Report cites “multitude of factors” for Lac-Megantic train derailment

The Transportation Safety Board of Canada (“TSB”) released an investigation report on August 19 on the Lac-Megantic, Quebec train derailment that resulted in fires and explosions, destroyed much of the town and left 47 people dead. Citing 18 factors that contributed to the incident, TSB is now calling for additional safety measures to prevent runaway trains and more thorough audits of rail companies’ safety management systems.

The report cited Montreal, Maine & Atlantic Railway (“MMA”), the company operating the runaway the Lac-Megantic train, for having a weak safety culture without built-in systems to manage risks. In addition, the report found poor training, employee monitoring, and maintenance practices at MMA; issues with industry guidelines for securing unattended trains; and problems with tank cars used to carry crude oil. Investigators also learned that Canadian transportation authorities did not audit MMA often or thoroughly to address MMA’s safety gaps.

In response to the accident and the report, the Canadian government is passing new safety standards for tank cars carrying crude oil, requiring those that do not meet the new standards to be phased out by 2017. The report provided additional recommendations for the government to ensure that unattended trains are always secured, especially when passing through heavily populated areas.


This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group and Kathleen McNearney (katie.mcnearney@nortonrosefulbright.com or 713.651.5698).

Texas Railroad Commission seismologist speaks on agency’s motivation in proposing injection well rule amendments

Last Monday, August 25, 2014, Texas Railroad Commission seismologist Craig Pearson testified before the Texas House of Representatives. Pearson noted that researchers from Southern Methodist University continue to track ongoing, extremely low-grade seismic activity in North Texas, which he called “micro-earthquakes.”

Pearson continued, stating that the Commission believes that it is a “change in pressure that’s affecting existing faults in the earth and allowing them to move and cause earthquake[s].” He said that one of the proposed rule amendments would require injection well operators to calculate the magnitude and physical extent of pressure increases their wells cause to rock formations, which may in turn help the Railroad Commission identify the potential for induced seismicity. This is part of an overall effort by the Commission to systematically analyze injection well risks instead of dealing with issues on an ad hoc basis as they arise.

Notably, the Texas Oil and Gas said it has some “initial concerns” about the rule amendments, but that is has not yet finalized comments on the proposal.

Texas proposes rule to evaluate seismic activity related to fracking

On August 12, 2014, the Railroad Commission of Texas (“RRC”) approved several proposed amendments to fracking regulations in the Texas Administrative Code for publication in the Texas Register. These proposed amendments relate generally to additional permitting requirements for disposal wells. Additionally, the proposed amendments would codify the RRC’s authority to request increased monitoring and reporting related to seismic events near disposal wells and to modify, suspend, or terminate a permit if fluids are not confined to the injection interval.

Over the past several years, suspicions of a connection between hydraulic fracking and earthquakes have spurred many studies and debates. In effort to better understand the impact of oil and gas extraction activities, the RRC hired a seismologist several months ago to clarify the root causes of earthquakes that some insist are connected to fracking. In relation to bringing a seismologist on board, Commissioner David Porter commented that “[t]his will allow our agency to further examine any possible correlation between seismic events and oil and gas activity and gain a more thorough understanding of the science and data available.”

To introduce the proposed amendments, the RRC states in the proposal that “[w]hile few earthquakes have been documented over the past several decades relative to the large number of disposal wells in operation, seismic events have infrequently occurred in areas where there is coincident oil and gas activity.” Therefore, the proposed amendments incorporate several provisions that require additional collection and evaluation of seismic activities near proposed disposal wells, and the potential to impose additional monitoring and reporting of seismic data for areas surrounding existing disposal wells.

Proposed Amendments to Section 3.9 and Section 3.46


The RRC proposes amendments to Title 16, Sections 3.9 and 3.46 of the Texas Administrative Code, relating to Disposal Wells and to Fluid Injection into Productive Reservoirs, respectively. Although these sections regulate two different types of disposal well permits, the proposed language in both sections would adopt the same new requirements and rules.

Section 3.9 currently requires anyone “who disposes of saltwater or other oil and gas waste by injection into a porous formation not productive of oil, gas, or geothermal resources” to obtain a well disposal permit. 16 Tex. Admin. Code § 3.9. Section 3.46 currently requires anyone “who engages in fluid injection operations in reservoirs productive of oil, as, or geothermal resources” to obtain an injection permit from the RRC. 16 Tex. Admin. Code § 3.46(a). Section 3.46 regulates injection into productive formations for either enhanced recovery or for disposal. However, the proposed new language relating to seismic activity would apply only to those wells permitted under Section 3.46 for disposal purposes.

The only proposed amendments that would automatically require all applicants to perform additional duties are those proposed in Sections 3.9(3)(B) and 3.46(b)(1)(C). The proposed amendment to these two subsections would require applicants for disposal permits under Sections 3.9 or 3.46 to include with the application for the permit the results of a review of information from the United States Geological Survey (“USGS”)1 regarding the locations of any historical seismic events within the estimated radius of the 10-year, five pounds per square inch (“psi”) pressure front boundary of the proposed disposal well location. A “pressure front” is defined as the zone of elevated pressure that is created by the injection of fluids into the subsurface. A “10-year, five psi pressure front boundary” is defined as the boundary of increased pressure of five psi after 10 years of injection at the maximum requested permit injection volume.

The other proposed amendments would serve to formally recognize the RRC’s authority to regulate seismic activity related to the disposal wells. For example, if the well is to be located in certain areas seen as having an increased risk that fluids will not be confined to the injection interval,2 the proposed amendments would authorize the RRC to request additional information during the permitting process (Sections 3.9(3)(C) and 3.46(b)(1)(D)) and more frequent monitoring and reporting of injection pressure and injection rates (Sections 3.9(11)(A)–(B) and 3.46(i)(1)–(2)). Additionally, the proposed additions of Sections 3.9(6)(A)(vi) and 3.46(d)(1)(F) would authorize the RRC to modify, suspend, or terminate a disposal permit (after notice and opportunity for a hearing) if the injection is suspected of or shown to be causing seismic activity.

How to Comment


The proposal will appear in the August 29, 2014, issue of the Texas Register for a 30-day comment period ending September 29, 2014, at 12:00 p.m. However, comments concerning these proposed amendments can currently be submitted online.


This post was written by Eva Fromm O'Brien (eva.obrien@nortonrosefulbright.com or +1 713.651.5321) and Jennifer Caplan (jenn.caplan@nortonrosefulbright.com or +1 713.651.5372) from Norton Rose Fulbright's Environmental Practice Group.


1According to the RRC’s memorandum describing the proposed amendments, the USGS has the ability to detect and locate all seismic events larger than magnitude 2.0 throughout the continental United States. The RRC states that this ability makes the USGS the de facto source of seismic event location in the United States.
2The RRC identifies the following conditions as several factors that may increase the risk that fluids will not be confined to the injection interval: complex geology, proximity of the baserock to the injection interval, transmissive faults, and/or a history of seismic events in the area shown by information from the USGS.

Canada’s TSB determines crude oil in train derailment to be unaffected by fracturing fluid additives

On July 6, 2013, shortly before 1:00 am, a Montreal, Maine & Atlantic Railway freight train which was parked for the night on a hill seven miles above Lac Megantic, Quebec started to roll. The unit train carrying approximately 48,000 barrels of crude oil produced from the Bakken oil fields in North Dakota in 78 DOT Class III tank cars reached a speed of 65 mph and 63 of the tank cars derailed in the centre of the Town, spilling approximately 37,000 barrels of crude oil and causing fires and explosions which destroyed 40 buildings, 53 vehicles and killed 47 people, many of whom were relaxing in bars and restaurants in Lac Megantic's scenic downtown on a warm summer evening.

On August 19, 2014, the Transportation Safety Board of Canada (TSB) released its 181 page report of its investigation of the tragedy. The TSB, like the National Transportation Safety Board in the united States, investigates transportation safety. It is not a function of the TSB to assign fault or determine civil or criminal liability.

The TSB found that the accident in Lac Megantic was due to 18 human and mechanical causes, including improper application of the brakes on the parked train, ineffective training and oversight by the rail company and poor regulatory oversight by Transport Canada. In its investigation, the TSB considered the volatility and flammability of the crude oil cargo, including how it was characterized, documented and handled for the purpose of transportation of dangerous goods laws.

Some public commentary after the disaster suggested that as some Bakken crude oil was produced through the hydraulic fracturing of wells, that hydraulic fracturing fluids in the crude oil in the tank cars contributed to the scope of the disaster.

The TSB considered this possibility but dismissed it. The TSB said after examining the properties of the crude oil that: "There was no indication that the crude oil's properties had been affected by contamination from fracturing process fluid additives."

Review a copy of the TSB's report.


This post was written by Alan Harvie (alan.harvie@nortonrosefulbright.com or +1 403.267.9411) from Norton Rose Fulbright's Canadian Energy Practice Group.

Federal regulators propose new rules on oil trains

After a series of accidents involving oil trains in the US and Canada, the US Department of Transportation proposed new safety standards for oil trains on July 23. The proposed standards target older tank cars, requiring companies shipping flammable liquids to replace tank cars prone to rupturing or retrofit them to meet tougher design requirements. New design requirements include thicker steel shells, better brakes and rollover protection, which would make the tank cars safer in the event of an accident.

According to the Department of Transportation, the transportation of oil by rail has increased significantly in the past several years, from 9,500 railcarloads in 2008 to 415,000 in 2013. After the July 6, 2013 derailment in Lac-Megantic, Quebec, which killed dozens of people, concerns grew about the increase in oil transportation by rail. The US proposal is similar to the standards Canadian regulators implemented after the Lac-Megantic accident.

The proposed standards would also impose speed limits of 40 mph on trains with cars that do not meet the new design standards. Newer cars would have 50 mph speed limits. In addition, the proposal includes requirements for carriers to evaluate 27 safety and security issues before selecting a transportation route and to document that liquids have been sampled and tested. The public has 60 days to comment on the proposed standards, and the new rules could go into effect by the fall of 2015.

Read more about the proposal


This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group and Kathleen McNearney (katie.mcnearney@nortonrosefulbright.com or 713.651.5698).

SCOTX Case Alert: Key Operating & Equipment, Inc. v. Hegar

A recent Supreme Court of Texas case pitted pooled mineral rights against surface rights of land owners. In Key Operating & Equipment, Inc. v. Hegar, the Court held that a lessee of mineral rights could use the surface of a non-producing tract to assist in producing or retrieving minerals from an adjacent tract with which it was pooled. No. 01-10-00350-CV, 2014 WL 2789933 (Tex. Jun. 20, 2014).

Background Facts


Key Operating & Equipment, Inc. (“Key”) leased and operated a well on the 191-acre contiguous Curbo/Rosenbaum (C/R) tract from 1994 until 2000, when the well stopped producing and Key’s lease expired. Key’s owners subsequently purchased an interest in the mineral estate of the C/R tract and leased it to Key. Key then pooled minerals from the C/R tract and the adjoining Richardson tract and continued to access its well on the Richardson tract via the C/R tract.

In 2002, Will and Loree Hegar purchased 85 acres of the C/R tract through which Key’s access road passed. After several years, Key drilled an additional well on the Richardson tract, and the resulting increase in traffic on the C/R road led the Hegars to take legal action. They sought a declaratory judgment that Key had no right to access their land in order to produce minerals solely from an adjacent tract.

Relevant Law


The Court first noted that ownership of the dominant mineral estate in a tract of land carries with it an implied right to use the surface in a reasonably necessary manner to retrieve those minerals. However, the Court previously held that this right does not extend to use for the benefit of other, un-pooled tracts. Robinson v. Robbins Petroleum Corp. 501 S.W.2d 865 (Tex. 1973). In Robinson, a wellbore that had stopped producing was used to benefit waterflood units that were not a part of the original mineral lease. The Court there held that the surface owner on whose land the well was located was entitled to protection from the use of his land to benefit unrelated outside units.

However, pooling allows for mineral rights on multiple tracts to be combined in order to simplify the recovery process by avoiding potential legal complications, and the Key Court noted that pooling serves the Texas public policies of encouraging the recovery of minerals and avoiding waste. The primary legal consequence of pooling is that production or recovery activity on any part of the pooled unit is treated as if it takes place on each tract within that unit.

The Dispute and its Resolution


After resolving a procedural issue with the appeal, the Court in Key turned to the arguments. The Hegars had convinced both the trial court and First Court of Appeals in Houston that, like the landowner in Robinson, their land should not be burdened solely to access production on an adjacent tract. However, the Supreme Court of Texas rejected that argument in favor of Key’s pooling argument, reasoning that pooling precluded differentiating production by individual tract. In effect, the Court held that the C/R and Richardson tracts were to be treated as one, not only concerning recovery activity but in order to determine associated access rights.

The Court also pointed out that the Hegars did not claim the pooling was done in bad faith. That this fact merited discussion indicates that bad faith pooling may be an exception to the holding in this case. Lastly, the Court recognized Key’s implied property rights despite there being no documentation of the pooled rights in the Hegar’s chain of title. Thus, a surface title search alone may not protect surface owners from the rights of lessees like Key.


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

Irreconcilable differences: Colorado court finds that a local hydraulic fracturing ban is preempted by the Colorado Oil and Gas Act

Hydraulic fracturing has become a hot button topic in Colorado as oil and natural gas development has increased near urban and residential areas. During the 2012 election, in response to citizen concerns, the cities of Longmont, Lafayette and Broomfield adopted some form of ban on hydraulic fracturing, despite strong warnings from the state and local industry trade groups that such bans were contrary to state law.

On July 24, 2014, the Boulder County District Court fulfilled those predictions and overturned the City of Longmont’s ban on hydraulic fracturing and storage and disposal of hydraulic fracturing waste within city limits. See Colo. Oil & Gas Assoc. v. City of Longmont, 13-cv-63 (Order Granting Motions for Summary Judgment, Boulder County Dist. Ct. July 24, 2014).

The State of Colorado’s Oil and Gas Conservation Commission (“COGCC”) and the Colorado Oil and Gas Association, as well as Top Operating Company, who has holdings in or adjoining the City of Longmont, challenged the City’s ban on the grounds that it is preempted by the Colorado Oil and Gas Act.

In its Order ruling on the parties’ motions for summary judgment, the Court sided with industry. The Court first considered Longmont’s argument that the COGCC does not regulate (or insufficiently regulates) hydraulic fracturing and, therefore, there could be no preemption. Disagreeing, the Court found ample evidence of COGCC Rules regulating hydraulic fracturing, and reminded the City that the COGCC’s role is “to provide oversight of the industry, not to micromanage it.” (Order at 9.)

Next, although the opportunity was ripe for a finding that the Oil and Gas Act impliedly preempt local regulation of hydraulic fracturing, the Court declined to base its decision on an implied preemption analysis relying instead on the “operational conflict” test announced by the Colorado Supreme Court in Board of County Comm’rs v. Bowen/Edwards Assoc., Inc., 830 P.2d 1045 (Colo. 1992) and Voss v. Lundvall Bros. Inc., 830 P.2d 1060 (Colo. 2002).

Consistent with these earlier decisions, the Court noted that oil and gas operations are a matter of mixed local and state concern. In such cases, both the state and local government may regulate an activity provided that there is no conflict between a local ordinance and a state statute. In the event of a conflict, the local rule must give way to state law. Thus courts are tasked with first determining whether the two can coexist.

Applying this principle the Court was unable to harmonize the local ban with the Oil and Gas Act’s purpose of fostering the efficient development and production of oil and gas resources in a manner that prevents waste and protects correlative rights. “Here, giving effect to the local interest, banning fracking, has virtually destroyed the state interest in production. […] The conflict in this case is an irreconcilable conflict.” (Order at 15-16.) Citing language we are sure to hear frequently as the issues of setbacks and local control head to the ballot box in Colorado, the Court acknowledged that local regulations can result in uneven production and resource waste, as well as negatively impacting royalty owners.

While the decision is good news for operators in and adjacent to the City of Longmont, the Court prohibited all hydraulic fracturing activity until further notice, anticipating the City may appeal the ruling.


This post was written by Carey Gagnon (carey.gagnon@nortonrosefulbright.com or +1 303 801 2721) from Norton Rose Fulbright's Energy Practice Group.