Maryland state senators propose legislation targeting hydraulic fracturing

Senators Robert A. Zirkin and Jamie Raskin have introduced legislation aimed at drastically reducing hydraulic fracturing operations in Maryland. The bill, Senate Bill 458, would hold parties engaging in hydraulic fracturing operations strictly liable for injuries, deaths, or other losses caused by the fracking activities.

A plaintiff relying on Senate Bill 458 would have a rebuttable presumption that the defendant was jointly and severally liable for the plaintiff’s damages deriving from the hydraulic fracturing operations and the proximate cause for those damages. The bill would be limited to plaintiffs living in “a certain presumptive impact areas.”

Senate Bill 458 would also strip companies of several defenses and increase the insurance requirements currently imposed on parties engaging in hydraulic fracturing operations. Senate Bill 458 proposes to prohibit defendants from asserting that they fully complied with applicable laws and standards. Moreover, the bill purports to render void any contractual agreements in which the plaintiff may have waived claims against the defendant.

Senate Bill 458 would also set forth the awards plaintiffs should receive in certain cases and permit plaintiffs to recover economic as well as noneconomic damages. In fact, the bill triples a plaintiff’s award if the defendant has violated a state or federal law or is guilty of gross negligence or willful misconduct. Additionally, the bill would heighten the insurance requirements imposed on parties engaging in hydraulic fracturing. Under Senate Bill 458, information relating to the chemical composition of fracking fluids would not be eligible for trade secret protection.

Zirkin has expressed his desire to enact a ban on hydraulic fracturing. In fact, Zirkin has previously sponsored a bill that would have banned fracking in the state. That earlier bill was easily defeated. Many members of the oil and gas industry have stated that Senate Bill 458 would constitute a ban on hydraulic fracturing.

Read the proposed 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.

Train derailment in West Virginia

Earlier this week, a train transporting crude oil derailed close to Boomer, West Virginia. The train was carrying oil from the Bakken shale in North Dakota to Yorktown, Virginia. CSX Corporation Inc. (CSX) operated the one hundred-car train.

Conflicting reports have emerged on the impact of the derailment. Some reports suggests that the derailment may have polluted the Kanawha River, a major waterway in West Virginia, because one of the rail cars entered the river. Other reports state that none of the rail cars entered the river. Approximately twenty of the rail cars were ignited.

West Virginia has declared a state of emergency for the county where the crash occurred, Fayette County, and a neighboring county, Kanawha County. A number of families have been evacuated. The West Virginia Department of Public Safety has issued a statement that its tests have not revealed any detectable amounts of crude oil.

It remains to be seen whether CSX will incur the same amount of litigation generated by previous derailments. Several companies involved in the train derailment in Quebec, Canada have filed for bankruptcy. Forty-seven people were killed in that incident. CSX has stated that the rail cars involved in the crash were updated models that were designed to withstand more damage than older models.

Review the proposed standards for crude oil shippers.

Ohio supreme court strikes down local regulation of oil and gas operations

On February 17, 2015, the Ohio Supreme Court issued a long-awaited opinion in State ex rel. Morrison v. Beck Energy Corp. The Court, in a divided opinion (3-1-3), held that Ohio’s Home Rule Amendment does not allow a local municipality to enforce its own permitting scheme in addition to the statewide scheme adopted under Ohio Revised Code Chapter 1509.

The case arose after Beck Energy Corporation (Beck) obtained a permit from the Ohio Department of Natural Resources (ODNR) in 2011 to drill an oil and gas well within the city limits of Munroe Falls, Ohio. Munroe Falls then obtained a permanent injunction from a trial court blocking the drilling until Beck complied with five local ordinances. These local ordinances required Beck to:
  1. obtain a “zoning certificate” from the local zoning inspector
  2. retain the zoning certificate for one year prior to commencing drilling
  3. pay a fee of $800
  4. pay a deposit of $2,000 for a performance bond
  5. hold a public hearing for all property owners and residents within 1,000 feet of the proposed well head three weeks prior to commencing drilling operations
Munroe Falls claimed it was entitled to enforce its ordinances pursuant to the Ohio Home Rule Amendment. However, the Court, in a plurality opinion, reasoned that a municipal ordinance must yield to a state statute if:
  1. the ordinance is an exercise of police power, rather than of local self-government
  2. the statute is a general law
  3. the ordinance is in conflict with the statute
The Court determined that all three elements were satisfied and, therefore, the Monroe Falls ordinances had to yield to Chapter 1509. First, the Court held that the local ordinances in question constituted an exercise of police power because they prohibited the act of drilling without a municipal permit. The Court then determined that Chapter 1509, and specifically Section 1509.02, qualified as a general law because it operates uniformly throughout the state, notwithstanding the fact that not all parts of Ohio are capable of producing oil and gas. Finally, in the plurality opinion, the Court held that the ordinances conflict with the statewide scheme because they restrict activities which the state framework allows.

Notwithstanding the potentially broad scope of this holding, the plurality limited its judgment to the type of double-licensing ordinances at issue in Munroe Falls and declined to rule on whether other local ordinances could coexist with Chapter 1509.

In his concurrence, Justice O’Donnell concurred with the plurality’s determination that Section 1509.02 preempts local permitting ordinances regulating construction and operation of oil and gas wells within the municipality. Because the Munroe Falls ordinances would have required a city permit and compliance with the city’s regulations on technical aspects of drilling, Judge O’Donnell joined in the plurality’s judgment. He emphasized, however, that the appeal before the Court did not present the issue of local land use ordinances that address only traditional concerns of zoning laws, and whether a municipality has the authority to enact such ordinances remained to be decided.

In an opinion joined by two other justices (who also wrote separately), Justice Lanzinger dissented on the grounds that it was not clear to her that the zoning ordinances at issue actually conflict with the statute. The dissent points to other Ohio laws in which the legislature expressly prohibited the enforcement of local zoning ordinances as part of a statewide statute, and notes that Section 1509.02 does not specifically prohibit local zoning regulation.

The dissent argues that municipalities may supplement general law with non-conflicting zoning ordinances. The dissent would, therefore, have remanded to the court of appeals to examine whether the Munroe Falls ordinances could be enforced as zoning regulations that supplement, rather than supplant, the statewide regulation of oil and gas drilling.

Notably, and in contrast to the Pennsylvania Supreme Court’s 2013 position in Robinson Township v. Commonwealth, both the concurrence and one of the dissenting opinions suggested that the Ohio legislature could entirely override all local zoning ordinances that affect oil and gas development by simply making such language explicit in Chapter 1509. Read Norton Rose Fulbright’s white paper on the Robinson Township decision.


This article was prepared by Janet McQuaid (janet.mcquaid@nortonrosefulbright.com or +1 724 416 0427) , Jeremy Mercer (jeremy.mercer@nortonrosefulbright.com or +1 724 416 0440), Shannon DeHont (shannon.dehont@nortonrosefulbright.com or +1 724 416 0431) and Michael Gaetani (michael.gaetani@nortonrosefulbright.com or +1 724 416 0429) from Norton Rose Fulbright's Energy Practice.

Texas Supreme Court refrains from deciding subsurface trespass issue

Earlier this month, the Texas Supreme Court issued its decision in Envt’l Processing Sys., L.C. v. FPL Farming Ltd. The case garnered a significant amount of attention from the oil and gas industry because it involved the issue of whether a party can sue for trespass over the subsurface migration of wastewater. Indeed, a number of amicus briefs were filed on this issue. The Supreme Court refrained from ruling on that issue, however.

This case arises from a dispute between two neighbors. FPL Farming, Ltd. (FPL) owned the groundwater rights to its tract of land but not the mineral rights. Environmental Processing System (EPS) operated two injection wells on an adjoining tract of land. FPL filed suit against EPS, alleging, among other things, trespass. The jury ruled in favor of EPS, and the court of appeals affirmed.

The court of appeals reasoned that, as a matter of law, a trespass did not occur because EPS possessed a state permit allowing it to operate the well. The Supreme Court rejected the court of appeals’s reasoning, holding that a permit was insufficient, by itself, to stave off a trespass claim. On remand, the court of appeals held that FPL possessed a property interest in the subsurface of its tract and could sue EPS for trespass to protect its property rights. In addition, the court reasoned that the jury instructions were incorrect because they placed the burden of proving consent on the plaintiff.

The Supreme Court reversed the court of appeals and held that the jury instructions were proper, thereby upholding the jury verdict that no trespass occurred. According to the Court, to successfully allege a trespass claim, plaintiffs must prove that the other party did not have consent to commit the trespass. Because the jury found that no trespass occurred, the Court did not have to decide the subsurface trespass issue.

Read the opinion.


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 considers additional regulation of oil and gas operations

Several federal agencies have announced that they will adopt additional regulations for the oil and gas industry this year. It appears that states are also weighing additional regulatory measures. North Dakota is contemplating legislation targeted at reducing the time oil companies burn natural gas from oil wells.

The bill proposal is sponsored by Senator Connie Triplett. If enacted, the bill would mandate that companies pay royalties and taxes on natural gas within fourteen days after an oil well starts production. Under the current system, companies need not pay royalties or taxes until a year after the beginning of production. If a company is found in violation of this bill, the bill authorizes the industrial commission to determine the amount of royalties to be paid by the company.

One of the motivations for this bill proposal, according to Triplett, is that the current regulatory system deprives mineral owners and North Dakota of revenue they should receive from the wasted gas. Over the past couple of years, flared natural gas has constituted approximately one-third of oil production in North Dakota. The percentage has decreased recently, however, due in large part to a policy circulated by state regulators last year.

In July 2014, state regulators issued a policy encouraging oil and gas operators to reduce the amount of natural gas flared by 2020. If companies are unable to meet the flaring limits set by state regulators, the regulators have the authority to establish production limits.

Read the proposed bill.

Latest study adds to debate over the alleged connection between fracking and seismic activity

Scientists are in the midst of a heated debate concerning the alleged connection between hydraulic fracturing and seismic activity. To date, scientists have been unable to reach a consensus on this issue. The latest study appears to continue that trend. Geologists in Kansas recently released a study suggesting that there is a correlation between oil and gas operations and seismic activity—specifically, the injection of wastewater.

Indeed, Bill Buchanan, the director of the Kansas Geological Survey, testified before Kansas House Energy and Environment Committee that there is likely a link between seismic activity in the state and disposal wells. That said, Buchanan acknowledged that the research on this issue is still ongoing. During his testimony, Buchanan also requested that the state increase the agency’s funding for seismic monitoring.

Kansas has experienced an increase in the number and intensity of seismic activity. Beginning in 2013, at least 115 earthquakes with a magnitude of 2.5 or greater have occurred in the state. In contrast, from 1977 to 2012, Kansas only experienced 34 earthquakes of that magnitude or higher.

Read a study on this issue by the United States Geological Survey.

Regulation to watch for in 2015

It appears that the federal government intends to pass a number of regulations regarding the oil and gas industry this year. Several federal agencies are currently in various stages of the rulemaking process. Members of the oil and gas industry should anticipate rules or proposals from the following agencies: the Environmental Protection Agency (EPA), the Department of the Interior (DOI), the Bureau of Land Management (BLM) and the Department of Transportation (DOT).

The EPA intends to announce regulations that will reduce the volatile organic compound and methane emissions associated with the oil and gas industry. These new regulations should be announced at some point during the summer of 2015. Commentators have suggested that the EPA will propose that the industry reduce emissions by at least 45% by 2025. In addition, the EPA will circulate Control Techniques Guidelines to assist states that have been unable to meet the ozone limits.

The EPA is also expected to update the Renewable Fuel Standards (RFS). The RFS sets forth the percentage of gasoline that must consist of renewable fuels. The Renewable Fuel Program was established by the Energy Policy Act of 2005 and mandates that renewable fuel be incorporated into gasoline on an increasing basis. In 2007, the Energy Policy Act was amended by the Energy Independence and Security Act of 2007 to increase the amount of renewable fuel to be incorporated.

The BLM has indicated that it will issue several new rules this year. The BLM will likely finalize a proposed rule it released in 2013. The new rule would mandate that companies engaging in hydraulic fracturing on federal or tribal lands disclose the composition of their fracking fluids, manage flowback waters and satisfy heightened standards for well construction. Under the proposed rule, companies would not be forced to disclose trade secrets. This rule has garnered significant criticism from the oil and gas industry. Many in the industry have complained of the significant cost that will be imposed by the rule. Commentators expect the BLM to finalize the rule in early 2015. Commentators also anticipate that the BLM will issue rules governing flaring and venting. These regulations will target methane emission. Additionally, the BLM will issue a notice of proposed rulemaking concerning the royalty rate for new Federal onshore competitive oil and gas leases. The BLM is considering whether public interest requires a higher royalty rate.

The DOI is also expected to circulate proposed rules on several issues this year. In response to the Deepwater Horizon accident, the DOI will issue rules to govern blowouts. The DOI has not released a great deal of information on this issue. However, commentators have suggested that the rules will regulate well design, casing, cementing, drilling margins, well control, monitoring and subsea containment. These rules are expected to be released in early 2015. The DOI has also indicated that it will issue rules governing drilling in the Arctic region. The OMB is currently reviewed the DOI’s proposed rules for the Arctic region.

In addition, the DOT will likely finalize its rules governing crude oil rail transportation this year. Last year, the DOT issued proposed rules imposing heightened standards on the quality of tank cars permitted to transport crude oil. The proposed rules also impose, among other things, speed limits and notification requirements on crude oil shippers.