Archive for the ‘Onshore Drilling’ Category

EPA Struggling to Keep Pace with Fracking

Photo care of geograph. Some rights reserved.

Two reports were released by the Government Accountability Office this week detail challenges facing the EPA in overseeing the oil and gas drilling boom in the U.S. The growth of the dispersed and hard-to-follow fracking industry is the focus of the first report, while the second addresses the public health and environmental impacts of oil and gas development.

EPA officials report that inspection and enforcement of fracking sites is challenging due to limited information on many aspects of the industry. The EPA doesn’t receive information about new well sites in Ohio, for example, and their sheer number makes tracking them difficult. Baseline water-quality data are unavailable in most areas, so assessing groundwater contamination is difficult.

In addition, legal limits on EPA’s authority affects their ability to regulate some aspects of the fracking process. Exploration and production waste, for example, are not regulated under hazardous waste provisions in the Resource Conservation and Recovery Act. The Hill, with more details on the reports (here and here) notes that attempts to increase regulation of the industry have not advanced in Congress.

The second report notes that though all oil and gas development poses environmental and public health risks, the risks from shale gas development are particularly poorly understood. Studies the GAO reviewed, according to the report, “do not generally take into account the potential long-term, cumulative effects” so the extent and longevity of risks is unknown.

Local Zoning and Natural Gas in Pennsylvania: Court Rules on Act 13

Klingerstown, Pennsylvania. Photo by Scott Bauer, U.S. Department of Agriculture. Some rights reserved.

In February, the Pennsylvania General Assembly passed the Oil and Gas Act, revising the state’s regulation of oil and gas operations. Among other changes, “Act 13” required uniformity of local ordinances and granted the Pennsylvania Department of Environmental Protection the right to use its discretion in granting variances for distance restrictions from water and wetlands. The natural gas industry saw the legislation as a vital antidote to the maze of constantly changing local zoning ordinances in the gas-rich Marcellus region that leads to expensive litigation and increased production and development costs, but not everyone was cheering for Act 13.

Six townships, several individuals, and an environmental group joined Robinson Township in challenging the Act, and the Commonwealth Court issued their decision declaring the sections described above unconstitutional. The Court’s rationale for overturning the uniform zoning provision was that zoning is a police power of local districts and allowing nonconforming use in zoning districts violates substantive due process. In addition, the provision allowing Pennsylvania’s DEP to grant waivers for setback requirements from water and wetlands was declared null because the law offered insufficient guidance to the DEP regarding waiver standards.

Local zoning and setback issues affect the cost, timing, and even feasibility of natural gas production, so the day after the Court’s decision, Pennsylvania Governor Tom Corbett announced an appeal directly to the Pennsylvania Supreme Court. The dissenting opinion, which according to Reed Smith’s Alert  on the ruling could offer suggestions for the appeal, argued that “incompatible uses” can be allowed in a comprehensive zoning framework, and attacked the majority’s attempt to call on substantive due process protections. It noted that most substantive due process cases regarding zoning challenge the ordinances as too restrictive, while the petitioners in this case do the opposite, which is inconsistent with constitutional zoning precedent. Furthermore, the shortcoming the Court sees in DEP guidance regarding setback waivers appears to be something the legislature could rectify easily, according to a Buchanan, Ingersoll & Rooney memo. Finally, the natural gas industry – barred from intervening in the case at the lower level – will be able to participate in the Supreme Court appeal process by filing amicus briefs.

USGS Links Fracking to Earthquakes

A hydraulic fracturing drilling rig. Image by Cliff Weathers. Some rights reserved.

The American Midwest has seen something of an earthquake boom in recent years, and speculation that the earthquakes are related to shale gas drilling has run rampant. In 2001, the frequency of earthquakes from Montana to Alabama began to rise, the number of quakes of magnitude 3.0 or greater reaching 87 in 2009. The 134 quakes of that magnitude recorded in 2011 represent a sixfold increase over 20th century levels.

As shale gas production has grown at a rate of 50 percent per year over the past 5 years, official concern has been growing. Back in November, we wrote about a report from the Secretary of Energy laying out recommendations to improve the safety and reduce the environmental impact of shale gas development, including a section on eliminating the use of diesel in fluids used for hydraulic fracturing.

Hydraulic fracturing, commonly called “fracking,” is a method of extracting gas and petroleum from source rocks. The injection of fracturing fluid into a drilled wellbore creates an extended crack in underground rocks typically under high pressure, allowing petroleum or gas to flow from the porous rocks where it is trapped to a natural reservoir from which it can be extracted.

The U.S. Geological Survey (USGS) recently released the abstract of its report finding a link between fracking and the sharp jump in earthquakes, the latest in a wave of research on the process. It follows a USGS report from last August that noting a series of 50 small earthquakes that came shortly after fracking operations began in Oklahoma. In November, a British shale gas developer admitted that they likely caused small earthquakes in the vicinity of their operations, and in March, Ohio regulators found that some fracking processes probably induced twelve earthquakes in northeastern Ohio.

The USGS thinks most of the earthquakes are caused not by the fracking itself, but from the disposal of the millions of gallons of wastewater produced by each well – often by injecting it back into the earth, as regulators found in Ohio. The bottom line is that the dramatic increase in earthquakes has never been seen outside of volcanic activity or in the absence of a main earthquake, neither of which exist in this region.

Last Week in Environmental Contingencies and Proceedings Disclosure – Oil and Gas Extraction Industry Edition!

As we’ve posted in the past, public companies must generally disclose material legal proceedings in their annual and quarterly reports to the SEC. Today we’ve pulled some disclosures of environmental liabilities from companies in the Oil and Gas Extraction Industry. We did this by limiting our search on the knowledgemosaic SEC filings page to the following Standard Industrial Classification Codes: 1311, 1321, 1381, 1382, and 1389.

Given the recent hubbub surrounding methane-contaminated drinking water near fracking sites, we think you’ll find the disclosure from Chesapeake Energy Corp especially interesting.

  • TETRA TECHNOLOGIES INC | Form 10-Q | 5/10/2011

One of our subsidiaries, TETRA Micronutrients, Inc. (TMI), previously owned and operated a production facility located in Fairbury, Nebraska. TMI is subject to an Administrative Order on Consent issued to American Microtrace, Inc. (n/k/a/ TETRA Micronutrients, Inc.) in the proceeding styled In the Matter of American Microtrace Corporation, EPA I.D. No. NED00610550, Respondent, Docket No. VII-98-H-0016, dated September 25, 1998 (the Consent Order), with regard to the Fairbury facility. TMI is liable for future remediation costs and ongoing environmental monitoring at the Fairbury facility under the Consent Order; however, the current owner of the Fairbury facility is responsible for costs associated with the closure of that facility.

In August of 2009, the Environmental Protection Agency (EPA), pursuant to Sections 308 and 311 of the Clean Water Act (CWA), served a request for information with regard to a release of zinc bromide that occurred from one of our transport barges on the Mississippi River on March 11, 2009. We timely filed a response to that request for information in August 2009. In January 2010, the EPA issued a Notice of Violation and Opportunity to Show Cause related to the spill. We met with the EPA in April 2010 to discuss potential violations and penalties. It has been agreed that no injunctive relief will be required. We have finalized a joint stipulation of settlement with the EPA, whereby we are responsible for a penalty of $487,000, which was submitted to the Department of Justice and the U.S. District Court for the Western District of Tennessee. The settlement was entered into the record on April 28, 2011. We expect to pay this penalty amount during the second quarter of 2011 and expect the full amount to be covered by insurance.

On June 22, 2007, Riverbend Gas Gathering, LLC (“Riverbend” [a Gasco subsidiary]) voluntarily notified the United States Environmental Protection Agency (“EPA”) Region 8 office in Denver, Colorado, of its discovery that Riverbend apparently had not obtained certain air permits or complied with certain air pollution regulatory programs applicable to its operations at the Riverbend Compressor Station in Uintah County, Utah. Subsequent to this notice and negotiations on the matter, Riverbend and the EPA entered into a consent decree that was lodged in the United States District Court of the District of Utah on December 30, 2010. The consent decree resolves the apparent violations, requires Gasco to pay a civil penalty of $350,000, which was paid on May 5, 2011, specifies the appropriate corrective action, provides a schedule for Riverbend to achieve such corrective action, and includes a covenant not to sue that will authorize Riverbend to continue its operations, including certain capacity expansions, while the specified corrective action is being implemented. The consent decree was approved and entered by the reviewing court on April 6, 2011.

Under the Purchase Agreement dated January 29, 2010 by which the Company sold its gathering system and its evaporative facilities located in Uintah County, Utah to Monarch, the Company retained the obligation to pay any civil penalty assessed and the capital cost of the equipment required to be installed pursuant to the consent decree, and also agreed to reimburse Monarch for certain miscellaneous expenses incurred to finalize the consent decree and obtain certain changes to the Riverbend Compressor Station’s air permits that are required by the consent decree. Monarch is also a party to the consent decree and will be responsible for implementing most of the consent decree requirements at the Riverbend Compressor Station other than payment of the civil penalty, which has already taken place, and the installation of capital equipment. The Company believes that all necessary pollution control and other equipment required by the consent decree is already installed at the site or accounted for in our capital budget, and that the expenses required by the consent decree will not materially affect the Company’s financial position or liquidity.

  • CHESAPEAKE ENERGY CORP | Form 10-Q | 5/10/2011

There are pending against us enforcement actions initiated in the 2010 fourth quarter and 2011 first quarter by the Pennsylvania Department of Environmental Protection (DEP) related to alleged methane migration into the groundwater and residential water wells and by the U.S. Environmental Protection Agency (EPA) related to our compliance with Clean Water Act permitting requirements in West Virginia. We have responded to all pending orders and are actively cooperating with the relevant agencies. We believe that each of these actions will result in monetary sanctions exceeding $100,000. We are estimating a fine of approximately $1 million in the Pennsylvania action but are unable to estimate the amount of any fines that might be imposed by the EPA in the West Virginia action.

Following a well control incident in Bradford County, Pennsylvania on April 20, 2011, Chesapeake voluntarily suspended well completion operations in the state and has responded to a notice of violation issued by the Pennsylvania DEP. We have provided information regarding our investigation of the incident and the potential environmental impact of the event. We believe our investigation has identified the origin of the well control incident as occurring within the wellhead, and we have conducted wellhead inspections on other wells in the completion phase in the Marcellus Shale and implemented responsive measures. We are working closely with the Pennsylvania DEP to obtain its concurrence that we may resume completion operations in the state as soon as possible. We are unable to predict at this time the amount of any fines or penalties that will result from this incident.

In June 2009, Alagasco received a General Notice Letter from the United States Environmental Protection Agency (EPA) identifying Alagasco as a responsible party for a former manufactured gas plant (MGP) site located in Huntsville, Alabama, and inviting Alagasco to enter an Administrative Settlement Agreement and Order on Consent to perform a removal action at that site. The Huntsville MGP, along with the Huntsville gas distribution system, was sold by Alagasco to the City of Huntsville in 1949 with such sale being approved by the APSC. While Alagasco no longer owns the Huntsville site, the Company and the current site owner have entered into a Consent Order, developed an action plan for the site and are in the process of executing the plan. Based on information available at this time, Alagasco estimates that it may incur costs associated with the site of approximately $4.4 million, including costs previously incurred. During the three months ended March 31, 2011, the Company incurred costs of $1 million associated with the site. As of March 31, 2011, the Company has accrued a contingent liability of $2.5 million in addition to the costs previously incurred. The estimate assumes an action plan for excavation of affected soil and sediment only. If it is determined that a greater scope of work is appropriate, then actual costs  will likely exceed the estimate. Alagasco expects to recover such costs through future rates and has recorded a corresponding amount to its Enhanced Stability Reserve regulatory asset account.

Leaked Memos Show Increased Roadblocks for Environmental Enforcement

Late last month, investigative news organization ProPublica was tipped off about a new directive that had been quietly established at Pennsylvania’s Department of Environmental Protection (DEP). The new procedures call for all violations discovered during field inspections of Marcellus Shale drilling activities to be first run by the Deputy Secretary for Field Operations. Only once the deputy secretary has given his approval may the field staff issue a Notice of Violation directly to the drilling companies.

ProPublic reports:

“The memos require that each of the hundreds of enforcement actions taken routinely against oil and gas operators in Pennsylvania each month now be approved by the department’s executive deputy secretary, John Hines. The memos are raising concerns that the state’s environmental inspectors can no longer act independently and that regulations could be overridden by the political whims of the state’s new governor, Tom Corbett.”

You can read the full story – and see the leaked memos – here.

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