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.
Water Management Challenges
The next year will hold many challenges and opportunities for upstream companies operating in the various shale plays across the United States. The challenges, some of which are described above, generally come in the form of legal and regulatory developments that place restrictions on operations. However, these regulatory developments can lead to opportunities as companies seek new ways to push technological advances forward. One area where this dynamic is playing out is life-cycle water management.
On the front end are limitations on availability, transportation and storage of fresh water used in hydraulic fracturing operations. On the back end, companies are seeing additional restrictions on the management of wastewater after hydraulic fracturing, including requirements related to storage, transportation, treatment and ultimate disposal. These challenges, some of which are unique to unconventional operations, are pushing industry to develop solutions that save money and reduce impacts on the environment. The remainder of this paper will focus on the dynamic between regulatory drivers and industry-provided solutions in the specific context of water management.
Water Sourcing Challenges
Water is a crucial part of hydraulic fracturing operations, and water sourcing in particular presents numerous challenges due to plain and simple regional availability, regulatory constraints, and a lack of infrastructure. However, through innovation and a variety of technological advances companies are meeting this challenge head on, by introducing new approaches to field development and hydraulic fracturing techniques that require less water.
Water sourcing is increasingly becoming an issue for companies engaged in development of shale resources. Many states now require that an operator provide a detailed water use plan before they issue a drilling permit. Additionally, interstate compact commissions, including the Susquehanna River Basin Commission (SRBC) and the Delaware River Basin Commission (DRBC), require that operators first look to impaired waters for their water supply. Water challenges are often unique to the shale play where operations are proposed. In the dryer shale plays, like the Eagle Ford Shale of Texas, surface water supplies are limited. Groundwater supplies may be available; however, oil and gas operators increasingly find themselves in competition with industrial and municipal consumers for that water source.
In the Marcellus Shale play, precipitation and local geology is such that fresh water is readily available. Water-related restrictions in the Marcellus Shale are therefore tied to obtaining regulatory approval for withdrawal from a given water source and the proximity of that water source to a proposed well. Even if a surface water body is available for sourcing fresh water, such as a river or lake, transportation of that fresh water to a well pad over long distances can be costly.
One traditional solution to local availability is the construction of man-made fresh water ponds or impoundments in proximity to the well. While fresh water impoundments can reduce transportation costs, there are regulatory hurdles to overcome. Logistically, when constructing a pond for a single well or a centralized impoundment that supplies fresh water for several wells, one thing remains consistent: the best physical location for such an impoundment typically coincides with “jurisdictional” surface water features, such as streams and wetlands, which introduces additional legal and regulatory hurdles.
Under the federal Clean Water Act, a permit is required before conducting any work in streams or wetlands. The problem: streams don’t always look like babbling brooks and wetlands don’t always have cattails. This can lead to issues with both federal and state regulators if there are unauthorized impacts to a jurisdictional feature during construction of a fresh water impoundment. Beyond regulatory requirements tied to wetland features, states typically have laws applicable to dam safety. State dam safety laws often require preapproval and permits and often set restrictions on the height and capacity and of man-made impoundments.
Not all man-made freshwater impoundments resemble ponds. Operators are now using large aboveground storage tanks to store fresh water, and in some instances to store flowback water. These large non-traditional oil and gas structures have triggered new regulatory restrictions in states like Colorado, Ohio and Pennsylvania.
Water Sourcing Innovation
With increased oil and gas development on the horizon and an increase in competition for fresh water supplies, operators are exploring new operational practices and technological advances to reduce the need for fresh water in hydraulic fracturing operations.
From an operational standpoint, a technique that is more efficient in terms of water management and that is becoming more common is the use of multi-well pads with shared water storage. The concept here is simple: operators can build one well pad with multiple wells and one large fresh water impoundment versus constructing multiple distributed well pads each with its own impoundment and permitting requirements. The use of multi well pads has benefits beyond the convenience of a centralized impoundment: it also minimizes surface disturbance and can minimize traffic on local roads.
Depending on the success of certain legislative and regulatory developments, another innovation that could improve water sourcing in 2014 is the use of non-fresh water sources, such as acid mine drainage, in hydraulic fracturing operations. Acid mine drainage (AMD) is acidic water that is formed when water drains over or through sulfur-bearing minerals and is exposed to oxidizing conditions. AMD may be generated in the coal mining process; therefore, states with a long history of coal mining, such as West Virginia and Pennsylvania, have widespread AMD problems. AMD is a major cause of stream degradation in Pennsylvania and has been described as one of the most significant environmental problems associated with the mining industry in the U.S.
The need for water in hydraulic fracturing operations and the widespread environmental problems caused by AMD have presented what some may argue is a win-win situation. Specifically, if AMD is causing widespread pollution in states with significant shale resources, an ideal situation would be if operators could take that degraded AMD water, treat it and then use it in hydraulic fracturing operations. This would directly minimize a significant source of freshwater pollution from mining at the same time as reducing the need for fresh water sources for use in hydraulic fracturing operations.
In 2011, a Pennsylvania state commission, the Marcellus Shale Advisory Commission, issued a report recommending that Pennsylvania “encourage the use of non-freshwater sources where technically feasible and environmentally beneficial. . . . [and] provide operators with immunity from environmental liability for the use of acid mine drainage water from abandoned mine pools would encourage operators to reduce their use of freshwater sources for water utilization as well as reduce the amount of acid mine water draining into local streams.”
In November 2011, Pennsylvania State Senator Richard A. Kasunic (32nd District – R), introduced Senate Bill 1346, which would amend Pennsylvania’s Good Samaritan Act and limit the liability of entities choosing to utilize acid mine water for hydraulic fracturing of oil or gas wells. Generally, SB 1346 provides that “a landowner or mine operator who allows for the withdrawal of acid mine water, or a natural gas operator who withdraws the water, to hydraulically fracture a well, to not be deemed to assume legal responsibility or to incur liability with respect to cost, injury, or damage that arise from the use of the acid mine water, including any injury or damage suffered by a downstream riparian landowner.” SB 411, the next iteration of Pennsylvania’s AMD bill passed a crucial appropriations vote in January 2014. The bill appears to have the momentum to carry it through the state legislature. A similar bill has been introduced in the West Virginia state Senate. Interestingly, a recent study from Duke has indicated that mixing AMD with oil and gas wastewater high in NORM can reduce the level of radioactivity.