States' regulations on Marcellus Shale gas extraction continue to take shape

Energy Alert

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One Shale. Six states. Six different approaches. In recent months, state officials in New York, Pennsylvania, Maryland, Virginia, West Virginia and Ohio have responded to the increase in actual or prospective hydraulic fracturing (or fracking) activity in their respective states with a flurry of proposed or soon-to-be-implemented statutory and regulatory frameworks directed at addressing the unique issues associated with hydraulic fracturing.

As the applicable regulations continue to evolve, companies engaged in or those seeking opportunities to be engaged in the Marcellus Shale play would be well advised to stay as current as possible on this rapidly changing legal landscape.

Government leaders in all states have recognized the need to implement safeguards that adequately protect property owners, communities and the environment, while still maximizing the potential windfall benefit that the Shale represents.  This balancing act has resulted in different efforts to extend restrictions on shale drilling activity – or create new ones – while simultaneously seeking to maintain the economic profitability that lies beneath.

New York

The New York Department of Environmental Conservation (the DEC) identified the issuance of permits to drill wells for oil and natural gas extraction as an action requiring further review under New York’s State Environmental Quality Review Act and undertook a Generic Environmental Impact Statement (GEIS) regarding natural gas extraction, which was completed in 1992.  The GEIS determined that the drilling of a well for the extraction of natural gas has no significant environmental impact, provided certain conditions are met regarding location of the well and other issues.

The GEIS did not specifically address horizontal drilling techniques or hydraulic fracturing and, since the release of the GEIS, the development of such techniques, and new technology enabling them, have necessitated the issuance of a Supplemental Generic Environmental Impact Statement (the SGEIS).  The DEC determined in 2008 that “some aspects of the current and anticipated application of high-volume hydraulic fracturing, which is often used in conjunction with horizontal drilling and multi-well pad development warranted further review in the context of a[n] SGEIS.”

The DEC issued a draft SGEIS (the Draft SGEIS) on September 30, 2009.  During the public comment period that followed the release of the Draft SGEIS, a number of issues came to light, including the impact of hydraulic fracturing on groundwater and surface drinking water supplies, gas migration, issues relating to disposal of wastewater generated by the wells, and other concerns.

On December 13, 2010, after vetoing a legislative moratorium on Marcellus Shale drilling that he deemed too broad, then-New York Governor David Paterson issued Executive Order No. 41, which imposed a moratorium on hydraulic fracturing specifically, pending the completion of a final SGEIS.  On July 8, 2011, the DEC released a preliminary revised draft SGEIS, which included the following recommendations regarding hydraulic fracturing:

  • a prohibition on hydraulic fracturing in the New York City and Syracuse watersheds, including a buffer zone surrounding the watersheds
  • a prohibition on hydraulic fracturing within primary aquifers and within 500 feet of their boundaries
  • a prohibition on hydraulic  fracturing within 2,000 feet of public water supply wells and reservoirs
  • a prohibition on surface drilling on state-owned land, including parks, forest areas and wildlife management areas, and
  • a prohibition on hydraulic fracturing within 500 feet of a private water well or domestic use spring

The SGEIS also provides for miscellaneous other safeguards, including technical specifications, and mitigation measures pertaining to the byproducts and environmental impact of hydraulic fracturing.  On September 7, 2011, the DEC released a revised draft SGEIS that includes analyses of the socioeconomic effects of fracking and its impact on local communities.  The release of the revised draft SGEIS initiated a public review and comment period that is scheduled to end on December 12, 2011, at which time the DEC will begin preparing a final SGEIS.

Pennsylvania

Hydraulic fracturing in Pennsylvania is governed by the Pennsylvania Oil and Gas Act (the Oil and Gas Act).  Section 201 of the Oil and Gas Act provides that “[n]o person shall drill a well or alter any existing well . . . without having first obtained a well permit [from the Pennsylvania Department of Environmental Protection].”  The entity seeking a permit must send notice of drilling to the owner of the surface estate upon which drilling is to occur and to surface landowners or water purveyors who have water supplies within 1,000 feet of the proposed well location.  In addition, the company must provide notice of drilling to the owner or operator of “underlying workable coal seams.”

The Pennsylvania Department of Environmental Protection (the DEP) may impose conditions in the granting of a permit and can deny the requested permit for various reasons specified in the Oil and Gas Act.

Under existing Pennsylvania regulations, wells drilled in shale deposits must adhere to environmental protection standards and requirements that are applicable to all oil and gas wells.

Those regulations include:

  • a requirement that operators submit to the DEP a plan for the control and disposal of fluids, residual waste, and drill cuttings associated with oil and gas wells
  • standards for the use of pits and tanks to store wastes resulting from the operation of well
  • requirements related to the disposal of drill cuttings and other wastes, and other standards governing the management of wastewater from hydraulic fracturing, and
  • requirements related to the restoration of drilling sites and reporting releases

In 2011, the Pennsylvania Environmental Quality Board completed the process of amending the DEP regulations pertaining to oil and gas wells to address concerns related to increased utilization of hydraulic fracturing.  The new regulations include:

  • upgraded casing standards (including pressure-rating standards and pressure-testing requirements) and upgraded cement standards (including an eight-hour set period for cement)
  • a requirement that intermediate casing be cemented to the surface and a list of actions that operators must take if cement is not returned to the surface
  • clarification of when centralizers and blowout preventers must be used
  • new record-keeping and reporting requirements, including mandates to develop a casing and cementing plan that must be maintained on-site for review and possible DEP approval, document actual cementing procedures and cement specifications in a cement job log, and submit a stimulation record as part of a completion report that includes information about the additives used in hydraulic fracturing

Pennsylvania's efforts to adapt its legislative and regulatory framework to the emergence of hydraulic fracturing technology are ongoing. In March 2011, Pennsylvania Governor Tom Corbett formed the Pennsylvania Marcellus Shale Advisory Commission to study the impact of hydraulic fracturing and other issues relating to Marcellus Shale drilling, and to provide recommendations to Pennsylvania legislators and regulatory authorities regarding future action.  On July 22, 2011, the Pennsylvania Marcellus Shale Advisory Commission issued its final report.  Among the most significant of the 96 recommendations made in the final report are:

  • imposition of a drilling impact fee
  • forced pooling of gas reserves
  • increased penalties for violators of the Oil and Gas Act
  • an increase in required setbacks from streams, private wells and public water systems
  • establishment of best management practices for well construction and operation, and creation of monitoring and enforcement mechanisms to ensure such practices are followed, and
  • greater public disclosure obligations, including disclosures related to hazardous substance content and tracking of wastewater treatment and disposal

On October 3, 2011, Governor Corbett announced that he has adopted most of the report’s recommendations in a plan he will submit to the Pennsylvania General Assembly for implementation later this year.  Of perhaps most significance in Governor Corbett’s plan is his endorsement of the impact fee, which is to be paid by drillers to counties in which drilling activity takes place and used by local communities to address any environmental or other issues that result from the drilling.

Maryland

Maryland has not yet issued permits for hydraulic fracturing, and is currently considering various legislative and regulatory approaches to ensuring that fracking is performed safely and responsibly.  In June 2011, Maryland Governor Martin O’Malley issued an executive order directing the Maryland Department of the Environment and Department of Natural Resources to conduct a full study of the impact of Marcellus Shale, and to issue a report and recommendations by December 31, 2011.

West Virginia

West Virginia has yet to pass formal legislation specifically governing Marcellus Shale drilling.  In July 2011, however, West Virginia Governor Earl Ray Tomblin signed an executive order establishing permitting procedures and placing certain restrictions on drilling in the state's Marcellus Shale region, pending action by the state legislature.  Among the provisions of Governor Tomblin's order were:

  • a requirement that applicants seeking to drill within the boundaries of a municipality file a public notice of intent to drill
  • requirements regarding water use and protection, including a requirement that drill operators using more than 210,000 gallons of water a month file a water management plan with the West Virginia Department of Environmental Protection and adhere to the plan
  • restrictions on the use of wastewater and a requirement of written approval from the WVDEP to dispose of wastewater at publicly-owned treatment facilities, and
  • a requirement that a permit applicant obtain certifications from a registered professional engineer for drilling that will affect three or more acres

Governor Tomblin also directed the WVDEP to create other emergency rules as needed while the state awaits the creation of a permanent legislative and regulatory framework.  The executive order will remain in effect for fifteen months.

Meanwhile, legislators have formed a Joint Select Committee on Marcellus Shale, which is in the process of drafting a bill to be presented for a vote in a future legislative session.  Among the proposed provisions of the bill at this stage are:

  • increased setbacks and a prohibition on drilling within 2,500 feet of a drinking water well
  • a requirement that the WVDEP's Air Quality Board evaluate proposed drilling plans and issue its own permits
  • an increase in permit fees, and
  • stricter casing standards

The committee has indicated that it hopes to introduce a finalized version of the bill to the full legislature by year’s end.

Ohio

Because Marcellus Shale drilling activity is more limited in Ohio than in the above states, its regulatory framework is less complex.  The Ohio Department of Natural Resources, Division of Mineral Resources Management has primary regulatory authority over oil and gas drilling activity in Ohio, while the impact of drilling on water resources and air is regulated by the Ohio Environmental Protection Agency.  The most significant restrictions on drilling in Ohio are related to wastewater disposal.  Under the relevant regulations, wastewater with lower contamination levels may be sent to authorized sewage treatment plants, while higher contamination levels require the transport of wastewater to deep injection wells.

Virginia

The expanse of the Marcellus Shale reaches a small area of Virginia on its western border. Virginia does not yet permit Marcellus Shale drilling, but the Virginia Department of Mines, Minerals and Energy and the Virginia Department of Environmental Quality are in the process of evaluating the viability of future fracking operations in the Marcellus Shale. Only one applicant has sought permission for an exploratory Marcellus Shale well to date, and that applicant has voluntarily suspended its application pending a comprehensive impact study involving Virginia authorities and citizens.

The challenges presented by differing state perspectives and approaches to the same Shale space are compounded by the breadth of the areas of regulations being considered.  In addition to the permitting and regulation of the drilling operation itself, common regulatory points of focus include the location of drilling operations, with respect to either geographic region (as in the proposed regulations in New York), state-owned land, and/or the proximity to natural water sources and wells (New York and Pennsylvania); post-drilling practices including treatment, transportation and disposal of wastewater; drilling fee structures, penalty systems and public disclosure obligations.  The complexity of this developing regulatory landscape merits continued evaluation by companies involved, or soon to be involved in this area.

One Shale.

For more information about the regulations surrounding the Marcellus Shale, please contact:

Jayne Anderson Risk

Robert Gruendel

Deborah Jennings

An earlier version of this article appeared on Law360.com on November 23, 2011.

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