such as Pennsylvania and New York, where EPA is the permitting authority for Class II wells. The guidance states that EPA Regional offices directly implementing the existing UIC Class II Program are the “primary audience” for guidance. Nevertheless, as the guidance acknowledges, many states have responsibility for implementing the Class II UIC program. Although the guidance purports to make only “non-binding recommendations,” the guidance may create uncertainty some states with UIC primacy, which may need to evaluate their programs and amend state law, regulations, or guidance to comply with EPA’s interpretations of the SDWA reflected in the final guidance.
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EPA's Inspector General announces research concerning the management of potential threats to water resources from hydraulic fracturing

In a Memorandum dated February 5, 2014, the Environmental Protection Agency’s Office of Inspector General (OIG) announced that it was “starting preliminary research on the EPA’s and states’ ability to manage potential threats to water resources from hydraulic fracturing.”

Specifically, the OIG wants to evaluate the regulatory authority that is available to the EPA and the states, identify potential threats to water resources from fracturing operations, and evaluate how the EPA and the states have responded to these threats.

The OIG plans a kickoff meeting with its members as well as representatives from the Office of Water, the EPA, and other agencies to confirm the objectives and responsibilities of the research.

This research is concurrent with the EPA’s on-going assessment of the potential impacts of hydraulic fracturing on drinking water resources, a project in which a draft report is expected to be released for public comment and peer review this year.

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EPA issues final permitting guidance for oil and gas hydraulic fracturing activities using diesel fuels

On February 11, 2014, the Environmental Protection Agency (EPA) issued a final Permitting Guidance for Oil and Gas Hydraulic Fracturing Activities Using Diesel Fuels: Underground Injection Control Program Guidance #84,” replacing a draft Guidance dated May 2012. The EPA has authority under the Safe Drinking Water Act (SDWA), as amended by the 2005 Energy Policy Act, to regulate hydraulic fracturing operations that include diesel fuels in the fracking fluids. Under the EPA’s Underground Injection Control (UIC) program, hydraulically fractured wells are considered Class II wells that must be permitted before injection can begin. The EPA has issued this Guidance “to alleviate uncertainty regarding the applicability of UIC Class II permitting requirements and the agency’s interpretation of the term ‘diesel fuels’ in the statute.”

The Guidance defines “diesel fuels” in terms of five specific Chemical Abstract Services Registry Numbers: 68334-30-5, 68476-34-6, 68476-30-2, 68476-31-3, and 8008-20-6, which categories include vehicular diesel fuels, diesel fuel oil, heating oil, marine diesel fuel, deodorized kerosene, and jet fuel, among many others. With diesel fuels, the EPA’s main concern is that they may contain benzene, toluene, ethylbenzene, and xylene compounds (BTEX), which are highly mobile in ground water. The EPA has set maximum contaminant levels for each compound.

While the Guidance sets out recommended practices for hydraulic fracturing operations where diesel fuels are used, the EPA suggests that these practices are “consistent with best practices for hydraulic fracturing in general, including those found in state regulations, voluntary standards from the American Petroleum Institute (API), and model guidelines for hydraulic fracturing developed by industry and stakeholders.” Included in the best practices are:
  • The EPA UIC permit writer should consider information about (a) the extent and orientation of the planned fracture network, any nearby underground sources of drinking water (USDWs) and their connections to surface waters, (b) seismic history, (c) baseline geochemical parameters on accessible USDWs and other subsurface formations, and (d) anticipated true vertical depths of the formations to be hydraulically fractured and the anticipated pressure range for the proposed fracturing activities.
  • Water monitoring may be needed for permits that run shorter than the full life of the well.
  • The wells must be cased and cemented in a manner that prevents the movement of fluids into or between USDWs for the life expectancy of the well.
  • In determining casing and cementing requirements, consideration should be given to the geology of the injection and confining zones, the depth between the injection zone and water sources, and proposed injection pressures.
  • Additional testing may be needed to ensure that the well maintains mechanical integrity before, during and after the use of diesel fuels in hydraulic fracturing operations.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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Nova Scotia appoints expert panel

Nova Scotia has named nine independent expert panelists to consider the effects of hydraulic fracturing in the Province. The eight men and one woman on the panel are mandated to examine the social, economic, environmental and health impacts of hydraulic fracturing. They include a geologist, medical specialist, environmental scientist, a water quality expert, and a member of a Nova Scotia First Nation, among others.

The Province previously abandoned its own internal review of hydraulic fracturing after claims its staff were not independent. That work, which included identifying and analyzing environmental and health issues as well as best practices, was handed over to the new independent panel.

The Chair of the panel claims it will be rigorously independent and evidence led. After hearing from the other experts and the public, the panel will report to the Nova Scotia Department of Energy in the Spring of 2014.

This post was written by Alan Harvie (alan.harvie@nortonrosefulbright.com or +1 403.267.9411) from Norton Rose Fulbright's Calgary Energy Practice Group.
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U.S. Department of Transportation issues notices of probable violations to three companies for mislabeling crude oil rail shipments

With the increase of crude oil being transported by rail, the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (“PHMSA”) and the Federal Railroad Administration (“FRA”) started an Operation Classification program in August 2013 to investigate whether Bakken crude oil taken from cargo tanks en route to rail loading facilities was properly classified in accordance with federal regulations.

This program includes unannounced spot inspections, data collection, and sampling at strategic terminal and transloading locations that service crude oil. In addition, PHMSA and FRA have issued safety alerts concerning the safe transport of crude oil by rail, including an alert released on January 2, 2014, relating to the flammability of North Dakota Bakken crude oil.

The three Notices of Probable Violations with fines totaling $93,000 are the first issued as a result of Operation Classification’s surprise inspections from August to November 1, 2013, at various locations, with samples taken from cargo tanks that deliver crude oil to rail loading facilities, storage tanks at the facilities, and from the pipeline connecting the storage tank to the rail car.

In testing these samples, the regulators found that 11 out of 18 samples taken from cargo tanks were not properly identified and labeled. As a result of these findings, the regulators have expanded their evaluations to include testing for Reid Vapor Pressure, corrosivity, hydrogen sulfide content and composition/concentration of the entrained gases in the material.

Shippers are required to use nine hazard classes as a guide to properly classify their hazardous materials. See 49 CFR §173.2. Proper classification is required to ensure that the material is placed in the proper packaging and that the risk is accurately communicated to emergency responders who need to follow the proper protocol when handling a spill or other situation.

In a statement released on February 4, 2014, along with the Notices of Probable Violations, Transportation Secretary Anthony Foxx expressed his support for the fines, stating that the fines “should send a message to everyone involved in the shipment of crude oil: You must test and classify this material properly if you want to use our transportation system to ship it.”

In mid-January, Secretary Foxx met with representatives of the oil and rail industries, who voluntarily agreed to take steps to avoid derailments, to work on a speed reduction plan, and to re-route trains around high-risk areas. For information on this meeting, see our prior blog, “U.S. Department of Transportation meets with oil and rail industry leaders to discuss transport safety issues.”

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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Pennsylvania court reverses decision to reconsider order allowing pre-fracking testing

On January 30, 2014, Allegheny County Court of Common Pleas Judge Christine Ward dismissed her January 8th order agreeing to reconsider her memorandum opinion in which she granted an injunction allowing an oil and gas production company “reasonable ingress, egress, access to and use of the…properties of…sixteen (16) oil and gas leases…for the purpose of performing seismic testing.” Oral hearings are scheduled for March 13, 2014.

This dismissal order came shortly after the landowners filed a motion for partial judgment on the pleadings, arguing that the company based its claims on an unconstitutional new law enacted in July 2013 (Senate Bill 259) that allowed energy companies to forcibly pool oil and gas leases. Senate Bill 259 provides that, if “an operator has the right to develop multiple contiguous leases separately, the operator may develop those leases jointly by horizontal drilling unless expressly prohibited by a lease.”

According to the landowners, the company’s “attempt to retroactively apply Senate Bill 259 to ‘historical oil and gas leases’ violates well established law governing statutory construction.” This attempt constitutes (1) an unconstitutional abridgement of the landowners’ contractual rights under both the U.S. Constitution (Article 1, Section 10 -“No state shall…pass any… law impairing the obligation of contracts”) and the Pennsylvania Constitution (Article 1, Section 7 - “No ex post facto law, nor any law impairing the obligation of contracts…shall be passed”); (2) an unauthorized taking of private property without due process of law and just compensation under the Fifth Amendment of the U.S. Constitution and Article 1, Section 10 of the Pennsylvania Constitution; and (3) the destruction of fundamental rights of landowners to negotiate their property rights (Article 1, Section 1 of the Pennsylvania Constitution).

For additional information on this lawsuit, see our previous blogs “Landowners ordered to allow producer to begin preliminary pre-fracking tests” and “Pennsylvania court agrees to reconsider injunction allowing pre-fracking tests.”

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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Pennsylvania court to consider gag rule relating to disclosure of hydraulic fracturing chemicals to physicians

On December 19, 2013, the Pennsylvania Supreme Court, Middle Division, issued an opinion striking down major portions of Act 13, P.L. ___, 58 Pa. C.S. §§2301-3504 (a substantial re-write of the Commonwealth’s Oil and Gas Act) as unconstitutional.

As part of that order, the Court gave new life to the claim of Mehernosh Khan, M.D. concerning the restrictions placed on doctors in obtaining and sharing information about the identification of hydraulic fracturing chemicals when treating patients. The lower Commonwealth Court determined that Dr. Khan lacked standing to sue because the interest he asserted was remote. The Supreme Court reversed and remanded the case for a merits decision.

Dr. Khan who treats patients in locations where drilling operations take place complained of Section 3222.1(b)(10) which requires that companies engaged in hydraulic fracturing disclose information regarding chemicals used in the process to medical providers contingent on the medical providers executing “a confidentiality agreement and provid[ing] a written statement of need for the information indicating all of the following: (1) the information is needed for the purpose of diagnosis or treatment of an individual; (2) the individual being diagnosed or treated may have been exposed to a hazardous chemical; and (3) knowledge of information will assist in the diagnosis or treatment of an individual.” If emergency treatment is needed, the companies must disclose the information to the doctor upon the doctor’s “verbal acknowledgement” that the “information may not be used for purposes other than the health needs asserted” and that the information will remain confidential. The companies may ask for a signed confidentiality agreement as soon as circumstances permit.

According to Dr. Khan, “the restrictions on sharing fracking chemicals’ composition places medical professionals in a position to choose between abiding by the mandatory provisions of Act 13 and adhering to their ethical and legal duties to report findings in medical records and to make these records available to patients and other medical professionals.” Sharing diagnostic test results and a patient’s history of exposure (dose and duration of exposure) are needed to competently treat patients. The Supreme Court recognized the “untenable and objectionable position in which Act 13 places” Dr. Khan and held that his interest in the litigation regarding the constitutionality of Section 3222.1(b) “is neither remote nor speculative.”

This decision is in contrast to a ruling dismissing a similar federal lawsuit based on this section of Act 13. In October 2013, the federal court decided that the doctor had no standing because he “has not alleged that he has been in a position where he was required to agree to any sort of confidentiality agreement under the act. Therefore…he has not yet…been prevented from engaging in any sort of communication as a result of the act.” For information on this decision, click here.

The determination of whether section 3222.1(b) is constitutional will be closely watched by operators, drillers, and others involved in hydraulic fracturing activities because they consider fracking fluid formulas to be trade secrets requiring strict confidentiality – just as Coca-Cola and Dr. Pepper consider their formulas to be proprietary and necessary to protect business.

For additional information on Robinson Township, et al v. Commonwealth of Pennsylvania, et al, Nos. 63, 64, 72 and 73 MAP 2012 (Supreme Court of Pennsylvania, Middle District, Dec. 19, 2013), appeal from the Order and Opinion of the Commonwealth Court at 284 MD 2012, dated July 26, 2012, 52 A.3d 463 (Pa. Cmwlth, 2012), please click here.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.
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Sustainable shale gas growth zones proposed by President

In his State of the Union Address on January 28, 2014, President Obama stated his commitment to American energy and to America’s energy independence through “the all-of-the-above energy strategy” that he announced several years ago. He pointed to natural gas which, “if extracted safely, [is] the bridge fuel that can power our economy with less of the carbon pollution that causes climate change.”

According to the President, his administration “will keep working with the industry to sustain production and job growth while strengthening protection of our air, our water, and our communities.” The President indicated that he would use his “authority to protect more of our pristine federal lands for future generations.”

In The State of the Union Fact Sheet: Opportunity for All, The White House presented additional proposals for energy , economic growth, and environmental conservation. According to the Fact Sheet, the Administration “is taking steps to make [natural gas] production safer,” to develop “new environmental standards for oil and gas drilling on public lands,” and to continue investing in research “to ensure safe and responsible natural gas production.” In addition, the “President is calling on Congress to work with the Administration and State and local governments to create Sustainable Shale Gas Growth Zones, helping regions come together to make sure shale gas is developed in a safe, responsible way that helps build diverse and resilient regional economics that can withstand boom-and-bust cycles and can be leaders in building and deploying clean energy technologies.”

The Address received mixed reviews, with many politicians decrying the President’s focus on using executive powers to go around Congress, objecting to the end of oil and gas tax incentives, and faulting a decision to open up more the Arctic National Wildlife Refuge to drilling. A representative of the Sierra Club stated that “the sum total of the President’s commitments fall short of what American families need to ensure a safe, healthy planet for our children.” In particular, these environmentalists see the development of natural gas as “a bridge to nowhere” and the all-of-the-above energy policy a failure. On the other hand, oil and gas companies heard the President’s support for natural gas as an implicit commitment to hydraulic fracturing (even though that process was never mentioned during the speech).

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