This series of blog entries is extracted from a presentation developed for The Center for American and International Law’s 65th Annual Oil and Gas Law Conference held in Houston, TX February 19-20, 2014. The paper was presented by Kevin Ewing of & Giuliani LLP and by D. Nathan Meehan of Baker Hughes Incorporated. In parts I and II we discuss the current Federal and State outlooks (respectively) for regulatory issues. In parts III and IV we address water management issues.
Over the last five years, states with significant shale resources have reviewed and revised their oil and gas regulatory programs to address the rapid expansion of exploration and production activities. While the primary regulatory updates have focused on the addition of chemical disclosure provisions, several states have also updated rules applicable to waste treatment, setbacks and well integrity. In 2014 and beyond, states will be tackling some of the more novel issues associated with development of shale gas resources. The following section describes recent trends in state regulatory developments.
In November 2013, the state of Colorado released new rules aimed at reducing methane emissions from oil and gas operations. Colorado’s proposal is the first of its kind that would regulate the detection and reduction of methane, which is a potent greenhouse gas. In a regulatory package aimed at fully adopting EPA’s recently finalized NSPS OOOO, the Colorado Air Pollution Control Division included revisions to Regulation No. 7 that would establish controls and requirements for oil and natural gas operations that exceed the requirements in NSPS OOOO.
Generally, the proposed revisions to Regulation No. 7 would: “increase control requirements and improve capture efficiency requirements for oil and gas storage tanks; minimize fugitive emissions of hydrocarbons (including but not limited to VOC and methane) from leaking components at compressor stations and well production facilities; minimize venting and flaring at new and modified oil and gas wells; and expand control requirements for pneumatic devices.” Colorado contemplates that there will be some overlap between the different requirements of NSPS OOOO and Regulation Number 7 but that the requirements “secure different emissions reductions.” Industry has estimated that the cost of the new [state] rules could be up to $80 million per year. Moving forward into 2014, we could see additional states enact similar rules as well as legal challenges to a state’s authority to enact such rules.
NORM and Waste Management
In March 2011, EPA sent a letter to the Pennsylvania Department of Environmental Protection (PADEP) expressing concern over reports that wastewater from Marcellus Shale operations contained “variable and sometimes high concentrations of materials that may present a threat to human health and aquatic environment, including radionuclides, organic chemicals, metals and total dissolved solids.” EPA announced in the letter that it had specific concerns regarding the concentrations of radionuclides in the effluent from the wastewater treatment plants and that it would be reopen the NPDES permits of POTWs and centralized waste treatment facilities that were then accepting gas drilling wastewater for treatment. Shortly thereafter, on April 19, 2011, PADEP requested that Marcellus Shale operators voluntarily cease delivering wastewater to 15 wastewater treatment plants in the state.
Produced water and drill cuttings from Marcellus Shale wells may have high levels of NORM. Recent reports and studies have claimed high levels of NORM in public landfills and in streams that receive discharges from wastewater treatment facilities. In January 2013, PADEP announced it would be studying the levels of NORM in materials associated with oil and gas drilling. PADEP’s study is expected to be completed in 2014. In November 2013, the Marcellus Shale Coalition and the Pennsylvania Independent Oil and Gas Association announced they would undertake an oil and gas-related NORM study as well.
If NORM levels in oil and gas wastewater reach a certain threshold it must be transported and disposed of in accordance with more stringent federal and state laws. The events in Pennsylvania have led most operators in the state to either ship wastewater out of state or to implement an aggressive water treatment and recycling program. Moving forward in 2014, expect states to be more actively involved in these issues.
Abandoned Well Mapping and Downhole Communication
An interesting well integrity issue that will be worth following in 2014 is whether states increase their efforts to track downhole communication between hydraulic fracturing operations and nearby active or abandoned wells. Concerned about whether current hydraulic fracturing operations could cause pollution by altering or impacting an orphaned or abandoned well, Pennsylvania has proposed new regulations that would require operators to identify and monitor orphaned and abandoned wells.
Specifically, operators would be required to locate orphaned and abandoned wells “within 1,000 feet measured horizontally from the vertical well bore and 1,000 feet measured from the surface above the entire length of a horizontal well bore.” In order to identify the location of these wells, operators would be required to review the state’s database of orphaned and abandoned wells, review farm line maps and submit a questionnaire to nearby landowners. Once an abandoned well is identified, the operator would be required to submit a plat to the state showing the location and GPS coordinates of the orphaned or abandoned wells.
Beyond the identification requirement, under proposed Section 78.73, operators would be required to visually monitor the orphaned or abandoned wells during hydraulic fracturing, immediately notify the state of any changes and take the necessary action to prevent pollution associated with discharges from those wells. Finally, if an operator “alters” an orphaned or abandoned well, that operator must properly plug the altered well. Pennsylvania has estimated the cost for these new requirements at $2,000 per well, which seems low and may not account for the costs of plugging an affected well.