Legislative Activity Update - Ten Pennsylvania Bills, Including New Severance Tax Bill

The following already-introduced bill has been acted upon by the Pennsylvania General Assembly:

PA House Bill 621      Format of documents recording lease assignments
Sponsor:Sandra Major (Republican – parts of Susquehanna and Wayne Counties [northeast Pennsylvania])
Overview:Requires that documents presented for recordation that contain or reference multiple leases include an addendum containing (1) the names of the lessor(s), (2) the prior recording information for the leasehold interest, and (3) the property with which each lease is associated.

Allows recorder of deeds to refuse, and his/her sole discretion, to record documents incorporating by reference or exhibit more than fifty (50) leases.
Current Status:Unanimously passed by House of Representatives on May 13, 2015.

Referred to Senate Committee on Environmental Resources and Energy on May 28, 2015.

The following bills have been introduced since the last Legislative Activity Update blog post:


PA Senate Bill 116     Natural Gas Severance Tax
Sponsor:James R. Brewster (Democrat – parts of Allegheny and Westmoreland Counties [outside Pittsburgh])
Overview:Extensive natural gas severance tax bill imposing a tax of (1) “[f]our and seven tenths cents for each unit of natural gas severed measured at the wellhead meter,” (2) “[f]ive percent of the average market price … of each unit of the dry natural gas derived from the natural gas severed,” and (3) “[f]ive percent of the gross value of the natural gas liquids derived from the natural gas severed as shown by the gross proceeds derived from the sale by the producer.”

Sets a price floor of $2.97 per unit for purposes of calculating tax.

Prohibits producer from making the tax an obligation of the landowner or leaseholder.

Requires every producer to obtain a license from the Department of Revenue (“Department”) “before severing natural gas from this Commonwealth.”

Imposes criminal penalties for severing gas without a license from the Department.

Does not repeal or alter the Impact Fee, meaning that both the Impact Fee and the Severance Tax are payable by producers.

Alters distribution scheme for Impact Fee revenue.
Current Status:Referred to the Senate Committee on Environmental Resources and Energy on May 14, 2015.

PA Senate Bill 801     Publication of Permits by DEP
Sponsor:Andrew E. Dinniman (Democrat – part of Chester County [outside Philadelphia])
Overview:Requires Department of Environmental Protection (“DEP”) to publish, on DEP’s website, the entirety of applications and supporting materials filed with the DEP related to the following permits:
  • Air quality permits under the “Air Pollution Control Act”;
  • Water allocation permits under the “Water Rights Law”;
  • Water obstruction permits under the “Dam Safety and Encroachments Act”;
  • Water quality permits, except those relating to coal mining activities, under the “Clean Streams Law”; and
  • Solid waste and hazardous waste permits under the “Solid Waste Management Act.”
Current Status:Referred to the Senate Environmental Resources and Energy Committee on May 14, 2015.

PA Senate Bill 802     Notification of pipeline construction
Sponsor:Andrew E. Dinniman (Democrat – part of Chester County [outside Philadelphia])
Overview:Requires notice and information to be given to landowners within a half mile from boundary of proposed activity requiring certain permits.

Permits for which notice and information must be given include:
  • Air quality permits under the “Air Pollution Control Act”;
  • Water allocation permits under the “Water Rights Law”;
  • Water obstruction permits under the “Dam Safety and Encroachments Act”; and
  •  Water quality permits, except those relating to coal mining activities, under the “Clean Streams Law.”
Information provided in notice includes the following:
  • A description of the type of permit application;
  • Brief description of activity planned for project;
  • Statement that project activity is anticipated to have one or more impacts on landowner(s); and
  • Brief description of anticipated impact(s).
Notice must be given within 30 days of submission of application for permit.
Current Status:Referred to the Senate Environmental Resources and Energy Committee on May 14, 2015.

PA Senate Bill 803     Protection of Act 43 farmland 
Sponsor:Andrew E. Dinniman (Democrat – part of Chester County [outside Philadelphia])
Overview:Amends Agricultural Area Security Law to require approval by Agricultural Lands Condemnation Approval Board of pipeline projects that would involve condemnation of land used for “productive agricultural purposes” by Pennsylvania Public Utility Commission and/or Federal Energy Regulatory Commission.

Applies only to the following county classes:
  • First Class (Philadelphia County);
  • Second Class and Second Class A (Allegheny, Bucks, Delaware, and Montgomery counties); and
  • Third Class (Berks, Chester, Cumberland, Dauphin, Erie, Lackawanna, Lancaster, Lehigh, Luzerne, Northampton, Westmoreland, and York counties).
Current Status:Referred to the Senate Environmental Resources and Energy Committee on May 14, 2015.

PA Senate Bill 804     Amends Gas and Hazardous Liquids Pipelines Act
Sponsor:Andrew E. Dinniman (Democrat – part of Chester County [outside Philadelphia])
Overview:Pipeline operators purchasing or obtaining an easement for public land, agricultural-easement land, or permanently preserved land for new or expanded pipelines must purchase or grant an easement for an equivalent section of land within the respective county for recreational use.

Easement replacement obligation applies only to the following county classes:
  • First Class (Philadelphia County);
  • Second Class and Second Class A (Allegheny, Bucks, Delaware, and Montgomery counties); and
  • Third Class (Berks, Chester, Cumberland, Dauphin, Erie, Lackawanna, Lancaster, Lehigh, Luzerne, Northampton, Westmoreland, and York counties).
Pipeline operator engaged in construction or replacement of pipelines involving the alteration or development of land must ensure that post-construction volume and maximum rate of storm water runoff does not exceed pre-construction levels.
Current Status:Referred to the Senate Environmental Resources and Energy Committee on May 14, 2015.

PA Senate Bill 845     Licensing of Soil Scientists
Sponsor:Judith L. Schwank (Democrat – part of Berks County)
Overview:Requires soil scientists to be licensed and provides for qualifications for same.
Current Status:Referred to the Senate Committee on Consumer Protection and Professional Licensure on May 20, 2015.

PA House Bill 1099    Provides for independent counsel for the Environmental Quality Board
Sponsor:John Maher (Republican – parts of Allegheny and Washington Counties [outside Pittsburgh])
Overview:Requires the Department of Environmental Protection to appoint independent counsel for the benefit of the Environmental Quality Board (“EQB”).

Independent counsel shall assist EQB on all matters, “including, but not limited to, the review of rulemaking petitions submitted to the [EQB], the drafting and development of amendments to proposed and final rulemaking and advice relating to procedural matters.”

Provides that discussions between independent counsel and EQB are privileged.
Current Status:Reported out of House Committee on Environmental Resources and Energy (18 to 7) on May 12, 2015.

PA House Bill 1253    Professional licensure of engineers, land surveyors, and geologists
Sponsor:Mark Mustio (Republican – part of Allegheny County [outside Pittsburgh])
Overview:Removes certain exemptions to the professional licensure requirement for engineers, land surveyors, and geologists.

Specifically, the following exemptions from licensure have been eliminated:
  • The practice of engineering, land surveying or geology, not exceeding thirty days in the aggregate in one calendar year, by a nonresident not having a place of business in this Commonwealth;
  • The practice of engineering, land surveying or geology by any person or by any employee of any copartnership, association or corporation upon property owned by such person or such copartnership, association or corporation; and
  • The practice of engineering, land surveying or geology work by a manufacturing, mining, communications common carrier, research and development or other industrial corporation or by employees of such corporation, provided such work is in connection with or incidental to products of, or non-engineering services rendered by, such corporation or its affiliates.
Current Status:Referred to House Committee on Professional Licensure on May 28, 2015.

PA House Bill 1292    Hydraulic fracturing chemical disclosure requirements
Sponsor:Dan Frankel (Democrat – Pittsburgh)
Overview:Amends Oil and Gas Act to clarify obligations of health professionals with respect to disclosure of trade secrets and/or confidential proprietary information.

Prohibits health professional from disseminating trade secret and/or confidential proprietary information except in following instances:
  • Disclosure relates to diagnosis or treatment of a patient and is provided to a person whose knowledge the health professional deems important to the diagnosis or treatment of the patient;
  • The disclosure occurs during procurement of payment for services rendered or planned;
  • The disclosure is provided to a public health official or is intended to further public health; or
  • The disclosure is used for the study of any chemical involved.
Removes ability of vendor, service provider, or operator to request a statement of need and a confidentiality agreement from health professional.
Current Status:Referred to House Committee on Environmental Resources and Energy on June 5, 2015.

EPA study confirms that fracking is not responsible for widespread water contamination

On June 4, 2015, the Environmental Protection Agency (EPA) released its highly anticipated study on the impact of hydraulic fracturing on drinking water. The EPA has been working on this study for a number of years. In the study, the EPA concluded that hydraulic fracturing is not the cause of widespread contamination of drinking water.

The EPA’s report is one of many studies over the past couple of years to conclude that hydraulic fracturing has minimal impact on groundwater. For instance, the United States Department of Energy released a study that tracked hydraulic fracturing fluids over a twelve month period. The report found that the fracking fluid did not contaminate the groundwater. Other studies reaching this conclusion include reports by: the United States Geological Survey, the Government Accountability Office, the Massachusetts Institute of Technology, and the Groundwater Protection Council. According to the EPA, its study is the most comprehensive study conducted on the subject. In fact, the EPA relied on more than 950 different sources.

The EPA’s study acknowledged that there have been some cases of wells leaking fluids; however, the report concluded that this concern could be addressed strengthening wells and ensuring that wastewater is properly disposed.

The EPA’s study will not be finalized until it is reviewed by the Science Advisory Board and the public has had an adequate opportunity to review and comment. Instructions on how to submit commits will be published today.

Read the report.


This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) and Johnjerica Hodge (johnjerica.hodge@nortonrosefulbright.com or 713 651 5698) from Norton Rose Fulbright's Energy Practice Group.

United States Congress weighs the "Frack Pack"

Currently, the United States Congress is considering a group of bills aimed at extending the ability of the federal government to regulate hydraulic fracturing. The bills, commonly referred to as the “Frack Pack,” have been sponsored by Democrats in the Senate and House of Representatives. In response, Republicans in the Senate and House of Representatives have proposed legislation that would limit the federal government’s authority to regulate hydraulic fracturing.

One of the bills, the Fracturing Responsibility and Awareness of Chemicals Act of 2015 (FRAC), would empower the United States Environmental Protection Agency (EPA) to regulate hydraulic fracturing. Specifically, FRAC would remove the hydraulic fracturing exclusion from the Safe Drinking Water Act (SDWA). Currently, the SDWA does not apply to hydraulic fracturing unless the fluids used in the fracking process include diesel fuels. Additionally, FRAC would impose heightened disclosure requirements. For instance, FRAC would require companies to disclose the types of chemicals used in their fracking process. That said, FRAC contains a provision that would provide the companies with trade secret protection.

Yet another bill currently before Congress is the Safe Hydration is an American Right in Energy Development Act of 2015 (SHARED). This bill would add a provision to the SDWA, mandating that oil and gas operators implement groundwater testing before drilling operations begin. Additionally, SHARED would require operators to conduct monitoring throughout drilling operations. Under SHARED, the test results would be listed on the internet.

Additionally, Congress is considering the Focused Reduction of Effluence and Stormwater runoff through Hydrofracking Environmental Regulation Act of 2015 (FRESR). Under FRESR, oil and gas operations would no longer be exempt from the Clean Water Act’s (CWA) stormwater permitting requirements. If enacted, oil and gas operators would be required to obtain a permit permitting stormwater run-off through each stage of the fracking process.

Congress is also evaluating the Bringing Reductions to Energy’s Airborne Toxic Health Effects (BREATHE) Act of 2015. BREATHE is directed at the Clean Air Act (CAA) and would add hydrogen sulfide as a hazardous air pollutant (HAP). In addition, the bill would add oil and gas wells as a major source of hydrogen sulfide. If oil and gas wells are listed as a major source of hydrogen sulfide, the EPA would have the ability to establish thresholds for the amount of hydrogen sulfide that could be emitted from the wells. Moreover, BREATHE would also repeal the provision of the CAA that prohibits the aggregation of oil and gas wells and compressor stations when determining whether an activity constitutes a major source.

Democrats in the House of Representatives have also sponsored the Protect Our Public Lands Act (POPLA). If enacted, POPLA would ban any hydraulic fracturing operations on land leased by the federal government. However, drilling operations in operation when the bill is enacted would be permitted to continue until the lease expired or was adjusted.

On the other end of the spectrum lies the Fracturing Regulations are Effective in State Hands Act of 2015 (FRESH) and the Protecting States Rights to Promote American Energy Security Act of 2015 (PSRPAES). Under FRESH, states would have sole authority to regulate hydraulic fracturing. In fact, FRESH would authorize states to regulate hydraulic fracturing on federal lands. PSRPAES targets the Mineral Leasing Act and would bar the Department of Interior from regulating hydraulic fracturing if the state in which the drilling operations will occur already has regulates hydraulic fracturing. Indeed, PSRPAES directs the Secretary of the Interior to defer to state regulations irrespective of whether the regulations are less restrictive than federal rules or differ from federal regulations.


This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) and Johnjerica Hodge (johnjerica.hodge@nortonrosefulbright.com or 713 651 5698) from Norton Rose Fulbright's Energy Practice Group.

North Dakota utilizes tax incentive scheme to encourage oil production

According to the North Dakota Industrial Commission, the amount of crude oil produced in the state has decreased dramatically. Whereas 1.2 MMb/d of crude oil was produced in the state in December, only 37 Mb/d was produced in January. In addition, the number of wells completed in the state also dropped. Commentators have speculated that the drop in production and well completions is the result of low crude oil prices. However, companies may simply be biding their time until North Dakota tax incentives are triggered.

Two taxes apply to the majority of the crude oil produced in North Dakota. The gross value of crude oil produced in the state is subject to a 5% gross production tax (GPT) and a 6.5% extraction tax. Crude oil produced on American Indian land is exempt from the GPT. During times of low crude oil prices, North Dakota has waived or, at a minimum, lowered the extraction tax applicable to crude oil.

One tax incentive employed by North Dakota is the Small Trigger. The Small Trigger became effective in February 2015. The North Dakota Legislature created the tax incentive to encourage the drilling of new wells and increase crude oil production. The tax break is available whenever the monthly average price for West Texas Intermediate (WTI) crude oil is below $57.50/Bbl. Rather than imposing a 6.5% tax, the extraction tax lowers to 2% for the first $4.5 million or 75 MBbl produced, whichever is first. This tax break continues up until the first eighteen months once a well is completed and only covers wells finished after February 1, 2015. The tax incentive is only available until June 30, 2015. If the average WTI price rises above $72.50/Bbl, however, the tax break would no longer be available.

If crude oil prices remain lower than $55/Bbl, another tax incentive referred to as the Large Trigger would go into effect. Under the Large Trigger, if the price of oil drops below $55.09/Bbl, the 6.5% tax on extraction will be waived. The tax incentive is not triggered until the monthly average WTI price falls below the threshold for at least 5 consecutive months. If triggered, the tax incentive would be available until the average monthly oil price rises above the threshold for five consecutive months. For the first 24 months after the incentive is triggered, the incentive permits oil producers to avoid paying the entire 6.5% extraction tax on old and new producing wells. After the initial 24 month period, the Large Trigger reduces the extraction tax to 4%.

For more information on drilling economics, click here.



This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) and Johnjerica Hodge (johnjerica.hodge@nortonrosefulbright.com or 713 651 5698) from Norton Rose Fulbright's Energy Practice Group.

EPA releases new "waters of the United States" rule

Yesterday the United States Environmental Protection Agency and the Corps of Engineers released a pre-publication, final version of a new rule defining the scope of “waters of the United States” under the Clean Water Act.  This definition is key to the agencies’ jurisdiction under the National Pollutant Discharge Elimination System, Clean Water Act Section 404 permitting for discharge of dredge and fill materials, Oil Pollution Act coverage, and other federal water quality permitting, notification, and liability programs.  The rule replaces 2008 guidance and 2011 draft guidance (later withdrawn) issued by the agencies in the aftermath of the U.S. Supreme Court’s plurality opinion in Rapanos v. United States and Carabell v. United States, 547 U.S. 715 (2006), in which Justice Kennedy articulated a “significant nexus” test for defining waters of the U.S.  The rule will become effective sixty days after publication in the Federal Register.  EPA and the Corps say the rule expands the scope of waters covered by these laws by only about 3%, but industry and development interests claim the expansion is much greater.  Industry, development, and environmental interests have all threatened to seek judicial review of the new rule.  EPA has posted information on the rule, including the text of the final rule.
 

Senators propose bill to penalize use of older rail cars

After the Lac-M├ęgantic derailment, several groups have advocated for the strengthening of regulations governing the transportation of crude oil by rail. A group of Democrats in the United States Senate have responded by proposing a new bill—the Hazardous Materials Rail Transportation Safety Improvement Act of 2015. The new bill contains a number of measures targeted at reducing the use of older rail cars.

Specifically, the new bill would impose a fee of $175 each time a DOT-111 railcar is used to ship crude oil. In its current form, the fee would escalate each year. The bill would also grant tax credit to parties to upgrade their rail cars to comply with the latest standards promulgated by the United States Department of Transportation (DOT). The bill specifies that money collected from violations would be reserved for the cleanup costs associated with derailments as well as the training of first-responders. In addition, the bill would use the collected funds to hire additional train inspectors and fund the tax credits. Furthermore, the bill contains provisions mandating that the DOT provide first responders with real-time information with respect to the transportation of crude oil by rail and implement more stringent maintenance requirements for tracks. The bill also provides for studies of the methods first responders use when faced with derailments.

The sponsors of the bill are Senators Ron Wyden, Chuck Schumer, Sherrod Brown, Mark Warner, Bob Casey, and Dianne Feinstein. According to Senators Wyden and Brown, the DOT’s attempts to increase the safety of the transportation of crude oil by rail have fallen short of achieving the goal of safe transportation of crude oil by rail. This new bill, in Senator Wyden’s opinion, represents a new approach to convincing companies to switch to safer rail cars.

Read the bill.


This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) and Johnjerica Hodge (johnjerica.hodge@nortonrosefulbright.com or 713 651 5698) from Norton Rose Fulbright's Energy Practice Group.

Texas Railroad Commission Chair weighs in on induced seismicity

Texas Railroad Commission Chairwoman Christ Craddick criticized finger-pointing at the oil and gas industry for recent Texas tremors in a May 15 interview, noting that the cause of recent seismic events is still not known “for sure.” Chairwoman Craddick commented, “The political rush to judgment and the press rush to judgment that every earthquake’s being caused by oil and gas in this state, particularly in the metroplex, is a bit concerning when the facts haven’t necessarily proven that out.” 

Craddick also discussed the importance of preventing delays in the Railroad Commission’s well permitting process, which now includes a seismicity risk review for disposal wells. Craddick criticized the speed of the U.S. Department of Interior’s Bureau of Land Management which takes 290 days under proposed new rules to review a standard drilling permit, remarking “that’s not good and efficient, that’s not good for the economy long-term.”

In addition, Craddick stressed the importance of state-level regulation for hydraulic fracturing, describing the Texas scheme as a “model” in contrast to EPA proposals for fracking on federal lands that “don’t make a lot of sense.” In particular, Craddick highlighted the fact that although the Commission will continue to try to work with the EPA, Texas’ regulatory autonomy has resulted in exemplar regulation, commenting that “the Railroad Commission has some of the best practice rules for well casing.” Craddick’s statements come at a time when state and federal authorities are considering induced seismicity regulations, and experts continue to ponder the effects for the energy industry.

Legislative Activity Update - Two Pennsylvania Bills, Including New Severance Tax Bill

The following already-introduced bill was acted upon by the Pennsylvania General Assembly:

PA House Bill 621     Requirements for recording oil and gas documents
Sponsor:Sandra Major (Republican – parts of Susquehanna and Wayne Counties [northeast Pennsylvania])
Overview:Requires that documents presented for recordation that contain or reference multiple leases include an addendum containing (1) the names of the lessor(s), (2) the prior recording information for the leasehold interest, and (3) the property with which each lease is associated.

Allows recorder of deeds to refuse, and his/her sole discretion, to record documents incorporating by reference or exhibit more than fifty (50) leases.

Defines “oil or gas document” as one which “transfers all or part of the interests of one party to another party in multiple oil or gas leases”
Current Status:Unanimously reported by House Committee on Commerce on April 20, 2015.

Referred to House Committee on Appropriations on May 12, 2015.

The following bill was introduced in the Pennsylvania General Assembly:

PA House Bill 1142    Natural Gas Severance Tax
Sponsor:Margo L. Davidson (Democrat – part of Delaware County [outside Philadelphia])
Overview:Extensive natural gas severance tax bill imposing a tax of (1) “[f]our and seven tenths cents for each unit of natural gas severed measured at the wellhead meter,” (2) “[f]ive percent of the average market price … of each unit of the dry natural gas derived from the natural gas severed,” and (3) “[f]ive percent of the gross value of the natural gas liquids derived from the natural gas severed as shown by the gross proceeds derived from the sale by the producer.”

Sets a price floor of $2.97 per unit for purposes of calculating tax.

Prohibits producer from making the tax an obligation of the landowner or leaseholder.

Requires every producer to obtain a license from the Department of Revenue (“Department”) “before severing natural gas from this Commonwealth.”

Imposes criminal penalties for severing gas without a license from the Department.

Does not repeal or alter the Impact Fee, meaning that both the Impact Fee and the Severance Tax are payable by producers.

Alters distribution scheme for Impact Fee revenue.
Current Status:Referred to the House Committee on Environmental Resources and Energy on May 12, 2015.


This post was written by Jeremy Mercer (jeremy.mercer@nortonrosefulbright.com or 724 416 0440) and Michael Gaetani (michael.gaetani@nortonrosefulbright.com or 724 416 0429) from Norton Rose Fulbright's Energy Practice Group.

Earthquake risks prompt evaluation of wastewater injection

Earthquake risks recently prompted lawmakers and regulators in several oil and gas producing states to evaluate wastewater injection purportedly linked to seismic activity. Key developments include:
  • 4/21: SMU faculty publish geophysical report blaming two wells for Azle, Texas quakes
  • 4/23: US Geological Survey issues report claiming seismic events in 8 states were induced
  • 4/23: Oklahoma Geological Survey issues statement saying seismic events unlikely to be natural
  • 4/24: Texas Railroad Commission issues public statement that it will order show cause hearings for the two Azle wells
  • 5/4: Researchers and Railroad Commission officials testify before Texas House Energy Resources Committee induced seismicity hearing
Review a discussion of legal issues associated with induced seismicity.

We will continue to monitor breaking developments here at The Hydraulic Fracturing Blog.


This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) from Norton Rose Fulbright's Energy Practice Group and Emery Richards (emery.gullickson.richards@nortonrosefulbright.com or 713 651 5698) from Norton Rose Fulbright's Antitrust Group.

Legislative Activity Update - Two Pennsylvania Bills

The following bill and resolution were introduced in the Pennsylvania General Assembly:

PA House Bill 1097    Water Well Insurance Fund
Sponsor:Peter J. Daley (Democrat - parts of Fayette and Washington Counties [south of Pittsburgh])
Overview:Establishes the Water Well Insurance Board (“Board”) and Water Well Insurance Fund.

Water well owners may apply to “become a subscriber to the fund for the purpose of insuring the water well against damages from intrusion or contamination.”

Premium rates are set by the Board.


The term “contamination” is not defined in the bill.

Maximum payout under an insurance policy is capped at “replacement cost of the insured well or the maximum amount of coverage established by the fund, whichever is less.”


Bill expressly states that it “shall not be construed to relieve any person, partnership, or corporation otherwise liable from any liability for damages sustained.”
Current Status:Referred to House Committee on Environmental Resources and Energy on May 4, 2015.


PA House Resolution 316      Study to Expand Availability of Natural Gas in Pennsylvania
Sponsor:Kevin J. Schreiber (Democrat – part of York County [south-central Pennsylvania])
Overview:Directs the Legislative Budget and Finance Committee (“Committee”) to conduct a study on the issue of expanding the availability of natural gas to Pennsylvania homes, businesses, nonprofit organizations and units of government.

Specifically directs the Committee to consider whether there is a need for particular types of infrastructure to address gaps in the availability of natural gas service.
Current Status:Referred to House Committee on Environmental Resources and Energy on May 5, 2015.

Department of Transportation publishes heightened standards for railcars transporting crude oil

On May 1, 2015, the United States Department of Transportation (DOT) released its final rules governing the transportation of oil by rail. The new rules apply to railcars transporting high-hazard flammable materials and largely correlate with the heightened standards applicable in Canada. The new rules are set to go into effect on October 1, 2015.

The DOT made several changes to the final rules in light of the comments it received in response to the proposed rule. For example, the DOT extended the deadline by which DOT-111 railcars must be retrofitted or replaced to three years rather than two years. As for the CPC-1232 railcars, companies will have five years to retrofit or replace those cars if the railcars do not have insulating jackets that satisfy the heightened requirements.

After October 1, 2015, all new railcars must comply with the DOT-117 standard. To satisfy the DOT-117 standard, railcars must have thicker shells, insulated jackets, updated pressure relief valves, and improved thermal protection. In addition, trains with at least 70 railcars that are carrying Class 3 flammable liquids, the most volatile category, must now have pneumatic braking systems before January 1, 2021. Trains merely transporting other flammable liquids only need to install the braking systems by 2023. The new rules also establish a speed limit of 50 mph. If the railcar doesn’t comply with the updated standards set forth in the rules, the railcar must comply with a 40-mph speed limit in urban areas.

Thus far, the new rules have received a significant amount of criticism. Environmentalists have argued that the rules are not sufficiently stringent. A number of environmental groups advocated for the immediate ban of the older DOT-111 railcars. Members of the oil and gas industry have argued that the cost to comply with the rules is excessive and that the deadline for retrofitting the railcars could result in a shortage of railcars. Others have argued that the new braking systems will not help in reducing accidents. The final rules will certainly be challenged. Some commentators have suggested that the new rules would not withstand judicial scrutiny, despite the favorable standard of review, because the DOT lacks supporting authority for the requirements.

Read the final rules.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) and Johnjerica Hodge (johnjerica.hodge@nortonrosefulbright.com or 713 651 5698) from Norton Rose Fulbright's Energy Practice Group.

Fracking bill approved by Texas Senate committee

On Thursday, April 30th, the Texas Senate Natural Resources & Economic Development Committee (Committee) voted to approve H.B. 40. As discussed in a previous post, H.B. 40 is a response to the fracking ban enacted by the city of Denton, Texas during the latter part of last year. The Committee voted unanimously in favor of the bill. If enacted, H.B. 40 would prohibit localities from enacting legislation governing oil and gas operations. In its current form, H.B. 40 would permit localities to adopt legislation regulating “surface activity that is incident to an oil and gas operation, is commercially reasonable, does not effectively prohibit an oil and gas operation, and is [not] otherwise preempted by state or federal law.”

H.B. 40 moved quickly through the Texas House of Representatives. In March, the House Committee on Energy Resources voted to approve the bill. A couple of weeks later, the House of Representatives voted to pass the bill. H.B. 40 appears to be poised to receive a similarly fast-paced approval by the Senate. H.B. 40 is sponsored by Representative Drew Darby.

Several detractors and supporters of the bill testified before the Committee. The detractors argued against the “commercially reasonable” standard of H.B. 40. According to the detractors, the “commercially reasonable” standard is too amorphous. In addition, some detractors suggested that the bill would result in the undoing of a number of environmental ordinances enacted by localities. Supporters for the bill stated that H.B. 40 was necessary because hydraulic fracturing and related activities need to be regulated by one entity.

Read H.B. 40.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) and Johnjerica Hodge (johnjerica.hodge@nortonrosefulbright.com or 713 651 5698) from Norton Rose Fulbright's Energy Practice Group.

Lawsuit challenging fracking disclosure requirements stayed

As discussed in a previous post, several environmental groups have sued the United States Environmental Protection Agency (EPA) in the United States District Court for the District of Columbia. The plaintiffs alleged that the EPA failed to properly respond to their 2012 petition that requested that the EPA issue a rule requiring companies engaging in hydraulic fracturing to disclose chemicals used in their drilling operations. According to the plaintiffs, the Administrative Procedure Act required the EPA to respond to their petition within sixty days.

On Friday, April 24th, the parties filed a joint motion to stay the lawsuit, which the district court approved. In the joint motion, the EPA stated that it would respond to the plaintiff’s petition later this year. Specifically, the EPA agreed to respond before October 30, 2015. The district court has scheduled a status hearing on November 13, 2015. The parties initiated settlement negotiations shortly after the lawsuit was filed.

The plaintiffs’ primary dispute with the EPA revolves around the Toxics Release Inventory (TRI) and the Emergency Planning and Community Right-to-Know Act (EPCRA). The EPCRA empowers the EPA to mandate that the oil and gas industry disclose any chemicals used in their drilling operations. Currently, the oil and gas industry is not subject to the TRI’s requirements. In 2011, the EPA released a proposal to increase the number of industries subject to the TRI disclosure requirements but decided to not subject the oil and gas industry to the disclosure requirements.

Read the joint motion to stay the proceedings.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) and Johnjerica Hodge (johnjerica.hodge@nortonrosefulbright.com or 713 651 5698) from Norton Rose Fulbright's Energy Practice Group.

Florida House of Representatives passes bill to strengthen hydraulic fracturing requirements

Earlier this week, the Florida House of Representatives passed a bill targeted at hydraulic fracturing. The bill, H.B. 1205, would heighten the regulatory requirements on fracking. The bill passed easily with a sizeable majority voting in favor of the bill. 82 members of the House of Representatives voted in favor of passing the bill and 34 members voted against enacting the bill.

Under H.B. 1205, operators would be required to obtain a fracking permit before engaging in fracking operations. Moreover, operators would be required to declare that they intend to use hydraulic fracturing before beginning any drilling operations. In comparison, the current rules only require operators to receive a general drilling permit. The current rules also permit operators to wait until drilling operations have commenced to notify the Florida Department of Environmental Protection (FDEP) that they intend to use hydraulic fracturing.

In addition, H.B. 1205 provides for a stricter permit approval process and additional disclosure requirements. The new bill authorizes the FDEP to examine the history of parties applying for fracking permits. In fact, H.B. 1205 would permit the FDEP to base its decision on an applicant’s actions in other states. The current regulatory scheme does not permit the FDEP to use an applicant’s out-of-state conduct as a basis for approval or denial of a fracking permit. H.B. 1205 would also increase the fines for violations and the bond minimums. Furthermore, H.B. 1205 mandates that companies disclose any chemicals injected into the ground.

The new bill requires the FDEP to conduct a study on hydraulic fracturing. Specifically, the FDEP’s study must address the potential connection between hydraulic fracturing and groundwater and whether recycled water can be used during fracking operations. Additionally, the study must examine the disposal process for fluids.

Thus far, the bill has received mixed reviews. Some observers have championed the bill as a method of preventing violations. Opponents of the bill have argued that the bill should be replaced with a ban against hydraulic fracturing. Other commentators have suggested that H.B. 1205 prioritizes business interests over public health.

Read H.B. 1205.

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) and Johnjerica Hodge (johnjerica.hodge@nortonrosefulbright.com or 713 651 5698) from Norton Rose Fulbright's Energy Practice Group.