V&E Shale Insights — Tracking Fracking E-communication, May 21, 2012
There has been a surge of new well development in Ohio, where hydraulic fracturing is now being used to unlock hydrocarbons from the Utica shale.1 This recent surge in activity, when coupled with Ohio’s failure to keep its oil and gas regulations updated to reflect recent changes in drilling techniques and reports of low-level seismicity attributable to increased produce water injection, has prompted the state legislature and the Ohio Department of Natural Resources (ODNR), Division of Mineral Resources Management (DMRM) to propose new regulatory requirements to address these developments. The most recent legislative and regulatory developments include: (a) adoption of well construction standards specifically applicable to fracked wells; (b) finalization of an air permit-by-rule for shale gas production sites; (c) proposal of revisions to Ohio’s oil and gas statutes to account for the technologies currently being used in fracking; and (d) ODNR’s revisions to the permitting process for Class II disposal wells following the release of a preliminary report linking seismic activity in the Youngstown, Ohio, area to a certain well used for the disposal of brine, including flow-back water produced by fracking operations.
Oil and gas production activity in Ohio is regulated through the state Environmental Protection Agency (OEPA) and DMRM. DMRM’s responsibilities include regulation of fracking, brine disposal operations, solution mining operations, and underground injection operations. In 2010, the Ohio legislature passed Senate Bill 165 applicable to fracking in response to increased focus by oil and gas producers on the state’s considerable shale natural gas potential (Ohio sits atop the Marcellus and Utica shale formations) and the increased public concern for the potential environmental effects of fracking. DMRM is currently revising the Ohio Administrative Code to implement the statutory changes.
One of the most recent revisions by DMRM to the Ohio Administrative Code addresses oil and gas well construction.2 The rules are expected to go into effect on August 1, 2012.
The new rules set out general well construction and cementing standards for all oil and gas wells in order to protect underground sources of drinking water, control annular pressure, and prevent fluid migration behind cemented casing strings. The rules have a specific provision applicable only to fracked wells to prevent fluid migration that requires sufficient cement to be circulated around the production string of a fracked well so as to fill the annular space outside the casing in certain areas below drinking water supplies. If cement is not circulated as required, the operator must notify the DMRM inspector and perform tests approved by the inspector to ensure appropriate construction despite the lack of circulation. With respect to permits for new well construction, applicants must, among other things, submit a casing and cementing plan indicating whether hydraulic fracturing will be used to stimulate the well. Applicants must also demonstrate how the owner proposes to drill and construct the well consistent with the best available geologic information in the vicinity of the proposed wellbore.
In addition to the recent work by the DMRM, OEPA recently finalized an air permit-by-rule for shale gas production sites to simplify, expedite, and provide certainty regarding the air permitting process. The permit covers a myriad of emissions sources typically found at hydraulic fracturing sites, including combustion engines, generators, dehydration systems, storage tanks, flares, and unpaved roadways. This is a significant change from the previous sometimes burdensome process of obtaining individual permits for each emissions source.
Senate Bill 315
In March 2012, Governor John Kasich proposed Senate Bill 315 (SB 315) in an effort to address issues related to the fracking boom in eastern Ohio. SB 315 would, among other things, revise Ohio’s oil and gas statutes to address the horizontal drilling and fracking technologies currently being used in Ohio. After hearings, the State Energy and Public Utilities Committee and the Ohio Senate amended and passed the bill on May 15, 2012. SB 315 now goes to the Ohio House for consideration. It is unclear whether the house will adopt SB 315 as passed by the Senate, as there is at least one environmental group advocating for substantial amendment of the bill.
Some of the key regulatory changes proposed regarding fracking include:
- Expansion of the reporting requirements for chemicals used in the drilling and production process.3
- Medical professionals who receive information regarding the chemical composition of trade secret protected fluids are required to keep that information confidential.4
- Horizontal well developers will be required to obtain at least $5 million in liability insurance coverage for personal injury or property damage, as well as coverage for pollution or contamination events from the drilling and operation of the well.5
- New applicants for oil and gas wells are encouraged to enter into a road use maintenance agreement with the relevant local agency.6
- New applicants for oil and gas wells will have to identify the source and withdrawal rates of groundwater and/or surface water that will be used during operations, and will need to include pre-drilling water sampling results within 1500 feet of the proposed well.7
On March 9, 2012, DMRM released a preliminary report linking recent seismic activity in the Youngstown, Ohio, area to a certain well used for the disposal of brine, including flow-back water produced by hydraulic fracturing operations.8 The report concluded that properly located Class II injection wells will not cause seismic activity; however, brine injection, coupled with the confluence of several “coincidental circumstances,” was the likely cause of the seismic events in the Youngstown, Ohio, area over the last year.
Based on the preliminary report, DMRM announced new standards for its Class II disposal wells, which are the only option for disposal of wastewater from oil and gas operations other than recycling based on OEPA and DMRM’s interpretation of 1509.22(C)(1) of the Ohio Revised Code. DMRM has begun considering these changes during the permitting process for deep Cambrian-Precambrian Class II injection wells. Until final rules implementing SB 315 are properly adopted, these considerations could take the form of specialized permit conditions. Nonetheless, the proposed reforms are likely to result in significant revisions to either the statute or regulations governing oil and gas production. The proposed new regulations include:9
- The grant to ODNR of the authority to both require the plugging of existing wells penetrating Precambrian basement rock, and prohibit any injection into Precambrian basement rock;
- A requirement to incorporate existing geologic data into the decision of where to locate new Class II disposal wells and to submit a plan for monitoring any seismic activity that may occur as a part of the permit application;
- A requirement to run a complete suite of geophysical logs on newly drilled Class II disposal wells, and to provide analytical interpretation of the logging to DMRM; and
- A requirement to install a pressure monitoring system, an automatic shut-off system, and an electronic injection data recording system and to conduct pressure monitoring and testing prior to initial injection.
Moreover, SB 315 as passed by the Ohio Senate gives ODNR the authority to establish rules governing the testing of reservoirs to determine whether fluids or carbon dioxide may be injected in a reservoir, the maximum allowable injection pressure, the total depth allowed, and other requirements and procedures to protect public health and safety.10 ODNR is also granted the authority to require owners of existing wells to comply with the new regulations.11
For more information, please contact Vinson & Elkins lawyers Larry Nettles, Casey Hopkins, or one of the members of V&E's Shale and Fracking practice group: Jim Prince or Jim Thompson. Visit our website to learn more about V&E’s Environmental practice.
1 See “An Analysis of the Economic Potential for Shale Formations in Ohio,” available at http://www.ohshalecoalition.com/study/study.pdf.
2 See Proposed Rule Amendments as PDF files at http://www.ohiodnr.com/tabid/23649/Default.aspx.
3 SB 315 at Section 1509.10(A).
4 Id. at Section 1509.10(H).
5 Id. at Section 1509.07(A).
6 Id. at Section 1509.06(A)(11).
7 Id. at Section 1509.06(A)(8).
8 Ohio Department of Natural Resources, Preliminary Report on the Northstar 1 Class II Injection Well and the Seismic Events in the Youngstown, Ohio, Area (March 2012), available at http://www.ohiodnr.com/downloads/northstar/UICReport.pdf.
9 Id. at p.5.
10 SB 315 at Section 1509.22(D).
11 Id. at Section 1509.22(D)(4).