Their report estimates that the Monterey shale formation, consisting of an active area of 1,752 square miles in the San Joaquin and Los Angeles basins in California, contains 15.4 billion barrels of oil that can be recovered using existing technologies. To put it in perspective, those 15.4 billion barrels:
- are over four times the report’s estimate for the Bakken shale formation (which is fueling North Dakota’s current oil boom),
- would equal Saudi Arabia’s output for more than a decade, and
- would total more oil than Alaska has produced in the last 25 years.
The oil of the Monterey shale formation can only be extracted by the use of hydraulic fracturing. Given the magnitude of the numbers above, the stakes are high and a battle is looming in California between operators seeking to utilize hydraulic fracturing to extract oil from these massive shale beds and those deeply concerned by the potential environmental impacts.
As in many other areas of the country, concerns over hydraulic fracturing in California are well-publicized. Critics are concerned about high water use and possible water contamination, the release of methane, and possible earth tremors (a concern that hits home with many Californians).
Hydraulic fracturing has been conducted in California for more than 50 years. But the California Department of Conservation’s Division of Oil, Gas, and Geothermal Resources (the “Division”) does not currently have regulations tailored to address the specific public concerns about fracturing operations.
In an attempt to fill this gap, on December 18, 2012, the Division released a “discussion draft” of regulations applicable to hydraulic fracturing operations in California (the “HF Regulations”). View the Ca. Dep't. of Conservation's Division of Oil, Gas, and Geothermal Resources' Discussion Draft.
The proposed HF Regulations require operators to disclose information about chemicals used in fracturing operations to a “Chemical Disclosure Registry” (in this case, the chemical registry web site known as fracfocus.org developed by the Ground Water Protection Council and the Interstate Oil and Gas Compact Commission).
Such information includes the well operator’s name, hydraulic fracturing date, county where well located, well API number, well name and number, well location, true vertical depth of well, name of productive zone, a complete list of the names, CAS numbers, and maximum concentration, in percent by mass, of each chemical added to the fracturing fluid, trade names, suppliers, a brief description of the intended purpose of each additive contained in the fluid, the volume of carrier fluid used, the disposition of carrier fluid, any radiological components or tracers injected in the well, and the estimated volume of flowback fluid recovered.
Operators have historically resisted publicly disclosing some of the information required by the proposed HF Regulations on the basis that such information constitutes a trade secret (e.g., the chemical composition of the fracturing fluids and information regarding specific proppants). The protection of trade secrets is a statutory right provided by the California Civil Code.1
Operators have historically resisted publicly disclosing some of the information required by the proposed HF Regulations on the basis that such information constitutes a trade secret (e.g., the chemical composition of the fracturing fluids and information regarding specific proppants). The protection of trade secrets is a statutory right provided by the California Civil Code.1
The Division does not have the authority to promulgate regulations that would infringe upon that right. The proposed HF Regulations recognize this concern and afford an operator trade secret protection if it is able to demonstrate that:
- the trade secret gives the operator a significant economic advantage,
- disclosure of the trade secret would compromise that advantage,
- the information has not been disclosed elsewhere, and
- the fluid or substance cannot be reverse engineered to discover its composition.
The operator must declare under penalty of perjury that the information withheld meets these trade secret requirements. Information so protected would not be disclosed on the Chemical Disclosure Registry and would be withheld from the Division. Operators withholding such information on the basis of a claim of trade secret protection will post text on the Chemical Disclosure Registry indicating that such information has been withheld as trade secret information and, if the withheld information includes the identity of a chemical, providing the chemical family or similar descriptor associated with the trade secret constituent.
There are two exceptions to the protection of trade secrets in the proposed HF Regulations. Even information that is deemed to be a trade secret would have to be provided immediately to:
- the Division or another public agency if necessary to investigate or respond to a spill or release of fracturing fluid and
- a health care professional when necessary to treat an individual that may have been exposed to fracturing fluid.
In the latter case, an operator may request, and the health care professional shall provide upon request, a written statement of need and a confidentiality agreement from the health care professional as soon as circumstances permit.
Those seeking more detailed information about the fracturing process and impact on the environment have suggested that the trade secret exception greatly weakens the proposed HF Regulations. In what appears to be an acknowledgement of these concerns and an extension of an olive branch, the Division has indicated that it would support legislation that would allow the public to directly challenge an assertion of trade secrecy made by an operator.
In addition to seeking trade secret protection, operators may request that certain information about particular wells be maintained by the Division as confidential. The purpose of such confidential status is to avoid disclosure of such information to a competitor. By statute, the Division is required to maintain the confidentially of records relating to an “exploratory well” (i.e., one that seeks to access new, previously-untapped oil or gas resources) for two years.
Operators may also request confidential status for up to two years for wells drilled into existing, known formations or resources if the request for confidential status meets the statutory criteria found in California Public Resources Code Section 3234.2
For wells subject to treatment as confidential wells, the Division is prohibited from disclosing anything more than the location of a well and the name of the operator.
While most view the proposed HF Regulations as a reasonably balanced approach to the desire for disclosure and legitimate concerns regarding protection of confidential information and trade secrets, some environmental organizations maintain that operators should have to state exactly what is being injected into the ground with no exceptions.3
The Division hopes to commence the formal rulemaking process in February 2013. Prior to commencing the formal rulemaking process, the Division will solicit input on the proposed HF Regulations on an informal basis. Written comments about the proposed HF Regulations may be submitted at any time to comments@conservation.ca.gov.
While most view the proposed HF Regulations as a reasonably balanced approach to the desire for disclosure and legitimate concerns regarding protection of confidential information and trade secrets, some environmental organizations maintain that operators should have to state exactly what is being injected into the ground with no exceptions.3
The Division hopes to commence the formal rulemaking process in February 2013. Prior to commencing the formal rulemaking process, the Division will solicit input on the proposed HF Regulations on an informal basis. Written comments about the proposed HF Regulations may be submitted at any time to comments@conservation.ca.gov.
In addition, once the formal rule-making process begins, there will be a minimum 45-day public comment period that will include at least one public comment hearing. The duration of the rule-making process depends on the extent of public participation and the number of revisions the Division makes to the regulations during the process. The Division has estimated that the rule-making process will take eight to ten months to complete.
This article was prepared by Michael Clark (mclark@fulbright.com or 213 892 9382) from Fulbright's Energy Practice.
1 Section 3426.1(d) of the California Civil Code defines a “trade secret” as information, including a formula, pattern, compilation, program, device, method, technique, or process, that (i) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
2 California Public Resources Code Section 3234 provides that the records of other wells may be maintained as confidential information if, based upon information in a written request of the owner or operator, the supervisor determines there are “extenuating circumstances” (an undefined term).
3 “[E]nvironmentalists said the industry should have to state exactly what it wants to inject underground, no exceptions. ‘There should be some way to disclose what those (chemicals) are,’ said George Torgun, staff attorney at Earthjustice, a San Francisco nonprofit.” John Cox, “Oil Regulators Release Draft Fracking Rules.” The Bakersfield Californian (December 18, 2012).
1 Section 3426.1(d) of the California Civil Code defines a “trade secret” as information, including a formula, pattern, compilation, program, device, method, technique, or process, that (i) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
2 California Public Resources Code Section 3234 provides that the records of other wells may be maintained as confidential information if, based upon information in a written request of the owner or operator, the supervisor determines there are “extenuating circumstances” (an undefined term).
3 “[E]nvironmentalists said the industry should have to state exactly what it wants to inject underground, no exceptions. ‘There should be some way to disclose what those (chemicals) are,’ said George Torgun, staff attorney at Earthjustice, a San Francisco nonprofit.” John Cox, “Oil Regulators Release Draft Fracking Rules.” The Bakersfield Californian (December 18, 2012).
