The law firm of BakerHostetler just issued a comprehensive look at the state of the shale industry. Most of it has to do with North American shale, which is the most developed, but it does touch on international activity.
The year-in-review/forecast tracks legislative, regulatory, and litigation at the federal level, including regulatory action by the Environmental Protection Agency, the Bureau of Land Management, the Occupational Safety and Health Administration, and the Federal Railroad Administration. However, as the report points out, it is the states that have taken the lead in regulating shale oil and gas development in the past year. This pattern is likely to continue in 2014, according to the authors.
While no major legislative action is expected with respect to shale development on the national level, several federal agencies have indicated an interest in hydraulic fracturing and water management. The EPA is expected to issue a draft report on hydraulic fracturing's impact on drinking water, and the BLM may make public a final rule on the fracturing process.
Here are some of the highlights of the report:
Federal legislative developments
No significant shale legislation reached President Obama's desk in 2013. In June, the President unveiled his Climate Action Plan, a White House strategy to address climate change by reducing domestic carbon emissions. This included a proposal for national carbon emissions standards by the EPA. However, Democrats were unsuccessful in pushing through any significant oil and gas legislation.
Efforts by congressional Republicans similarly stalled before reaching Obama's desk. One GOP bill, the Federal Lands Jobs and Energy Security Act (HR 1965), which aimed to streamline the drilling permit process on federal lands, passed the House but was never taken up by the Senate.
Federal regulatory developments
In May of 2013 the BLM proposed rules for the use of hydraulic fracturing on federal land. They are a modified version of drilling regulations proposed by the BLM in 2012. Among other things, the rules would (a) exempt automatic disclosures of chemicals used in the fracturing process based on trade secret protections and create a central website, "FracFocus.org," for all public disclosures; (b) create testing protocols for well integrity, particularly the cement casings on wells and aquifers, maximum injection pressure, and flowback volumes; and (c) require management plans for the protection of both surface water and keeping groundwater from contamination by flowback fluids, including potentially requiring such fluids to be stored in closed tanks.
Experts have estimated that the BLM's proposed regulations could cost the industry anywhere from $20 million to $2.7 billion per year. The BLM has yet to set a date for issuing a final rule.
OSHA has proposed rules governing acceptable exposure limits for silica dust. No final rule has been issued, but industry experts have warned that any such rule could be particularly costly to drillers using fracturing techniques that depend on the use of silica sand.
State and local developments
In 2013, Pennsylvania, California, Illinois, and Michigan passed or proposed new rules regulating hydraulic fracturing, with several other states amending or expanding current rules. Although we are unable to go into detail about the various rule changes in this column, the regulations will likely impose additional regulatory requirements on drillers in shale formations in those states.
California Governor Jerry Brown signed SB4, that state's first comprehensive regulation of fracturing activity in the state's Monterey Shale deposit, which is estimated to hold about 15.4 billion barrels of oil. Interestingly, the law did not include a proposed moratorium on fracturing, which some environmentalists had advocated.
In Texas, the City of Dallas, which sits on the edge of the Barnett Shale formation, made news in December after the city council passed strict drilling requirements banning hydraulic fracturing within 1,500 feet of any home, school, church, or other protected area. This effectively eliminated all hydraulic fracturing within city limits.
International developments
Poland set the pace for European shale development in 2013 with 44 completed shale gas wells and more than 100 exploration licenses issued by the government. In July, the United Kingdom also signaled support for shale development, with the British treasury opting to lower tax rates for onshore shale gas production to 30%.
On the other side, several European countries showed increased hostility toward hydraulic fracturing. In October, France's high court upheld the country's 2011 ban on hydraulic fracturing. France joins Bulgaria as the only European countries to enact complete bans on fracturing.
Outside of Europe, the South African government released draft regulations governing hydraulic fracturing in October. And in Argentina, South America's largest producer of shale gas, the state-owned energy company YPF recently contracted with Chevron for a $1.2 billion investment with the goal of drilling 1,500 wells by 2017.
For more information about the BakerHostetler shale report, contact W. Ray Whitman at [email protected], Martin T. Booher at [email protected], or any member of the firm's shale team.
