North Dakota adopts heightened safety standards for the transportation of oil by rail

The increase in the number of accidents involving the transportation of oil by rail has increased the scrutiny on shippers of Bakken crude oil. In response, the United States Department of Transportation has proposed new rules to govern the shipment of oil by rail and has also issued emergency orders on this topic. It appears that states are beginning to take an active role in the regulation of Bakken crude oil as well.

On December 9th, the North Dakota Industrial Commission (Commission) announced new regulations governing the shipment of Bakken crude oil in the state. Under the new standards, companies must separate light hydrocarbons from Bakken crude oil produced in the state and take measures to ensure that the hydrocarbons are not mixed into the oil before it is shipped. The new standards will take effect on April 1, 2015.

With the adoption of these new rules, North Dakota’s requirements for the shipment of Bakken crude oil are stricter than national standards. Whereas North Dakota now requires Bakken crude oil to have a vapor pressure of 13.7 pounds per square inch (psi) or lower, the national standards only require a psi of 14.7 or lower. To ensure compliance, North Dakota’s Department of Mineral Resources will conduct field inspections, and parties found violating the order could receive fines as high as $12,500 for each day they violate the new rules. The Commission has stated, however, that companies may request a hearing with the Commission if they wish to utilize an alternative stabilization process.

Read the order.

Methane emissions from fracking on the decline

Anti-fracking groups have been clamoring over the negative impact fracking has on the environment. One of the primary arguments raised by these groups is that fracking leads to high methane emissions. A newly released study suggests that anti-fracking groups may need to find a new argument against fracking.

The Cockrell School of Engineering at the University of Texas (UT) released a study, finding that methane emissions from natural gas production have decreased. The study also found that the majority of methane emissions come from a small group of natural gas wells and associated equipment. Therefore, most oil and gas operators have been able to successfully stop methane emissions from their natural gas wells. In addition, the study found that methane emissions are higher in older wells. The study focused on methane emissions caused by liquid unloadings and pneumatic controller equipment—devices that control the opening and closing of valves.

Several other studies also suggest that fracking’s impact on the environment is not as lethal as anti-fracking groups have claimed. The EPA released a study earlier this year with findings similar to those in the UT study. The EPA concluded that methane emissions from fracking are 73 percent lower than the methane emissions level in 2011. Additionally, Cornell University and the University of Maryland have released studies finding that the environmental impact from shale gas is significantly lower in comparison to coal’s impact on the environment.

Read the study.

Pennsylvania fracking trade secret rule in jeopardy

The fluids used during hydraulic fracturing are an integral component of the fracking process. Although the fracking fluids are primarily composed of water and sand, manufacturers add varying amounts of chemicals to the fluids. The composition of the chemicals used in fracking fluids are protected by companies as trade secrets. The ability of companies to protect this proprietary information is currently pending before the United States Court of Appeals for the Third Circuit in Rodriguez v. Secretary of the Department of Environmental Protection.

Under Section 3222.1(b)(10) and (11) of Title 58 of the Pennsylvania Consolidated Statutes, companies are required to provide doctors with the identity of or amount of chemicals used in their fracking fluid if the information is required in an emergency situation and the doctor agrees to keep the information confidential. Section 3222.1(b)(10) and (11) also prohibits doctors from disclosing any confidential information concerning the composition of hydraulic fracturing fluids.

These rules were challenged by Alfonso Rodriguez, a physician in Dallas, Pennsylvania. In the suit, Rodriguez argues that this law violates his rights under the First Amendment to disclose information regarding the fracking fluids to his patients and the remainder of the medical community. The United States District Court for the Middle District of Pennsylvania dismissed Rodriguez’s claims twice, reasoning that he lacked standing to challenge the law. On appeal, Rodriguez again argues that Section 3222.1(b)(10) and (11) violates his rights under the First Amendment.

The Pennsylvania Department of Environmental Protection (PDEP) has filed a brief in response, requesting that the Third Circuit dismiss Rodriguez’s claims. The PDEP argued that Rodriguez’s claims are hypothetical because he has never requested the protected information or been denied the information. The PDEP also claimed that Rodriguez is not entitled to a declaratory judgment on the constitutionality of Sections 3222.1(b)(10) and (11).

Read the PDEP’s brief.

Los Angeles well stimulation ban questioned

Earlier this year, the Los Angeles City Council passed a motion to ban any oil and gas well stimulation or the use of wells for waste disposal injection. After passing the motion, the City Council authorized the city attorney to write the ordinance with the assistance of the Department of City Planning (DCP).

Similar to other proposed drilling bans, however, the implementation process for the prohibition has not gone smoothly. In fact, the DCP has advised the City Council against prohibiting oil and gas operations. According to the DCP, the City Council should hire an expert and merely update the city’s zoning and land use ordinances.

The DCP expressed concern over the passage of the city ban in light of statewide legislation regulating oil and gas operations—SB 4—and the city’s lack of experience in this field. In support of its argument, the DCP cited the lawsuit filed against the Compton City Council regarding a prohibition similar to the one envisioned by the Los Angeles City Council.

Several commentators have spoken out in support of the DCP. Some commentators have pointed to the severe economic consequences of enacting the proposed ban—specifically, the loss of tax revenue. Moreover, Los Angeles would likely face multiple lawsuits similar to those filed against the city of Denton.

For instance, the proposed prohibition could be preempted by state law. In addition, a number of residents in the city would lose a significant amount of revenue and could therefore sue Los Angeles alleging unconstitutional takings under state and federal law. Commentators have also highlighted the overly broad language in the city council’s motion.

Read the DCP’s 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.

Environmental groups seek to defend Denton fracking ban

Soon after the city of Denton passed a prohibition on fracking earlier this year, the city was sued by several parties alleging that the fracking ban was invalid. It appears that the city of Denton may have some support in its defense of the fracking ban. On December 4th, Earthwork and the Denton Drilling Awareness Group (DDAG) filed a petition to intervene in the state of Texas’s lawsuit challenging the ban.

In support of their request to intervene, Earthwork and DDAG argued that they would have been able to successfully defend the fracking prohibition if the suit had been filed against them. Earthwork and DDAG also contended that they would be prejudiced if the fracking prohibition was found to be invalid. Specifically, Earthwork and DDAG cited to the time and resources they dedicated to having the ban passed, including assisting with the drafting of the ban.

Earthwork and DDAG have been deeply involved with the Denton fracking ban. They actively campaigned in Denton to encourage voters to adopt the fracking prohibition. In fact, DDAG created the “Frack Free Denton” campaign. Earthwork assisted DDAG, collected signatures in support of the fracking ban, and took steps to educate the Denton community about the fracking prohibition.

Read the petition.


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.

Potential fracking ban on the horizon in Florida

Several states are currently involved in heated debates concerning hydraulic fracturing. The debates have ranged from whether states should implement fracking bans to whether localities have the authority to issue such prohibitions. Florida appears to be joining the debate. On Tuesday, two Florida state senators—Darren Soto and Dwight Bullard—proposed a bill to ban hydraulic fracturing in the state beginning on July 1, 2015.

According to Senator Soto, the bill is necessary to ensure the integrity of the state’s water supply and environment. Specifically, Soto expressed concern that fracking may cause pollution and contaminate the water supply. Because Florida depends heavily upon tourism, Soto argued that it is imperative that the state take measure to protect the environment. As additional support for S.B. 166, Senators Soto and Bullard noted that Florida voters voted in favor of an amendment to the Florida constitution that would increase funding for natural lands in the state.

The impact of this proposed bill is questionable because Florida does not contain a significant amount of natural gas shale. That said, there are reports that companies are beginning to consider drilling operations in Florida. S.B. 166 isn’t the first bill concerning hydraulic fracturing in the state. Two bills were proposed in the Florida House of Representatives during the last legislative session that would require companies to disclose the chemicals used in their drilling operations.

Read S.B. 166.


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.

Alberta extends with "play-based" regulation experiment

The Alberta Energy Regulator ("AER") has extended its pilot project for a "play-based" regulatory framework for unconventional oil and gas development in part of the Duvernay shale play in west-central Alberta.

The Duvernay shale play is a large, developing shale play covering much of western and northern Alberta and eastern British Columbia.  It is particularly rich in light oil and petroleum liquids such as propane and butane.  Hydraulic fracturing has been key in developing the vast underground rock formation that covers an area the size of South Korea.

The Duvernay play is still in its early stages with only about 200 wells drilled to date, with about 60 wells completed and on production.  The average initial production rate is about 2.5 mmcf per well per day.  The Kaybob area in the northwestern portion of the Duvernay is particularly liquids rich, with some wells having condensate yields of 200 - 480 barrels a day.

"Play-based" regulation involves implementing a single application and decision-making process for multiple wells, pipelines and facilities under different pieces of legislation.  It requires all of the operators in the pilot area to collaborate and jointly bring a single application for a single regulatory approval which will be used for regulating all of their  unconventional oil and gas activities in the pilot area. 

Presently, each activity by a company, such as building a road, diverting water, drilling a well, constructing a pipeline and so forth, requires its own separate AER regulatory approval.  This current approach makes it difficult to reduce the cumulative environmental impacts of the additional roads, well pads and pipelines required by each company in the area.  Extracting oil and gas out of shale requires many more wells, more pipelines and much more water usage than conventional oil and gas production.  Area landowners and communities are expected to benefit with play-based regulation as it is hoped that they will get a sense of the full scope of all development in the play area and have earlier input into how the play is developed on the surface.

Area operators have to submit the single application to the AER by January 31, 2015.  The pilot was scheduled to run until March 31, 2015 but has been extended until June 30, 2015 to allow oil and gas operators in the pilot area sufficient time to prepare the application and undertake the required stakeholder engagement.

The Duvernay shale play was chosen for the pilot as it is just starting to be developed and extensive drilling and production is expected over the next several years.

If playbased regulation is successful, the AER may implement it more broadly throughout Alberta in the future.

Review a copy of the AER's Play-Based Regulation Pilot Application Guide


This post was written by Alan Harvie (alan.harvie@nortonrosefulbright.com or +1 403.267.9411) from Norton Rose Fulbright's energy practice group.