New Fracking Rules Unveiled for Federal Lands

By on March 30, 2015

On March 26, 2015, the Department of the Interior Bureau of Land Management (“BLM”) published its long-awaited final rule regarding hydraulic fracturing (“fracking”) in the Federal Register, which becomes effective 90 days after publication, on June 24, 2015.  The new rules mark the first update to federal fracking standards in more than 30 years.  The new rules are effectively the first rules that squarely address horizontal hydraulic fracturing, as the technology did not exist in present form when the old rules were enacted.

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Fracking is an increasingly common, and politically polarizing, method for extracting fossil fuels.  At bottom, fracking is a drilling technique used to recover gas and oil from shale rock.  The process involves drilling into the earth and then injecting a high-pressured cocktail of water, sand, and chemicals down and eventually across horizontally drilled wells.  The pressurized liquid fractures the subsurface rock, which consequently releases trapped oil and gas that is eventually pumped back to the surface.

Fracking is credited with advancing the recent U.S. “energy renaissance,” which has reduced oil prices to a two-decade low and allowed the U.S. to double its oil production from 2008 to 2015.  In fact, the U.S. is now poised to become the world’s largest producer of oil and gas.  Fracking is not without harsh and staunch critics, however, and the process has raised concerns among some regarding alleged contamination to groundwater, waste disposal, and the public’s exposure to toxic chemicals.  Ardent opponents also point to air emissions and climate change, excessive water consumption, and even the increased risk of earthquakes.  A recent Gallup poll suggests that Americans are equally divided on the use of fracking as a means of increasing natural gas and oil production in the U.S.

These concerns prompted several years of debate, culminating in the BLM’s final rules.  The BLM intends
for the new rules to “serve[] as a much-needed complement to existing regulations designed to ensure the environmentally responsible development of oil and gas resources on Federal and Indian lands, which were finalized nearly thirty years ago, in light of the increasing use and complexity of hydraulic fracturing coupled with advanced horizontal drilling technology.”  The BLM’s final rules are the first set in what is expected to be a series of federal rules governing fracking.

In sum, the new standards impose numerous new requirements on companies.  The hallmarks include:

  • Companies must publicly disclose additive chemicals used in the fracking process on FracFocus, which is an industry-run website, within 30 days of completing fracking operations.  This requirement, however, has already been adopted by many states that have examined the issue.
  • Companies must allow government employees to inspect and validate (1) the safety of the concrete barriers lining fracking wells, and (2) chemicals being stored at the fracking site.
  • Companies must adhere to new requirements and specifications or how to safely dispose of contaminated water.
  • Companies must submit detailed information about every proposed operation, including the location of faults and fractures, the depths of usable water, and the depth of estimated volume of fluid to be used.
  • Companies must submit detailed information about the geology, depth, and locations of already exiting wells.

Despite what many perceive as laudable objectives, the fear among oil and gas companies is that the BLM’s new rules will drastically increase production costs (thereby adversely affecting oil prices), as well as stifle energy development.  Indeed, the American Petroleum Institute (“API”), relying on research and consulting firm Advanced Resources International, analyzed a draft of the final rule and “estimate[d] that the total costs associated with this rule could range from $30 million per year to $2.7 billion per year.”  The API suggests that the requirement of “cement evaluation logs” (“CELs”) on surface and intermediate casing before beginning the fracking process as a source of added cost.  The Western Energy Alliance (“WEA”)—whose members include ConocoPhillips, Halcon Resources Corp. and QEP Resources Inc.—relying on an economic research firm’s analysis, provided a more focused prediction that the added cost of compliance would be $97,000 per new well, or $345.592 million annually.  The WEA warns that considerable costs will emanate from initial delay costs, administrative costs, enhanced casing costs, cement log costs for “well types,” and cement log delay costs.  Although energy trade associations are still assessing the precise costs of the new rules, many expect that the associated costs will greatly exceed the BLM’s rather conservative estimate of $11,400 per well, or $32 million annually.

The new rules have already prompted several lawsuits challenging their legality, characterizing them as “arbitrary and unnecessary burdens” that are “a reaction to unsubstantiated concerns.”  One lawsuit was filed by the Independent Petroleum Association of American and the Western Energy Alliance.  Another was filed by the State of Wyoming.  These parties are significant stakeholders that have a sizeable presence on federal lands, and consequently they have a lot to lose with the increased cost of compliance with the new rules.  Even for those entities intent on compliance, the new rules are lengthy and complicated, and will require legal consultation with attorneys specializing in the area.

As a final and important note, the rules apply to fracking on federal lands, which accounts for only approximately 10 percent of all fracking nationwide and 5 percent of all domestic oil production.  The states have jurisdiction over fracking on state-owned and private land, and thus the BLM’s new rules do not apply.  Accordingly, these rules do not affect the vast majority of U.S. fracking operations.  Nonetheless, the BLM hopes that its new rules will eventually serve as a model and legislative benchmark for states seeking to regulate the fracking industry within their borders.

Filed under Advanced Resources International, American Petroleum Association of America, American Petroleum Institute, Bureau of Land Management, Climate Change, Department of the Interior, fossil fuels, Fracking, Groundwater Contamination, Hydraulic Fracking, Hydraulic Fracturing, Western Energy Alliance

U.S. Department of Energy Study Says Fracking Does Not Cause Water Pollution

By on October 9, 2014
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On September 15, 2014, the U.S. Department of Energy’s National Energy Technology Laboratory (DOE) released a report of a major federal study titled “An Evaluation of Fracture Growth and Gas/Fluid Migration as Horizontal Marcellus Shale Gas Wells Are Hydraulically Fractured in Greene County, Pennsylvania.”  The study concluded that there was no evidence that hydraulic fracturing (fracking) caused the contamination of drinking water at a study location in Pennsylvania.

Fracking is a method of extracting oil and gas deposits that are inaccessible by conventional drilling. Fracking uses millions of gallons of high-pressure water mixed with sand and chemicals to break apart rocks rich in oil and gas. Fracking has become increasingly common over the past decade and is largely responsible for the current energy boom in the United States, but the practice has led to concerns regarding potential groundwater contamination.

ETT BLOG_frackingAfter studying one particular site in western Pennsylvania for 18 months, the DOE determined that neither fracking chemicals nor brine water from the gas drilling process had contaminated area drinking water.  The report said that the chemicals used in fracking remained approximately 5,000 feet below drinking water supplies.  The study marked the first occasion where a company agreed to have its fracking operations independently monitored.

The DOE acknowledged, however, that fracking at other sites may have different results due to variation in geology or drilling methods.  The site studied by the DOE was limited to six wells at one location in western Pennsylvania.  It should be noted that Pennsylvania regulators have noted instances where surface spills of chemicals or wastewater damaged drinking water supplies.

At the same time the DOE study was released, scientists from Duke, Ohio State, Stanford, Dartmouth and the University of Rochester released a study in Proceedings of the National Academy of Sciences titled “Noble gases identify the mechanisms of fugitive gas contamination in drinking-water wells overlying the Marcellus and Barnett Shales.”  The study, which took place in the Marcellus Shale in Pennsylvania and in the Barnett Shale in Texas, concluded that defective construction of the wells caused pollution, but not the fracking process itself.  This study focused on 113 drinking water wells in Pennsylvania and 20 wells in Texas that were known to have elevated levels of methane.  An analysis of gas geochemistry data implicated leaks through annulus cement in four cases, production casing in three cases and underground well failure in one case.  The study authors concluded that gas migration induced by fracking deep underground was not found to be a cause of contamination.

These studies suggest that the use of fracking as a method of extracting oil and gas deposits is not responsible for groundwater contamination.  In those rare instances where groundwater contamination occurs, it is more likely due to faulty well construction rather than gas migration induced by fracking, which takes place far below any drinking water aquifer.  The concerns identified in the universities’ study are not unique to fracking, but to oil and gas exploration generally.

Filed under Fracking, Groundwater Contamination, Hydraulic Fracturing

Comcast Corp. v. Behrend’s Impact In Toxic Tort Litigation

By on March 26, 2014

I have written about how the U.S. Supreme Court’s decision in Comcast v. Behrend has had the practical result of raising the bar for class certification and leveling the playing field for corporate defendants. Until recently, however, it was unclear what impact this anti-trust decision would have on toxic tort litigation. 

On January 17, 2014, the Seventh Circuit issued a groundbreaking decision in Parko v. Shell Oil Company, which was an appeal from the Illinois district court’s certification of a class of property owners in Roxana, Illinois, who had filed suit against Shell Oil Company which (together with various subsidiaries) had owned and operated an oil refinery from 1918 to 2000 adjacent to the village where the 150 class members reside. Although multiple claims were alleged, Parko was  largely a diminution of property value case.

 In Parko, the class action plaintiffs were successful in obtaining class certification in the district court without having to provide evidence. Typically, plaintiffs seek to reserve any discussion of the merits of their claims until after class certification.  Plaintiffs are well aware that the certification of a class creates enormous pressure on defendants to settle regardless of the merits of the case.

The plaintiffs alleged that the refinery had leaked benzene and other contaminants into the groundwater under the class members’ homes.  The Seventh Circuit found it particularly significant that the groundwater was not being used as a drinking water supply.  As such, it was unclear whether the contamination had caused any diminution of property value at all.

In addition, the Seventh Circuit noted defendants’ contention that the contamination alleged by plaintiffs occurred over a 90-year period and involved acts and omissions charged against the six defendants, and maybe other polluters as well.  The defendants had identified sources of pollution in the area that were attributable to the operations of non-parties.  As a consequence,  class members could have experienced different levels of contamination from multiple sources over many years. 

Relying on the language in Comcast Corp. v. Behrend, the Court reversed the district court, holding that a trial judge may not "refuse to entertain arguments against respondents’ damages model that bore on the propriety of class certification, simply because those arguments would also be pertinent to the merits determination."  

The Court held that "mere assertion by class counsel that common issues predominate is not enough. That would be too facile. Certification would be virtually automatic. And so Rule 23 does not set forth a mere pleading standard….Rather, when factual disputes bear on issues vital to certification (that is, to whether the suit should be allowed to be litigated as a class action), such as predominance, the court must receive evidence . . . and resolve the disputes before deciding whether to certify the case."  (emphasis added)  In reviewing the record below, the court stated that it was not even clear that plaintiffs "have identified a common issue."

The Parko decision is short and pithy, and contains a trove of valuable nuggets of good language for the class action  toxic tort defense practitioner. 

On proof of diminution of property value:   

Real estate values have taken a drubbing in recent years, with the collapse of the housing bubble and the ensuing financial crisis. It can’t be assumed that a decline in the value of residential property in Roxana (if in fact there’s been a decline) is the result of proximity to a refinery that for all one knows has been leaking contaminants for the last 95 years without causing detectable harm. There are many things commonly found in soil beneath rural or suburban houses that homeowners would very much like not to enter their home (such as earthworms, fungi, ants, beetles, slugs, radon, chemical residues, thousands of different types of microbe— and groundwater), but as long as there is no danger of such unwanted visitors their underground presence should not affect property values. Benzene in the water supply is one thing; benzene in groundwater that does not feed into the water supply is quite another. (emphasis added)

On Rule 23’s predominance requirement post-Comcast:  

The district judge did not explore any of these issues. He treated predominance as a pleading requirement. He thought it enough at this stage that the plaintiffs intend to rely on common evidence and a single methodology to prove both injury and damages, and that whether the evidence and the methodology are sound and convincing is a question going to the strength of the plaintiffs’ case and should be postponed to summary judgment proceedings or trial. But if intentions (hopes, in other words) were enough, predominance, as a check on casting lawsuits in the class action mold, would be out the window. Nothing is simpler than to make an unsubstantiated allegation. A district judge may not "refus[e] to entertain arguments against respondents’ damages model that bore on the propriety of class certification, simply because those arguments would also be pertinent to the merits determination."

 On the appropriate level of judicial inquiry pre-certification:

The judge should have investigated the realism of the plaintiffs’ injury and damage model in light of the defendants’ counterarguments, and to that end should have taken evidence. For if the defendants are right, there is no common issue, only individual issues that will vary from homeowner to homeowner: is there benzene in the groundwater beneath his home at a level of concentration that if the groundwater were drunk would endanger health (and is there any possibility it would enter the water supply); what is the source of the benzene in the groundwater beneath a given home (that is, who is the polluter who caused the groundwater to become polluted); could the presence of the benzene in that concentration cause any other form of harm; has the presence of the benzene reduced the value of his property; if so, how great has the reduction been. It is difficult to see how these issues can be managed in the class action format. But in any event they must be engaged by the district judge before he can make a responsible determination of whether to certify a class.

" Benzene in the water supply is one thing; benzene in groundwater that does not feed into the water supply is quite another."  Amen!

 

 

Filed under Class Actions, Class Certification, Comcast v. Behrend, Diminution of Property Value, Groundwater Contamination, Parko v. Shell Oil Company, Predominance, Roxana, Illinois, Rule 23, Seventh Circuit, Toxic Tort Litigation Tagged with ,