Hydraulic Fracking Blog: May 2015

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 The rule replaces 2008 guidance and 2011 draft guidance (later withdrawn) issued by the agencies in the aftermath of the U.S. Supreme Court’s plurality opinion in Rapanos v. United States and Carabell v. United States, 547 U.S. 715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.

This post was written by Janet McQuaid (janet.mcquaid@nortonrosefulbright.com or +1 724 416 0427) from Norton Rose Fulbright's Energy Practice Group.

Senators propose bill to penalize use of older rail cars

After the Lac-Mégantic 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.

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.

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.

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