Our Commentary on Recent Fracking News

On February 3, 2023, the California Secretary of State certified a referendum challenging Senate Bill 1137 (“SB 1137”), which institutes a 3,200-foot setback for new oil and gas operations and includes new requirements for operators of existing oil and gas production facilities. SB 1137 took effect on January 1, 2023, and the California Geologic Energy Management Division’s (“CalGEM”) regulations implementing the law (“Implementation Regulations”) went into effect on January 6, 2023. The certification, by operation of law, suspends SB 1137’s provisions and CalGEM’s associated regulations pending the results of the referendum vote during the 2024 general election.

CalGEM notified operators of the suspension on the same day the suspension was certified. Per CalGEM’s notification, operators who have received notices of intention to commence drilling (“NOIs”), or who have pending NOI applications before CalGEM, no longer need to take the additional actions required to comply with the provisions of SB 1137 or CalGEM’s Implementation Regulations.

SB 1137 and the Referendum

SB 1137’s setback provision prohibits CalGEM from approving NOIs within health protection zones, except in a handful of specified circumstances. “Health protection zones” are defined as areas within 3,200 feet of a “sensitive receptor,” meaning residences, education resources (e.g., schools, daycare centers, parks), community resources (e.g., youth centers), health care facilities, dormitories, or any building open to the public. SB 1137 also requires operators submitting NOIs to submit a sensitive receptor inventory and map for the area within a 3,200-foot radius of the proposed wellhead location. The law would also impose more stringent obligations on operators over the course of the coming years, including new water quality sampling requirements, additional annual reporting, and implementation of leak detection and response (“LDAR”) plans.

The referendum to reverse SB 1137 was organized by the California Independent Petroleum Association in October 2022. After receiving the necessary signatures, the referendum was certified on February 3, 2023, and will be placed on the November 5, 2024, general election ballot.

Effect of the Suspension

The certification has suspended both the statutory provisions established by SB 1137 and CalGEM’s Implementation Regulations, pending resolution of the referendum. As explained by CalGEM, the suspension has several implications for operators:

• Previously Approved NOIs: For NOIs approved prior to February 3, 2023, operators will not need to take additional action in connection with the NOI in order to comply with the provisions of SB 1137.
• NOIs Pending Review by CalGEM: NOIs submitted to CalGEM that have not yet received approval are no longer subject to the requirements of SB 1137. CalGEM will continue its review without requiring compliance with SB 1137. For NOIs that were returned for operators to update with additional information to evaluate for compliance with SB 1137, those NOIs may be resubmitted for review without the need for the additional information.
• Operators Constructing or Operating New Production Facilities: A Notice of New Production Facility is no longer required before constructing or operating a new production facility.

Follow our Shale and Fracking tracker for further information as we monitor developments related to SB 1137.

On Friday, December 2, 2022, the Los Angeles City Council voted unanimously to ban all oil and gas drilling within the city and to phase out existing extraction over the next 20 years.

The Ordinance

The ordinance approved by the City Council amends the municipal (zoning) code to prohibit new oil and gas extraction within the city and to make all existing extraction activities a nonconforming use, regardless of the zone. The nonconforming use designation enables the city to force producers to wind down their existing operations over a period of 20 years. The city has also been studying the economics of the oil and gas properties within its jurisdiction. When completed, the studies may be used to shorten the wind down period if the city can demonstrate that the property owners have adequately recouped their investments in the now-nonconforming use.

In addition to the prohibition on new wells and forced wind down, the city has bolstered its rules regarding when a well is deemed to have been abandoned, which triggers an operator’s well plugging and abandonment obligations. For example, if a well is idle for more than six months, the nonconforming use designation expires and the well is no longer permitted to operate.

The Effect

The City reported 5,273 total wells within the city limits in August 2022, with 641 of those still active and another 1,350 idle. There was little doubt that the ordinance would pass when we first covered, in January 2022, the City Council’s decision to have the Planning Department draft the ordinance. Although the short term effect will be a cessation of permitting and new drilling, sizable oil and gas interests will still be in play for many years to come.

On Wednesday, January 26, 2022, the Los Angeles City Council took a significant step towards banning new oil and gas extraction in Los Angeles, and phasing out production from existing wells. By unanimously voting to adopt a series of recommendations contained in a Budget and Finance Committee Report, the City Council has initiated a process that will likely culminate in the decommissioning of over 5,200 wells.

Ordinance Banning New Oil and Gas Extraction

The City Council instructed the Los Angeles Department of City Planning to prepare and present an ordinance prohibiting all new oil and gas extraction within the city limits (new oil and gas wells were banned in surrounding unincorporated areas in 2021). Furthermore, the ordinance will make extraction activities a nonconforming use in all areas of the city.

While there is little doubt that the ordinance will pass, another City Council vote will be necessary before the ban is formally adopted.

Phasing Out Existing Wells

While stopping short of an outright moratorium on current oil and gas extraction, the City Council adopted several measures that initiate the process of phasing out existing wells. First, the City Council commissioned an amortization study to determine how oil and gas companies can recoup their investments in existing well infrastructure, a prerequisite to decommissioning oil and gas operations.

Second, the Los Angeles Office of Petroleum and Natural Gas Administration and Safety was instructed to develop a new city policy to ensure that wells are properly plugged and abandoned. The new policy will also require site remediation to be completed within 3 to 5 years of the cessation of active oil production, with the intention of ensuring oil companies bear the full responsibility for abandonment and remediation.

Los Angeles currently supports a substantial amount of oil and gas extraction within its city limits, with around 5,229 known wells, 704 of which are considered active. Interested parties should stay alert for updates on whether and when these preliminary measures mature into a permanent ban by the City Council.

On Friday, December 17, 2021, the members of the Colorado Air Quality Control Commission (AQCC) voted unanimously to adopt a set of regulations aimed at curbing methane emissions from oil and gas operations. These ambitious regulations are supposedly designed to help Colorado meet its statewide greenhouse gas emissions targets. Notably, the new methane rules give industry some flexibility in how to reduce methane emissions while strengthening the state’s mandatory inspection and repair program. Highlights include:

• Aggressive intensity program with some flexibility for industry. The AQCC will set methane emissions limits per 1,000 barrels of oil equivalent produced, but the target limits will be based on the size and impact (“intensity”) of production. In other words, larger wells, new wells, and wells operating near “overburdened communities” will have to comply with stricter emissions reduction targets. That being said, operators will create their own “intensity plans” to specify how they will meet their targets, meaning that the operators get to choose where their reductions in methane emissions will come from.
• More frequent inspections. Larger sites – wells producing more than 20 tons of oil equivalent a year – must conduct monthly inspections and report the resulting instrument monitoring data to the Colorado Air Pollution Control Division. Sites near environmental justice communities and sites within 1,000 feet of occupied areas have similar obligations, with the frequency of the inspections varying based on the size of the well.
• Limits on emissions during maintenance. Under the final rules, both wells and pipelines will be subject to greater controls on methane emissions during maintenance, including a prohibition on venting during certain maintenance activities.

Oil and gas producers in Colorado should prepare for the increased costs of inspection and start planning on how to comply with the new intensity program. Companies should also stay tuned for more updates as the Environmental Protection Agency is expected to move forward with its proposed rulemaking at the federal level to reduce methane emissions and air pollution nationwide.

On October 21, 2021, the California Geologic Energy Management Division (“CalGEM”) published its long-awaited Draft Rule for Protection of Communities and Workers from Health and Safety Impacts from Oil and Gas Production Operations (“Draft Rule”). The Draft Rule includes numerous requirements for new and existing oil and gas facilities, the most notable being establishment of a setback exclusion and mitigation area (“Setback Area”) of 3,200 feet from “sensitive receptors” consisting of man-made structures, such as homes, residential complexes or housing facilities, schools and daycare centers, businesses open to the public, healthcare facilities, and prisons. New production facilities would be prohibited in the Setback Area and existing production facilities in the Setback Area would be subject to new and more stringent requirements.

“Production facilities” to which the Draft Rule applies include “any equipment attendant to oil and gas production or injection operations including, but not limited to, tanks, flowlines, headers, gathering lines, wellheads, heater treaters, pumps, valves, compressors, injection equipment, production safety systems, separators, manifolds, and pipelines that are not under the jurisdiction of the State Fire Marshal.”

Similar, but less stringent proposals that would have instituted a 2,500-foot setback have historically failed to pass the California Legislature when they were proposed in 2019 and early 2021. The Draft Rule comes in response to Governor Newsom’s 2019 oil and gas initiatives, which included a call for CalGEM to update and strengthen its rules for public health and safety protections near oil and gas production facilities. CalGEM was originally expected to conduct pre-rulemaking in 2020 and issue its draft rule by December 31, 2020.

The Draft Rule includes several exceptions to its prohibition on new production facilities in the Setback Area:

• intercept or pressure relief wells that must be drilled to alleviate an immediate threat to public health and safety or the environment;
• production facilities that are necessary for safe and effective operation of a well approved by CalGEM;
• production facilities that are necessary for compliance with local, state, or federal requirements;
• production facilities that are necessary to public health and safety or the environment; and
• production facilities that are replacing an existing facility of the same type with no resulting expansion of the geographic footprint.

New production facilities are also subject to additional notice requirements for surrounding landowners and tenants, baseline water sampling and testing, and tank construction and leak detection requirements.

The Draft Rule would also impose new and more stringent requirements on existing production facilities in the Setback Area, regardless of whether such facilities pre-dated the establishment of the sensitive receptors. These requirements include: leak detection systems and response plans; vapor venting prevention systems; sound, lighting, and dust controls; produced water sampling and analysis; non-emergency spill reporting; secondary containment for wellheads prior to drilling, workover, or abandonment; additional pipeline repair and recordkeeping; daily maintenance inspections, additional cementing and casing reporting and recordkeeping; and restrictions on use of oil-based drilling muds.

Under the Draft Rule, all production facilities, new or existing, will be subject to new or more stringent requirements regarding secondary containment of processing fluid storage, tank testing and wall thickness, shut down and removal of out-of-service facilities, and lease restoration and abandonment.

The public comment period on the Draft Rule ends on December 21, 2021. In addition to written comments submitted by email, CalGEM will accept oral comments during its public workshop on December 1, 2021.

On September 23, 2021, the Texas Railroad Commission (“RRC”) issued letters to multiple operators requesting voluntary operational curtailment and data collection to saltwater disposal (“SWD”) well operators in the Gardendale Seismic Response Area (“SRA”). The Gardendale SRA covers areas of northeast Ector County to southwest Martin County, between Odessa and Midland, and has 76 permitted SWD wells.

The letters were issued in response to a series of earthquakes that have occurred in the Gardendale SRA since February 2020, including six felt earthquakes with magnitude of 3.5 or greater. In these letters, the RRC asserts that SWD well injection is “likely contributing” to seismic activity in the region. In addition to the requested reduction for existing in-use wells, RRC has asked that existing permitted wells that have not yet been completed, commenced operations, or that are currently out of service to refrain from any injection activities. The letters further state that the RRC will no longer be administratively approving new permits for SWD wells in this SRA.

The requested operator actions are:

1. Reduce the permitted maximum daily injection rate to 10,000 barrels per day per well.
2. Measure daily injection volume, average pressure, and maximum pressure, and report this information to RRC monthly.
3. Submit historical daily injection volume and pressures to RRC from November 1, 2019.
4. For SWD wells that are not currently in service, do not begin or return to fluid injection.

The letters request notification from operators on whether they intend to comply with these actions within 30 days of receipt, and if they have chosen to comply, requires compliance within 90 days. While compliance with the request is voluntary, the letters state that the RRC may take action with respect to the injection permits held by operators that do not agree to comply or do not provide a response, including modification, suspension, or termination of the the permit. If the RRC takes such actions on a permit, under 16 Texas Admin. Code §3.9 and 3.46, the operator may request a hearing to review.

The letters state that these changes will remain in effect “until further notice,” but estimate that the request for curtailment will last at least 9-12 months. The RRC asserts that it will continue to monitor seismic activity in the area and may communicate with affected operators in the future, either individually or as a group.

Our Shale and Fracking practice group is monitoring developments related to seismic activity and continues to advise clients on navigating notices and other requests from regulators.

On June 16, 2021, the U.S. District Court for the Western District of Louisiana (“Court”) granted a preliminary injunction halting the Biden Administration’s moratorium (or “pause”) on new oil and gas leasing on Federal public lands and offshore waters. The decision will allow leasing to restart on Federal public lands and offshore waters nationwide and continue until the Court rules on the substance of the case or until the Court or an appeals court issues additional orders.

The Moratorium on Federal Oil and Gas Leasing

Earlier this year, President Biden issued an executive order directing the Secretary of the Department of the Interior (“DOI”) to pause new oil and natural gas leases on federal public lands or offshore waters to the extent consistent with applicable law, until the completion of a comprehensive review and reconsideration of Federal oil and gas permitting and leasing practices, and to identify steps that can be taken to double renewable energy production from offshore wind by 2030. The Secretary immediately issued the suspension order, which put an indefinite moratorium on new leases on federal public land and offshore waters. The suspension order did not impact existing leases in federal public land and offshore water, leases on state land, leases on private land, or leases on Indian lands or lands held in trust for Tribes.

Legal Challenges to the Moratorium

DOI’s suspension order was immediately challenged by several states and industry groups claiming that the DOI had exceeded its authority by indefinitely pausing lease sales on eligible land. The instant case was brought by the States of Alabama, Alaska, Arkansas, Georgia, Louisiana, Mississippi, Missouri, Montana, Nebraska, Oklahoma, Texas, Utah, and West Virginia. These states asked the Court to enjoin, or stop, the pause on new leasing while the Court further considers whether the pause is lawful.

The Court determined that the states had met their burden in showing that the pause on new leasing should be immediately stopped nationwide.  Specifically, the Court determined that the states were likely to succeed in their claims, showed that they would be “irreparably harmed” by loss of revenues linked to the sales, and that it was in the public interest to resume the lease sales.  This strongly signals that the Court will ultimately put a permanent stop to the moratorium as the litigation progresses.  That decision, however, will still be subject to further review by appellate courts.

The decision focuses on the fact that neither the President nor DOI have the discretion under the Mineral Leasing Act (“MLA”) or Outer Continental Shelf Lands Act (“OCSLA”) to decide whether to offer areas for oil and gas development because both the MLA and OCSLA set forth requirements to hold lease sales of eligible land and requirements for how those sales should be conducted. DOI is required to designate land that will be available for development, but the opinion underscores that, once areas are designated, DOI does not have the power to pause the ongoing program unless the land has become ineligible or some other legal deficiency is present. The Court stated that an executive order is not sufficient reason under the statutes, as the executive order gave no reason for the pause other than a “pretextual” need for further environmental analysis. The decision did not address the Biden Administration’s argument that the moratorium was due to violations of the National Environmental Policy Act. While the government defendants argued to the Court that there has not been an actual moratorium on new leasing, the Court noted that there has not been a single new lease sale since the executive order was issued. The Court pointed out that a number of lease sales have been postponed, and DOI has either provided no reason for the delay, or gave reasons that the states described as “pre-textual.”

The decision also notes DOI’s failure to provide notice and comment on the moratorium as further indication of likelihood of success on the merits, as the moratorium is a substantive rule and the Administrative Procedure Act requires notice and comment for all substantive rules.

Finally, the Court found that there was a risk of substantial monetary losses from the leasing pause and that the balance of equities was in the plaintiffs’ favor, as an injunction would not harm the public interest. Therefore, it granted the preliminary injunction.

What Comes Next?

Leasing on Federal public lands and offshore waters may immediately restart nationwide. The Biden Administration may choose to appeal the preliminary injunction to the Fifth Circuit and request a stay of the Court’s order pending appeal.

As directed in President Biden’s initial executive order, DOI is currently preparing an interim report that includes a comprehensive review of Federal oil and gas permitting and leasing practices. The interim report is expected to be published in the coming weeks.

Stay tuned to our fracking tracker for any updates to the status of oil and gas leasing on federal lands.

On June 1, 2021, the U.S. Department of the Interior (“DOI”) issued Secretarial Order 3401 (“Order”), temporarily suspending all activities related to the Coastal Plain Oil and Gas Leasing Program (“Program”) in the Arctic National Wildlife Refuge pending completion of a comprehensive environmental analysis under the National Environmental Policy Act (“NEPA”). This Order follows through on President Biden’s day-one Executive Order on environmental and climate change issues, which ordered a review of all oil and gas activity in the Arctic Refuge.

The Program was established by DOI’s Bureau of Land Management (“BLM”) in 2019 during the Trump administration. BLM Prepared an environmental impact statement for the Program under NEPA and held its first lease sale under the program on January 6, 2021. The lease sale resulted in issuance of multiple ten-year leases that cover more than 430,000 acres in the Arctic Refuge. These leases were signed and finalized on January 19, 2021, President Trump’s last full day in office. President Biden’s Executive Order calling for a review of all oil and gas activity in the Arctic Refuge was issued the next day.

In the Order, DOI Secretary Deb Haaland states that her review of the Program identified multiple legal deficiencies in the Program’s NEPA analysis and Record of Decision, including failure to adequately analyze a reasonable range of alternatives. Sec. Haaland ordered DOI to temporarily halt all department activities, including leasing, exploration, development, production, transportation, and processing of any pending or future applications for such activities, related to the Program and conduct a new environmental analysis. It is important to note that the Order only suspends new leasing and has no impact on existing leases in the Arctic Refuge.

The Order is effective immediately and gives DOI 60 days to publish its notice of intent to initiate its NEPA review of the Program. The review process will include a comprehensive environmental analysis of the potential impacts of the Program, consultation with other federal agencies, and a public notice and comment period on DOI’s draft environmental analysis. Environmental reviews under NEPA can easily extend for many months, and unless a court imposes a deadline, there is no limit to the amount of time DOI can spend on the analysis. As a result, we cannot predict how long the suspension will last.

Oil and gas producers and processors in New Mexico’s Permian Basin should be tracking a new technology-forcing air emissions rule proposed by the New Mexico Environment Department (“NMED”).  On Thursday, May 6, 2021, NMED proposed rules aimed at achieving three goals: (1) reducing flaring, (2) ensuring attainment with EPA’s ambient air quality standard for ozone, and (3) reducing methane emissions from new and existing sources. NMED is touting the proposed rule as being more stringent than rules adopted by other states and as a model for the Biden administration. Indeed, the rule, if finalized, would materially change how producers and processors operate and demonstrate compliance. Highlights include:

• Tighter emissions limits. NMED has proposed new emission standards and/or operational requirements for equipment commonly used at tank batteries and gas processing plants, such as engines and turbines, compressors, enclosed combustion devices and thermal oxidizers, vapor recovery units, and storage tanks.
• Technology-forcing LDAR requirements. NMED has proposed new requirements to reduce equipment leaks and fugitive emissions, including a requirement to repair leaks within 7 days of discovery. NMED intends for the rule to “incentivize[] use and development of new technologies for leak detection and repair such as remote monitoring via satellite, plane, or airship, to increase the accuracy and speed of reporting.”
• Next generation compliance. NMED has proposed to require producers and processors to enhance their ES&H programs to handle, among other things, implementation of an Equipment Monitoring Tag regime, under which operators must tag emissions units with a bar code that provides compliance information upon scanning. The rule would also empower the NMED to require a producer or processor to retain a third party to verify compliance and make recommendations to correct or improve the collection of data. And, if credible information obtained by the NMED from the public indicates a source is not in compliance, NMED will presume the producer or processor is in violation “unless and until the owner or operator provides credible evidence or information demonstrating otherwise.”
• Pre-conveyance compliance audits. No earlier than 3 months before the sale of a tank battery, gas processing plant, or other like-source, NMED proposes to require the current owner or operator to conduct and document a full compliance evaluation of covered equipment. The final evaluation would need to include a certification by a responsible official as to whether the covered equipment is in compliance with the rule.

New Mexico’s Environmental Improvement Board will now schedule a public hearing, most likely in September 2021, that will be preceded by an opportunity for interested stakeholders to file technical testimony regarding the rule. The rule represents a material change to environmental regulation in New Mexico. Those interested or affected by the proposal should consider engaging in this summer’s stakeholder process. Trade associations, such as the New Mexico Oil and Gas Association, are expected to be actively involved. NMED anticipates that the rule will go into effect in March 2022.

On April 29, 2021, the Senate passed a resolution (the “Resolution”) to disapprove a rule adopted by the Trump administration which lifted certain requirements that had been put in place by an Obama-era methane rule, also known as “Quad Oa.” If passed by both chambers of Congress and signed by the president, as expected, the Resolution would undo the Trump administration’s 2020 rollback of the Obama-era methane rule, which is described in greater detail in this previous post. In the absence of this Trump-era roll-back, the Obama-era Quad Oa regulations will go into effect unless halted by the courts.

Congressional Review Act and Congress’s Power to Invalidate Regulations

This will be the first time that Democrats in the new Congress have used the Congressional Review Act (“CRA”) to overturn a regulation. The CRA allows a new administration to swiftly overturn the prior administration’s last-minute regulations by a simple majority vote in both chambers of Congress and the signature of the president. It may only be used to overturn regulations that have been adopted within the past 60 legislative days. The CRA also contains a provision that prevents future administrations from enacting regulations similar to those overturned by the CRA without congressional approval. In 2017, congressional Republicans used the CRA to undo 16 Obama-era regulations. Use of the CRA in this case is part of the Biden administration’s broader review of the Trump administration’s environmental policies, consistent with an Executive Order signed on President Biden’s first day in office. The 60-day window to use the CRA will expire in late May.

If the Resolution is passed, (1) the industry will once again be subject to the requirements in Quad Oa, and (2) EPA will be obligated to pursue methane regulation of existing sources. Read more about V&E attorney’s commentary on the effect of this Resolution on our blog here.