News
November 8, 2016

Hydraulic Fracturing Legal Update—November 2016

A publication of the Energy and Environmental Practice Groups

Executive Summary

Arnold & Porter is pleased to provide this digest of judicial decisions, settlements, case filings, and other litigation documents on hydraulic fracturing (fracking) and related activities around the United States, as well as legislative and regulatory developments. This digest covers developments that have occurred since the beginning of the year.

The year has seen courts weigh in on the authority of federal, state, and local governments to regulate hydraulic fracturing. Notable decisions have included a Wyoming federal court's ruling that the Bureau of Land Management (BLM) lacked authority to regulate hydraulic fracturing on public and Indian lands, the Pennsylvania Supreme Court's striking down portions of 2012 legislation that overhauled oil and gas regulation in the state, and the Colorado Supreme Court's confirmation of limits on local authority to regulate oil and gas operations.

In the coming months, federal courts will continue to examine federal authority to regulate in the oil and gas arena as the Tenth Circuit considers the appeal of the district court's vacating of the BLM regulations, and as the DC Circuit reviews the US Environmental Protection Agency's air standards for oil and gas sources. Federal courts and agencies will also address efforts by environmental non-governmental organizations to compel additional oversight of oil and gas operations under the Endangered Species Act, the National Environmental Policy Act, and the Resource Conservation and Recovery Act, including in ongoing lawsuits filed this year in Oklahoma and the District of Columbia. In Pennsylvania, a state court will weigh the natural gas industry's arguments challenging new regulations for unconventional drilling. In addition, litigation over the impacts of waste disposal practices will continue, particularly in Oklahoma, where multiple actions have been filed alleging that injection of oil and gas waste caused earthquakes. These cases and others from California, Louisiana, Ohio, Oklahoma, New York, Pennsylvania, and West Virginia are discussed in this digest, along with recent federal regulatory developments and new state laws and regulations in California, Colorado, Nebraska, and Pennsylvania.

 

 

Table of Contents

Litigation

Statutes, Regulations, and Ballot Initiatives

 

 

LITIGATION

 

 

Featured Case

Pennsylvania Supreme Court Excised More Provisions from 2012 Oil and Gas Legislation

Almost three years after striking down key provisions of Act 13, the 2012 legislation that reconstituted Pennsylvania's Oil and Gas Act, the Pennsylvania Supreme Court invalidated additional portions of the law. The court's most recent decision involved four sections of Act 13:

1. Local ordinances. The Pennsylvania Supreme Court affirmed the Commonwealth Court's ruling which struck down Act 13's attempt to restrict local authority to enact ordinances regarding oil and gas operations. The Supreme Court found that the provisions regarding administrative and judicial review of local ordinances and enforcement in connection with noncompliant local ordinances could not be severed from the provisions it struck down in its 2013 opinion.

2. Spill reporting. The court ruled that the provision of the Act that limited the Pennsylvania Department of Environmental Protection's spill reporting obligation to public water suppliers (and did not extend the obligation to private well owners) was a violation of the Pennsylvania Constitution's prohibition on "special laws." The court stayed its order barring enforcement of this provision for 180 days to allow the legislature to craft remedial legislation. The Supreme Court declined to consider whether its 2013 groundbreaking plurality opinion regarding the Pennsylvania Constitution's Environmental Rights Amendment (Article I, Section 27) could serve as a precedential basis for challenges to the provision, however, because it determined that the challenge to the spill reporting provision was not based on Article I, Section 27.

3. Chemical disclosure and health professionals. Although the Supreme Court concluded that Act 13 provisions related to health professionals' access to and use of information about chemicals used in hydraulic fracturing did not violate the Pennsylvania Constitution's "single-subject rule," the court found that the provisions violated the prohibition on "special laws" because they granted special protections to oil and gas industry trade secrets and confidential proprietary information not available to other industries.

4. Eminent domain. Finally, the court ruled that the Act 13 provision granting the power of eminent domain to companies that transported, sold, or stored natural gas violated the takings provisions of the US and Pennsylvania Constitutions because it conferred the taking power on a private entity for a private use. The Supreme Court said that the provision's text did not allow a narrow reading that would have limited the taking power to public utilities.

One justice dissented on the severability of the local ordinance review and enforcement provisions and on the conclusion that the spill reporting provision was an impermissible special law. On the latter issue, he was joined in his dissent by one other justice. Robinson Township v. Commonwealth of Pennsylvania, Nos. 104 MAP 2014, 105 MAP 2014 (Sept. 28, 2016).

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Challenges to Agency Action

States, Trade Groups Challenged EPA Emission Standards for Oil and Gas Sources

North Dakota, 15 other states, and a number of trade groups filed petitions in the DC Circuit Court of Appeals for review of EPA's final rule establishing methane and volatile organic compound (VOC) emission standards for new, reconstructed, and modified sources in the oil and natural gas sector. The petitioners asserted that the rule exceeded EPA's statutory authority, was unconstitutional, and was arbitrary, capricious, an abuse of discretion, and not in accordance with law. Six environmental groups filed a motion seeking to intervene on EPA's behalf, as did nine states and the City of Chicago. On October 24, 2016, the petitioners moved to consolidate the methane standards challenge with two pending proceedings that also challenged new source performance standards for the oil and gas sector. The petitioners requested that the consolidated proceedings be bifurcated to allow the court to first consider "fundamental legal issues," including EPA's authority to regulate, and then to move to consideration of "implementation-based challenges." North Dakota v. EPA, Nos. 16-1242 et al. (D.C. Cir.).

California Federal Court Ordered BLM to Consider Resource Management Plan's Hydraulic Fracturing Impacts

The federal district court for the Central District of California ordered the United States Bureau of Land Management (BLM) to prepare a supplemental environmental impact statement (EIS) considering the impacts of hydraulic fracturing in connection with a new resource management plan for 400,000 acres of public lands and an additional 750,000 acres of federal mineral estate in California. As a threshold matter, the court concluded that the environmental groups that brought the case had established a concrete injury because the procedural violation (i.e., the inadequate EIS) was complete even before BLM authorized specific projects. The court also found that the action was ripe and rejected the argument that the environmental groups had waived their arguments regarding well stimulation treatments by not presenting their concerns during the notice and comment period. The court said that the failure to address hydraulic fracturing's environmental impact "was a flaw 'so obvious' that Plaintiffs did not need to expressly point it out to preserve their ability to challenge this omission." On the merits, the court said that BLM had failed to take a "hard look" at environmental impacts under the National Environmental Policy Act (NEPA) given that 25% of new wells were expected to use hydraulic fracturing but the final EIS included only three "isolated and passing references" to fracking. The court said that BLM was obligated by NEPA "to address the unique risks and concerns associated with fracking." The court also said that BLM's commissioning of a report to assess hydraulic fracturing after preparation of the final EIS but before issuance of the record of decision did not satisfy its NEPA obligations and further found that BLM had acted unreasonably by not revising the final EIS or preparing a supplemental EIS in light of the commissioned report. Los Padres ForestWatch v. United States Bureau of Land Management, No. 2:15-cv-04378 (C.D. Cal. Sept. 6, 2016).

Oklahoma Federal Court Dismissed Oil and Gas Producers' Challenge to Permitting Delays by Bureau of Indian Affairs

The federal district court for the Northern District of Oklahoma dismissed a lawsuit against the Bureau of Indian Affairs alleging that BIA improperly delayed decisions on oil and gas permits in Osage County in Oklahoma. The court said that the plaintiff—a "nonprofit association comprised of oil and gas producers that have oil and gas leases in Osage County"—had not identified the specific actions it wished to challenge under the Administrative Procedure Act, had not established associational standing, and had not exhausted its administrative remedies. Initially, the court allowed the plaintiff an opportunity to file an amended complaint. On September 30, upon a joint motion by the parties, the court dismissed the action without prejudice. Osage Producers Association v. Jewell, No. 15-CV-469 (N.D. Okla. June 1, 2016).

Oklahoma Federal Court Reversed BIA Approval of Oil and Gas Lease, Drilling Permits, Finding NEPA Review was Required

The federal district court for the Northern District of Oklahoma ruled that the Bureau of Indian Affairs failed to comply with NEPA when it approved an oil and gas lease between the Osage Nation and Chaparral Energy, LLC for a portion of Osage mineral estate underlying the plaintiff's property and associated permits for drilling on the plaintiff's property. The court said that BIA's determination that approval of the lease fell within a NEPA categorical exclusion was based on a plainly erroneous interpretation of the agency's regulations. With respect to the drilling permits, the court concluded that BIA should have prepared an environmental assessment (EA) or, alternatively, should have determined that a programmatic EA prepared in 1979 adequately assessed the impacts of the drilling permit. The court further concluded, moreover, that the 1979 programmatic EA required supplementation because it did not address hydraulic fracturing's impacts at all. Hayes v. Chaparral Energy, LLC (N.D. Okla. Jan. 5, 2016).

Pennsylvania Commonwealth Court Said Portion of Act 13 Allowing DEP to Consider Impacts on Public Resources Remained Valid

A split panel of the Pennsylvania Commonwealth Court ruled that the Pennsylvania Department of Environmental Protection (DEP) retained authority under state oil and gas law to consider impacts on public resources in connection with well drilling permit applications. The majority rejected the argument that the Pennsylvania Supreme Court had broadly enjoined enforcement of the statutory provision authorizing such consideration in its 2013 decision in Robinson Township v. Commonwealth of Pennsylvania. The majority concluded that the Supreme Court had more narrowly enjoined the provision, though two dissenting justices said that the Supreme Court had "explicitly and unequivocally" ruled that the provision could not be severed from an invalidated provision and that application was therefore enjoined. Pennsylvania Independent Oil and Gas Association v. Pennsylvania Department of Environmental Protection, No. 321 M.D. 2015 (Pa. Commw. Ct. Sept. 1, 2016).

Ohio Court of Appeals Dismissed Environmental Groups' Challenge to Authorizations for Oil and Gas Waste Facilities for Lack of Standing

The Ohio Court of Appeals concluded that two environmental groups had not demonstrated that they had traditional, public-right, or taxpayer standing to challenge Ohio's failure to promulgate regulations for disposal of oil and gas waste or to challenge the State's temporary authorizations for oil and gas waste facilities. The court agreed with a magistrate's finding that the groups' members—who lived near facilities that had received temporary authorizations—had not alleged a concrete and non-speculative injury different from that suffered by the general public. The court agreed with the respondents that there was no site-specific evidence of the alleged harms, which include concerns regarding air and water pollution, "hydrocarbon stenches," and the radioactivity of oil and gas drilling waste. The appellate court agreed with the magistrate that the allegedly illegal action of the State was not of the magnitude required for public-right standing to apply and that the groups had failed to pursue a claim of taxpayer standing. A concurring justice said that although she would have found that an offensive odor or stench could constitute an injury, she agreed that the groups did not have standing because they could not establish issuance of regulations rather than the already-issued temporary authorizations would redress the injury. State of Ohio ex rel. Food & Water Watch v. State of Ohio, No. 14AP-958 (Ohio Ct. App. May 24, 2016).

Lawsuit Filed to Void California's Approval of Aquifer Exemption for Injection Wells

The Center for Biological Diversity filed a lawsuit in California Superior Court challenging the approval by the Division of Oil, Gas, and Geothermal Resources (DOGGR) of the California Department of Conservation of an aquifer exemption under the Safe Drinking Water Act to allow new and reworked wells for production and steam and waste injection. The Center for Biological Diversity alleged that DOGGR had improperly bypassed the California Environmental Quality Act when it approved the aquifer exemption. Center for Biological Diversity v. California Department of Conservation, Division of Oil, Gas, and Geothermal Resources, No. 16CV-0353 (Cal. Super. Ct., filed Aug. 3, 2016).

Louisiana Courts Upheld State Authority to Issue Drilling Permit, Finding Local Ordinances Preempted; Company Elected Not to Pursue Hydraulic Fracturing

In March, the Louisiana Court of Appeal upheld a drilling permit issued by the Commissioner of the Office of Conservation to Helis Oil & Gas Company, LLC (Helis) for a well in St. Tammany Parish located over and through an aquifer that was the sole source of the area's drinking water. The appellate court agreed with a trial court that State law preempted a local zoning ordinance to the extent that the local ordinances prohibited or interfered with drilling the well. The appellate court found that local land use and zoning power could not abridge the State's police power. The court also found that the Commissioner had fulfilled his obligation to consider St. Tammany Parish's master plan in issuing the permit. In June, the Louisiana Supreme Court declined to take up the case, voting 4 to 3 to deny an application for a writ of certiorari. Two judges issued reasons for their dissenting from the denial of certiorari. One dissenting judge said that the case was "not a typical preemption case" because it involved zoning not regulation of the production of oil and gas. The other dissenting judge agreed that the local ordinances involved zoning and not oil and gas regulation and wrote that the Court of Appeal had "failed to acknowledge and analyze the tension between … two police powers"—that of the locality and that of the State. On September 20, 2016, the New Orleans Advocate reported that Helis would not proceed with hydraulic fracturing at the well because it had concluded based on samples from exploratory vertical drilling that there was not enough oil to make the project viable. St. Tammany Parish Government v. Welsh, No. 2015 CA 1152 (La. Ct. App. Mar. 9, 2016), cert. denied, No. 2016-C-0657 (La. June 17, 2016).

Pennsylvania Commonwealth Court Upheld Gas Drilling Permit

The Pennsylvania Commonwealth Court affirmed DEP's issuance of a gas drilling permit over a challenge by the owner-operator of a water system. The Commonwealth Court rejected the water system operator's contention that the Environmental Hearing Board's findings of fact were not supported by substantial evidence. The court agreed with the Board that the impacts of drilling on a water supply well would not violate the Oil and Gas Act or the Clean Streams Law. The court also said that the water system operator had not met its burden to establish that issuance of the permit violated the Pennsylvania Constitution's Environmental Rights Amendment. Brockway Borough Municipal Authority v. Pennsylvania Department of Environmental Protection, No. 789 C.D. 2015 (Pa. Commw. Ct. Jan. 6, 2016).

Environmental Groups Threatened Lawsuit Over Failure to Consider Impacts of Colorado Oil and Gas Development on Endangered Fish Species

Three environmental groups sent a notice of intent to sue to the US Bureau of Land Management (BLM) and the US Fish and Wildlife Service asserting that the agencies had not complied with the Endangered Species Act (ESA) when BLM authorized oil and gas exploration and development in the Upper Colorado River Basin of western Colorado. The notice said that BLM's approval of resource management plans in August 2015 would allow development of almost 19,000 oil and gas wells in the region that would affect four endangered fish species and their critical habitat. The notice asserted that the agencies' failure to consider the water depletion and spill impacts on the four species violated the ESA. The groups contended, among other arguments, that the agencies relied on an outdated 2008 programmatic biological opinion that did not take into account new drilling techniques (including horizontal drilling), climate change effects, reduced flows over the last eight years, and new information regarding mercury and selenium deposition and bioaccumulation. Center for Biological Diversity, Living Rivers, and Rocky Mountain Wild, 60-Day Notice of Intent to Sue the BLM and U.S. Fish and Wildlife Service Pursuant to the Endangered Species Act Regarding Oil and Gas Exploration and Development in the Upper Colorado River Basin in Colorado (Sept. 12, 2016).

Environmental Groups Notified Agencies of Intent to Challenge Authorization of Offshore Use of Well Stimulation Techniques

Environmental Defense Center (EDC) and Santa Barbara Channelkeeper (Channelkeeper) sent a notice of intent to sue under the Endangered Species Act to the Bureau of Safety and Environmental Enforcement (BSEE) and the Bureau of Ocean Energy Management (BOEM). The potential legal action concerns the agencies' preparation of a programmatic environmental assessment (PEA) and issuance of a finding of no significant impact (FONSI) regarding the use of well stimulation treatments within federal, Outer Continental Shelf waters off the coast of California. The agencies issued the FONSI and final PEA in May 2016 after agreeing earlier in the year to conduct an environmental assessment to resolve two judicial actions brought by environmental groups, including EDC, in which the groups alleged that the agencies had failed to comply with the National Environmental Policy Act (NEPA) in connection with Applications for Permits to Drill and Applications for Permits to Modify for offshore drilling. In the new notice of intent, EDC and Channelkeeper say that the agencies should have engaged in consultation under the ESA to ensure that their actions would not jeopardize the endangered and threatened species that may be affected. 60-Day Notice of Intent to Sue BSEE/BOEM Under Endangered Species Act in Relation to Offshore Well Stimulation Treatments on the Southern California Outer Continental Shelf (Aug. 10, 2016); Environmental Defense Center v. Bureau of Safety & Environmental Enforcement, No. 2:14-cv-0928 (C.D. Cal. Jan. 29, 2016); Center for Biological Diversity v. Bureau of Ocean Energy Management, No. 2:15-cv-01189 (C.D. Cal. Jan. 29, 2016).

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Challenges to State and Federal Laws and Regulations

Wyoming Federal Court Set Aside BLM Hydraulic Fracturing Rule; BLM Urged Tenth Circuit to Reverse

In June 2016, the federal district court for the District of Wyoming ruled that BLM did not have congressional authority to regulate hydraulic fracturing on federal and Indian lands. The district court concluded that the regulations—which focused on wellbore construction, chemical disclosures, and water management—did not fall within the authority granted to BLM by "general statutes" cited by BLM—the Federal Land Policy and Management Act of 1976 (FLPMA), the Mineral Leasing Act of 1920, the Indian Mineral Leasing Act of 1938, or the Indian Mineral Development Act of 1982. The district court said that BLM's argument that the agency had for a long time regulated well stimulation techniques to protect groundwater was without merit; the court also concluded that the FLPMA did not provide any "specific authority" to regulate hydraulic fracturing or underground injections. The district court further found that "[t]here can be no question" that the Energy Policy Act of 2005 (2005 EP Act) exempted hydraulic fracturing from regulation under the Safe Drinking Water Act by the United States Environmental Protection Agency, which the court said previously had the duty and authority to regulate hydraulic fracturing on federal, state, and tribal lands. The district court said that "[h]aving explicitly removed the only source of specific federal agency authority over fracking, it defies common sense for the BLM to argue that Congress intended to allow it to regulate the same activity under a general statute that says nothing about hydraulic fracturing." The district court characterized BLM's regulations as an "end-run" around the 2005 EP Act. BLM and the other federal respondents appealed, as have six environmental groups that intervened as respondents. Briefing was completed on October 7, 2016. The federal respondents argued that Congress had granted BLM broad authority to regulate oil and gas operations on federal and Indian lands, authority that the SDWA preserved, and that BLM's interpretation of its statutory authority was entitled to deference. Former Department of the Interior officials from the Obama Administration and the three prior administrations filed an amicus curiae brief in support of the respondents, arguing that the district court's decision could threaten DOI's ability to fulfill its mandate to protect federal lands. The appellees argued that the district court had correctly found that BLM lacked authority to regulate hydraulic fracturing. The Ute Indian Tribe of the Uintah and Ouray Reservation argued that even if the Tenth Circuit reversed the district court's holding with respect to federal lands, the appellate court should affirm that the hydraulic fracturing regulations could not apply to tribal lands. Parties filing amicus curiae brief in support of the appellees included Montana, Alaska, Kansas, and Texas; the United States Chamber of Commerce; the Pacific Legal Foundation and Wyoming Liberty Group; and the Petroleum Association of Wyoming. Wyoming v. United States Department of the Interior, No. 2:15-CV-043 (D. Wyo. June 21, 2016); Wyoming v. U.S. Department of the Interior, Nos. 16-8068, 16-8069 (10th Cir.).

Marcellus Shale Coalition Asked Court to Stay New Pennsylvania Regulations for Unconventional Wells

After Pennsylvania's new regulations for unconventional drilling went into effect on October 8, the Marcellus Shale Coalition (MSC) filed a lawsuit in the Pennsylvania Commonwealth Court challenging them. Components of the regulations that MSC asked the court to stay included notification obligations to "public resource agencies" when a proposed well's limit of disturbance is located with a certain distance of a "public resource"; obligations to monitor orphan, abandoned, or plugged wells; obligations to comply with the Solid Waste Management Act for onsite processing activities; "extensive and burdensome new requirements for impoundments"; requirements for site restoration plans that duplicate what is required under the Clean Streams Law; unreasonable remediation obligations; and unreasonable and unlawful waste reporting obligations. MSC asserted that the regulations were enacted without statutory authority, that they conflicted with other applicable statutes and regulations, that they were void for vagueness, and that they violated the prohibition in the Pennsylvania Constitution against special laws. Among other things, MSC contended that the Pennsylvania Supreme Court's September 2016 decision in Robinson Township v. Commonwealth of Pennsylvania invalidated statutory provisions that the regulations implemented. MSC also contended that the regulations did not provide criteria for the Pennsylvania Department of Environmental Protection (DEP) to use for issuing permits and that the Environmental Quality Board had improperly deferred to DEP in the drafting and adoption of the regulations. MSC also said that rulemaking process violated the Regulatory Review Act. Marcellus Shale Coalition v. Pennsylvania Department of Environmental Protection, No. 573 MD 2016 (Pa. Commw. Ct., filed Oct. 13, 2016).

After Pennsylvania Court Declined to Stop New Regulations for Conventional Oil and Gas Wells, Legislature Stepped In

The Pennsylvania Commonwealth Court denied the Pennsylvania Independent Petroleum Producers Association's (PIPP's) petition for expedited summary or special relief in PIPP's action challenging adoption by the Pennsylvania Environmental Quality Board (EQB) of a "single final-form regulation governing both conventional oil and gas wells and unconventional gas wells." PIPP contended that the adoption of a single final-form regulation violated the EQB's statutory responsibility to regulate conventional and unconventional wells separately. PIPP asserted that there was an enormous disparity between conventional and unconventional producers in the resources they possessed to absorb the annual costs of the regulations. PIPP asserted that the interests of its conventional oil producer membership would be diluted by the presentation of the regulations to the Independent Regulatory Review Commission (IRRC)—which reviews final-form regulations to determine whether they are in the public interest—in the format approved by the EQB. On April 21, 2016, the IRRC approved the regulations and in May, PIPP asked that the action be discontinued without prejudice. In June, however, the governor signed legislation allowing the new regulations for unconventional drilling to go into effect but barring adoption of the new regulations for conventional oil and gas drilling. The legislation (Act 52) required future rulemaking for conventional oil and gas wells to be undertaken separately and independently from regulation of unconventional wells. The law also established a Pennsylvania Grade Crude Development Advisory Council to advise on regulation of conventional drilling. Pennsylvania Independent Petroleum Producers Association v. Pennsylvania, No. 219MD2016 (Pa. Commw. Ct. Apr. 15, 2016).

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Challenges to Municipal Actions

West Virginia Federal Court Strikes Down County Ordinance Restricting Storage of Oil and Gas Waste as Preempted by State and Federal Law

The federal district court for the Southern District of West Virginia ruled that state law and the Safe Drinking Water Act (SDWA) preempted a county ordinance that banned storage of oil and gas waste in underground injection control (UIC) wells and restricted storage of oil and gas waste at drilling sites. The court concluded that the ban on UIC storage contravened a provision of the SDWA that prohibited state UIC permitting programs from interfering with or impeding the underground injection of wastewater in connection with oil and natural gas production. The court also concluded that state law barred both the UIC and on-site waste provisions of the ordinance. The plaintiff—a company that operated 200 oil and gas extraction wells and one UIC well in the county—had also alleged that the ordinance effectively banned horizontal drilling in the county because it prohibited all storage of oil and gas wastewater except at conventional drilling sites, but the court concluded the company did not have standing to make this claim because it did not hold permits for any horizontal wells. EQT Production Co. v. Wender, No. 16-00290 (S.D. W. Va. June 10, 2016).

Colorado Supreme Court Found State Law Preempted Municipal Ban and Moratorium on Fracking

The Colorado Supreme Court ruled that state law preempted the City of Longmont's ban on hydraulic fracturing and the storage and disposal of hydraulic fracturing waste, as well as the City of Fort Collins' five-year moratorium on fracking and the storage of fracking waste. The court concluded that the ban and moratorium involved a matter of mixed state and local concern and that an operational conflict existed between the local actions and state law. The court rejected arguments that Colorado's Oil and Gas Conservation Act expressly or impliedly preempted local governments from regulating fracking or oil and gas operations entirely and also was not persuaded that the Oil and Gas Conservation Commission had exclusive authority to regulate the technical aspects of oil and gas operations. The court concluded, however, that the fracking ban and moratorium materially impeded the state's interest in uniform regulation of fracking. The court was not persuaded by Fort Collins' argument that its temporary moratorium was sufficiently different from a permanent ban so as to qualify as a permissible exercise of local zoning authority. The court also rejected the argument that the ban could not be preempted because it protected inalienable rights granted by the Colorado Constitution. City of Longmont v. Colorado Oil & Gas Association, No. 15SC667 (Colo. May 2, 2016); City of Fort Collins v. Colorado Oil & Gas Association, No. 15SC668 (Colo. May 2, 2016).

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Citizen Suits

Environmental Groups Asked Court to Order EPA to Regulate Oil and Gas Wastes Under RCRA

Seven environmental groups filed an action seeking to compel EPA to revise its regulations for oil and gas waste under the Resource Conservation and Recovery Act (RCRA). The suit alleged that EPA had failed to follow through on a commitment it made in 1988 to revise the RCRA Subtitle D regulations (i.e., the regulations pertaining to solid waste) to address oil and gas wastes. The complaint further alleged that EPA had failed to comply with its nondiscretionary duty to review and, if necessary, revise its Subtitle D regulations and its guidelines for state solid waste management plans every three years. North Dakota and three trade associations have moved to intervene as defendants. The plaintiffs opposed the groups' intervention, arguing that the action concerned only the timing of EPA action, and that the proposed intervenors' interests related to the substance of EPA's potential rules. Briefing on the motions to intervene was completed on September 23, 2016. You can read additional analysis of this case in our May Advisory. Environmental Integrity Project v. McCarthy, No. 1:16-cv-00842 (D.D.C., filed May 4, 2016).

Citing Earthquake Risks, Sierra Club Filed RCRA Lawsuit to Compel Oil and Gas Companies to Reduce Waste Injections and Create a Quasi-Regulatory Body

Sierra Club launched a RCRA citizen suit against four oil and gas companies in the federal district court for the Western District of Oklahoma alleging that their handling, storage, treatment, transportation, and disposal of oil and gas production wastes contribute to increased seismicity in Oklahoma and could present an imminent and substantial endangerment to public health and the environment. Sierra Club asked the court to order the companies to reduce the amount of production wastes they injected into the ground and to reinforce vulnerable structures that could be impacted by large magnitude earthquakes. Sierra Club asked the court to order the establishment of an independent earthquake monitoring and prediction center to analyze how much production waste can be injected into particular wells or formations before seismicity is induced. The companies asked the court to dismiss the case pursuant to the Burford abstention or primary jurisdiction doctrines because the State of Oklahoma was addressing the issues raised by the lawsuit through the Oklahoma Corporation Commission. The companies also argued that the claims fell outside RCRA's zone of interests, that Sierra Club had failed to join required parties, and that Sierra Club's claim was barred by RCRA's "anti-duplication" provision because relief would be at odds with the Safe Drinking Water Act. Additional analysis of this case is available in our article in the July/August 2016 issue of Trends (published by the ABA Section of Environment, Energy, and Resources). Sierra Club v. Chesapeake Operating, LLC, No. 16-cv-134 (W.D. Okla. Feb. 16, 2016).

WildEarth Guardians Asked BLM to Suspend New Oil and Gas Leasing to Prepare Environmental Review of Climate and Non-Climate Impacts

The Environmental Law Clinic at the UC Irvine School of Law filed a petition with the United States Bureau of Land Management (BLM) on behalf of WildEarth Guardians asking BLM to evaluate the direct, indirect, and cumulative impacts on climate change of its oil and gas leasing program. WildEarth Guardians asked BLM to prepare a programmatic environmental impact statement (PEIS) to look at these climate impacts, and also at non-climate impacts associated with oil and gas development. WildEarth Guardians requested a moratorium on new oil and gas leasing and approvals of applications for permits to drill pending preparation of the PEIS. The organization also asked that the Department of the Interior amend its NEPA regulations to incorporate the Council on Environmental Quality's 2014 revised draft guidance (finalized on August 1, 2016) for considering greenhouse gas emissions and climate change in NEPA review. WildEarth Guardians, Petition Requesting a Programmatic Environmental Impact Statement Addressing the Bureau of Land Management's Oil and Gas Leasing Program and Formal Adoption of the Council on Environmental Quality's Guidance for Greenhouse Gas Emissions and Climate Change Impacts (Jan. 20, 2016).

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Civil Tort Actions

After Jury Awarded US$4.2 Million to Pennsylvania Residents, Cabot Asked Court to Set Aside Verdict

In March, a jury in the Middle District of Pennsylvania awarded US$4.2 million to eight residents of Dimock County for "inconvenience and discomfort" related to their claims of groundwater contamination from nearby gas drilling operations conducted by the defendant, Cabot Oil & Gas Corporation (Cabot). Additional analysis is available in our March Advisory. In April, Cabot asked the court to set aside the verdict and render a judgment for Cabot as a matter of law. Alternatively, Cabot asked for a new trial, or for remittitur of the "grossly excessive" damages to no more than US$85,500. Cabot argued that evidence was not sufficient to support the verdict and that the "pervasive, persistent, calculated, and prejudicial misconduct" of the plaintiffs' counsel warranted a new trial. Briefing on this motion was completed in August 2016. Ely v. Cabot Oil & Gas Corp., No. 3:09-cv-02284 (M.D. Pa. Mar. 10, 2016).

New York Federal Court Confirmed the Exclusion of Expert Report on Contamination of Water Wells by Gas Drilling as Unreliable Under Daubert

The federal district court for the Western District of New York declined to reverse its decision to exclude a plaintiff expert's report in an action seeking damages for contamination allegedly caused by gas drilling. The court stood by its conclusion that the expert report did not meet the reliability standards of Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993). The court reiterated that the expert report did not discuss how drilling the gas well's bore hole connected bedrock fractures or faults with the plaintiffs' water wells or explain how the lined bore hole could connect below-ground faults and allow gas to move from 10,000 feet underground to the plaintiffs' relatively shallow water wells. The court said the expert relied on the "temporal proximity" of the gas drilling with the appearance of contamination in the plaintiffs' well and did not contend with laboratory tests that showed gas in the water wells was not the same type of gas found in the gas formation. The court again concluded that the expert's "circular reasoning fails to reveal a sufficiently rigorous analytical connection between his methodology and his opinion." Baker v. Anschutz Exploration Corp., No. 6:11-cv-06119 (W.D.N.Y. Mar. 15, 2016).

Oklahoma Residents Filed Suits Claiming that Oil and Gas Companies' Waste Injections Caused Earthquakes

At least four actions, including two class actions, were filed in early 2016 against companies that used injection wells to dispose of oil and gas waste in Oklahoma. The plaintiffs alleged that the companies' activities had contributed to an increased number of earthquakes and had caused damage to plaintiffs. The claims alleged included private nuisance, ultra-hazardous activities, negligence, and trespass. In one case brought by two individuals (Lene), the plaintiffs moved in July for voluntary dismissal of their claims without prejudice. West v. ABC Oil Co., No. CJ-16-49 (Okla. Dist. Ct., filed Feb. 18, 2016), removed, No. 5:16-cv-00264-F (W.D. Okla., Mar. 18, 2016); Lene v. Chesapeake Operating, LLC, No. CJ-2016-27 (Okla. Dist. Ct., filed Feb. 12, 2016); Griggs v. Chesapeake Operating, LLC (Okla. Dist. Ct., filed Jan. 12, 2016); Felts v. Devon Energy Production Co., No. CJ-2016-I37 (Okla. Dist. Ct., filed Jan. 11, 2016).

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STATUTES, REGULATIONS, AND BALLOT INITIATIVES

 

Federal

EPA Codified Zero Discharge Requirements for Unconventional Oil and Gas Extraction Sources

In June 2016, EPA published effluent limitations guidelines that apply to discharges from unconventional oil and gas extraction sources. The rule prohibits discharges of wastewater pollutants associated with unconventional oil and gas production to publicly owned treatment works (POTWs). EPA said that the regulations reflected current industry practices and were therefore not expected to impose new costs, but were instead intended to insure that current best practices continue to be implemented in the future. After the final rule was published in the Federal Register on June 28, 2016, EPA became aware that there were facilities subject to the rule that were not currently meeting its zero discharge requirements. To accommodate these facilities, EPA published a direct final rule on September 30, 2016, that extended the compliance deadline for three years (to August 29, 2019) for existing sources that were lawfully discharging to POTWs between April 7, 2015, and June 28, 2016.

EPA Issued Methane and VOC Emission Standards, Guidelines for Oil and Gas Sources

In May 2016, EPA issued its final standards for methane, volatile organic compounds (VOCs), and toxic pollutant emissions from new, modified, and reconstructed sources in the oil and gas sector. EPA issued a separate rule clarifying the criteria it would use to determine when oil and gas operations constituted a single source for permitting purposes. The source determination is based on whether equipment and activities are in the same industrial grouping (defined by standard industrial classification code), under the control of the same person, and located on contiguous or adjacent properties. The rules were published in the Federal Register on June 3, 2016. As mentioned above, a number of states and trade groups have challenged the regulations. In May, EPA issued an Information Collection Request seeking information to assist it in the developments of methane standards for existing oil and gas sources; in September, EPA issued a second draft of the request. EPA is also asking parties to voluntarily provide information on innovative technologies to detect, measure, and mitigate emissions from the oil and gas sector. In October 2016, EPA released final Control Techniques Guidelines (CTGs) for reducing VOC emissions from existing oil and gas facilities in ozone nonattainment areas and states in the Ozone Transport Region.

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State

Pennsylvania Fracking Regulations Took Effect

Pennsylvania's regulations for hydraulic fracturing, which have been in the works for years, finally went into effect in October, though the Marcellus Shale Coalition has challenged the regulations in Pennsylvania Commonwealth Court (see discussion above). The regulations were published in the Pennsylvania Bulletin on October 8, 2016, and became effective immediately. The regulations do not address conventional oil and gas operations, which a law enacted in June 2016, also discussed above, requires to be addressed independently of unconventional gas drilling operations. The new regulations establish requirements for surface activities associated with unconventional drilling, including restrictions on management and storage of wastewater and disposal of drill cuttings. Well permit applicants must demonstrate that their operations will be protective of state waters and must identify public resources that their operations may affect. Applicants must notify applicable public resource agencies, which are given an opportunity to provide comments and recommend mitigation measures. Other areas addressed by the regulations include water supply replacement standards, identification and monitoring of wells located near hydraulic fracturing activities, site restoration, standards for borrow pits, and the reporting and remediating of spills. The regulations also address requirements for oil and gas gathering pipelines and well development pipelines.

New California Laws Affect Oil and Gas Civil Penalties, State's Investigative Authorities, Indemnity Bonds, and Idle Well Requirements

The California governor signed two bills into law in September 2016 that affect the State's regulation of oil and gas development. AB 2756 added new criteria for consideration in the imposition of civil penalties, including economic benefit, culpability, and ability to pay. AB 2756 also defines three different types of violations: well stimulation and major violations, for which the maximum penalty is US$25,000, and minor violations for which the maximum penalty is US$2,500. The bill also provides that each day a major or minor violation continues may be treated as a separate violation, at the State Oil and Gas Supervisor's discretion. The amended law allows the Supervisor to authorize supplemental environmental projects for up to 50% of a civil penalty. Through 2020, civil penalties will be deposited in an Oil and Gas Environmental Remediation Account to be used for plugging and abandoning wells and decommissioning related facilities. AB 2756 also provides that civil penalties constitute state tax liens on an operator's real and personal property. In addition, AB 2756 made changes to the administrative appeals process and granted the State the authority to inspect sites and to require operators to provide technical and monitoring reports during certain types of investigations and enforcement proceedings. The other new bill, AB 2729, imposed new requirements for indemnity bonds that apply upon acquisition of a well beginning in January 2018. AB 2729 also changed the definition for idle well, and modified the obligations of idle well operators. Under the new law, a well is considered idle if it has not been used for specified purposes for 24 consecutive months; previously a well was considered idle if it had not produced oil or natural gas or been used for injection for at least six consecutive months during the previous five years. Beginning in 2018, idle well owners must either pay an annual fee for each idle well, which would be deposited in a newly created Hazardous and Idle-Deserted Well Abatement Fund, or file and implement a plan for the management and elimination of all long-term idle wells. The new law also requires the State to update its regulations for idle wells to include testing and management requirements and provides that failure to comply with the new regulatory requirements will allow the Supervisor to order the well abandoned.

Nebraska Enacted Law Concerning Oil and Gas Waste Disposal and Transport

On March 30, 2016, Nebraska's governor signed legislation (L.B. 1082) requiring operators of underground injection wells to sample and analyze the fluids injected into disposal wells no less frequently than once annually, and to submit their fluid analyses to the Nebraska Oil and Gas Conservation Commission. The new law also authorizes the Commission to require (1) periodic sampling and reporting of injection fluids injected into Class II commercial underground injection wells (i.e., wells used for fluids produced by oil and natural gas production); (2) monitoring of produced water transporters; and (3) periodic evaluation of financial assurance requirements on existing and proposed wells to ensure ability to pay the costs of plugging, abandonment, and surface restoration at the wells. Under the new law, the Commission must also notify local governments of underground injection well permit applications and provide the local governments with application materials.

Colorado Regulations Require Local Consultation for Large Oil and Gas Facilities

In January 2016, the Colorado Oil and Gas Conservation Commission (COGCC) approved new rules regarding consultation with local governments during the siting process for oil and gas facilities. The rules went into effect in March. The consultation requirements apply to "Large UMA Facilities," which are defined as facilities located in Urban Mitigation Areas (a term defined by COGCC regulations) that involve drilling at least eight new wells or increasing storage capacity for produced hydrocarbons by more than 4,000 barrels. The rules also provide that Large UMA Facilities be built "as far as possible from existing building units and operated using the best available technology to avoid or minimize adverse impacts to adjoining land uses." The rules set forth best management practices that must be incorporated for Large UMA Facilities and also authorize the imposition of site-specific mitigation measures. The rules also contain provisions intended to facilitate coordination of municipal land use planning and oil and gas operations. Oil and gas operators must register with local jurisdictions in which they have drilling units that have been approved or are pending approval. The local government can request information from operators about their plans for operations within local boundaries. The rules grew out of recommendations made by the Oil and Gas Task Force established by the Colorado governor in 2014 to address state and local regulation of oil and gas operations.

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