Our Commentary on Recent Fracking News
- Texas Railroad Commission Publishes Proposed Order on Proration Volume for Oil WellsApril 30, 2020Texas
On April 29, 2020, the Texas Railroad Commission (the “Commission”) published a proposed order that it plans to consider at its May 5 Commissioner’s Conference. The proposed order was brought forth by Commissioner Ryan Sitton, following weeks in which the Commission entertained arguments for and against such proration measures. The Commission will accept public comments on the proposed order before Monday, May 4, 2020.
The proposed order would limit Texas producers to a “Proration Volume” of 80% daily production multiplied by the number of days in a month, based on an operator’s highest average daily oil volume for the month-long periods of October, November, or December of 2019. The 80% limit is based on an initial “Market Demand Factor,” which is subject to future review by the Commission. Penalty for non-compliance will be $1,000.00 for each barrel of oil produced in excess of the allowable volume, on a monthly basis.
Notably, under the proposed order, the proration measures would not take effect until other oil-producing states and countries (such as OPEC+) agree to certain “Complementary Proration Measures” totaling at least 4 million barrels of crude oil a day (in addition to those production cuts already announced by OPEC+). The proration measures would last until the earlier of when such “Complementary Proration Measures” ceased, or when global market demand for crude oil exceeds 85 million barrels a day. By linking proration to similar measures taken by other states and countries, the proposed order seeks to address previously voiced concerns that Texas producers should not alone shoulder the burden of production cuts.1 The proposed order also contains some exceptions and potential relief mechanisms:
- The proposed order contains a definition of an “Excluded Operator,” which is one that produced less than 1,000 barrels of oil per day;
- The Commission may reduce or eliminate a non-compliance penalty upon a showing of “good faith,” though the proposed order does not provide a definition or example of “good faith;”
- Any operator may request a hearing to determine if the proposed order shall not apply to individual wells or leases, though the proposed order gives no guidance on what circumstances may qualify for the exception.
Significant uncertainty exists as to whether this proposed order, in its current form, would be approved by the three-member Commission next week. For example, Chairman Wayne Christian has already expressed skepticism as to the need for such proration measures.
Texas has not implemented oil proration since 1931, so there exists limited precedent for both Commission enforcement or court challenges, should the order pass. Vinson & Elkins energy and regulatory attorneys have extensive experience advising clients on these regulatory issues and their potential impacts, as well as representing clients before the Commission.
1 The Oklahoma Corporation Commission plans to similarly consider proposed proration measures next month.
- District Court Upholds BLM Rollback of 2015 Hydraulic Fracturing RuleApril 2, 2020California
On March 27, 2020, the U.S. District Court for the Northern District of California granted the Bureau of Land Management’s (“BLM”) motion for summary judgement, upholding the agency’s decision to rescind, or roll-back, hydraulic fracturing regulations finalized during the Obama Administration (the “2015 Rule”). The Court’s decision in State of California v. Bureau of Land Management means that oil and gas operators on Federal and Indian lands will not have to comply with the additional requirements in the 2015 Rule. Instead, operators must continue to follow existing state and federal requirements. Because the 2015 Rule never went into effect before it was rescinded, operators will not have to change any of their existing practices.
After studying the existing regulatory requirements, the Obama Administration decided that additional federal regulations were needed for hydraulic fracturing on Federal and Indian land. BLM passed the 2015 Rule, which would have included a comprehensive set of well-bore integrity requirements, the use of tanks for the interim storage of recovered waste fluids, mandatory notifications and waiting periods for key parts of the fracturing process, and chemical disclosures.
In 2017, BLM rescinded the 2015 Rule because it believed it was “unnecessarily duplicative or state and some tribal regulations and imposes burdensome reporting requirements and other unjustified costs on the oil and gas industry.” The State of California and several environmental groups challenged BLM’s rescission of the 2015 Rule in a federal district court in California under the Administrative Procedure Act (“APA”), National Environmental Policy Act (“NEPA”) and Endangered Species Act (“ESA”). Essentially, these groups argued that BLM did not follow the proper procedures, complete the necessary level of environmental analysis, or sufficiently explain its reason for rescinding the 2015 Rule.
In challenging the Rescission under the APA, California argued that the change in policy was an abuse of discretion because the agency failed to offer a reasoned explanation for reversing its policy and that its proffered reasons for the reversal run counter to the evidence before the agency. The Court disagreed and held that while the BLM could have provided more detail, its explanation was sufficient and “did enough to clear the low bar of arbitrary and capricious review, and that is all the law requires.” The Court also held that NEPA and the ESA did not apply to the Rescission, reasoning that there was no impact to the environment or endangered species because the 2015 Rule never went into effect and there was never change to the environmental status quo.
The Rescission will save oil and gas operators from complying with additional federal requirements. But V&E Environmental & Natural Resources Counsel Corinne Snow, who argued this case on BLM’s behalf during her tenure at the U.S. Department of Justice, notes that as a practical matter, the 2015 Rule requirements are now largely duplicative of regulations now in place many states where hydraulic fracturing occurs on BLM lands, and BLM requires operators to also comply with the laws of the state where Federal or Indian land is located.
Read our full analysis of State of California v. BLM here.
- Pennsylvania Supreme Court finds that Rule of Capture May Bar Trespassing ClaimsFebruary 12, 2020Pennsylvania
On January 22, 2020, the Pennsylvania Supreme Court announced its decision in Briggs, et al. v. Southwestern Energy Production Company, No. 63 MAP 2018 (Penn. Jan. 22, 2020), vacating a Superior Court opinion and holding that the rule of capture applies to fracking and protects fracking companies from trespass liability when a well taps into oil and gas below a neighboring property so long as there is no actual physical invasion. The rule of capture is a common law principle stating that the first person to “capture” a resource owns that resource, regardless of whether it is drained from below adjacent land. With this decision, Pennsylvania joins Texas as one of two states with cases holding that fracking, in and of itself, does not constitute trespass. In limiting its holding to situations where there is no physical invasion, the Supreme Court leaves an opening for landowners who can prove actual physical invasion, difficult though that may be.
In Briggs, the Briggs Family sued Southwestern Energy, an energy company conducting fracking operations on neighboring land. Southwestern Energy did not have leasehold interests on the Briggs Family’s land. The Briggs Family sued for trespass and conversion, alleging that Southwestern Energy’s wells illegally drained natural gas from beneath their land. Southwestern Energy argued that it did not physically invade the Briggs Family’s property and, to the extent it produced any gas drained from that property to its lease, it was protected by the rule of capture. In response, the Briggs Family argued that the rule of capture should not apply in circumstances where gas has been captured by fracking, because (1) “artificially stimulating” the cross-boundary flow of oil and gas renders the rule of capture inapplicable and (2) “any time natural gas migrates across the property lines resulting, directly or indirectly, from hydraulic fracturing, a physical intrusion into the plaintiff’s property must necessarily have taken place.”
In its opinion, the Supreme Court rejected the Briggs Family’s arguments. The Supreme Court noted that the characterization of fracking as “artificial stimulation” was a distinction without a difference—all drilling is artificial. Even more to the point, the Supreme Court stated that early decisions had upheld application of the rule of capture to well-shooting and other forms of well stimulation. The Supreme Court held that the rule of capture protects fracking companies from trespass liability when a well taps into oil and gas below a neighboring property unless there is a physical invasion. Since the Briggs Family had not actually alleged physical intrusion into their subsurface property and the record did not support the conclusion that physical intrusion had occurred, the Supreme Court remanded the case for further factual development. Had the Briggs Family alleged actual invasion by fracture, fluid, or proppant, the Supreme Court indicated that a claim for trespass would have been viable, at least at the pleading stage.
Briggs has been viewed as a split decision by landowners and fracking companies. Although it upholds the rule of capture’s applicability to fracking, it does not fully foreclose liability for drainage resulting from fracking. Ultimately, the Supreme Court’s ruling places the burden on landowners to prove that a physical intrusion onto their property actually took place—a pricey and complicated proposition.
- Democratic Lawmakers Introduce Bill to Ban Fracking NationwideJanuary 28, 2020
On January 28, 2020, presidential candidate Senator Bernie Sanders (D-VT) and Senator Jeff Merkley (D-OR) introduced Senate Bill 3247, which, if enacted as proposed, would ban hydraulic fracturing nationwide by 2025. The Bill, known as the “Ban Fracking Act” is Congress’ first-ever proposal to ban fracking across the United States and would achieve a total ban in three phases.
First, the Bill would institute an immediate ban on all new federal permits for fracking-related infrastructure. This includes pipelines, natural gas import and export terminals, natural gas storage, ethane cracker plants, natural gas power generation plants, among other fracking infrastructure. The Bill also calls for an immediate national survey of all oil and natural gas wells in the United States where fracking has been or is being used. The survey will gather data on well location, proximity to homes and schools, production rates, and health and safety violations.
Second, using data gathered in the national survey, the Bill would revoke federal permits for fracking within 2,500 feet of homes and schools in 2021. Finally, the Bill would ban all fracking in the United States, both offshore and onshore, in 2025.
The Bill directs the Department of Labor to partner with other federal agencies and stakeholders to develop recommendations for ensuring the “health and safety of individuals residing in, and the prosperity of natural gas- and oil-producing regions” during the fracking phaseout. However, the Bill does not authorize any federal funds to implement any recommendations that the Department of Labor and other federal agencies may develop.
The Bill has been referred to the Senate Energy and Natural Resources committee but will face an uphill battle in the currently Republican-controlled Senate. The Bill has several ambiguities and gaps. For example, the Bill does not specify what “federal permits for fracking” will be revoked in 2021 nor does it address any takings issues that would likely arise from banning fracking on private property. If adopted as written, the Bill will likely suffer setbacks due to legal challenges.
Although unlikely to become law this year, the Bill may be a sign of how a progressive Democratic administration may approach energy policy as Democratic presidential candidates Senator Bernie Sanders and Senator Elizabeth Warren have both pledged to ban fracking.
Read the full text of Senate Bill 3247 here.
- California Announces “Independent Reviews” for New Hydraulic Fracturing Permits, Audit of Current Permit Approval ProcessNovember 20, 2019California
On November 19, 2019, the California Department of Conservation’s Division of Oil, Gas and Geothermal Resources (“DOGGR”) announced that all new permits for well stimulation operations such as hydraulic fracturing must be reviewed by third-party, independent scientists “to ensure the state’s technical standards for public health, safety and environmental protection are met prior to approval of each permit.” These reviews will be conducted by experts at the Lawrence Livermore National Laboratory in Livermore, California.
The requirement for independent reviews is a temporary measure pending a broader overhaul of California’s well stimulation permitting regime, which arises out of recent legislation that revised the name and mission of DOGGR, which will be renamed the Geologic Energy Management Division, or “CalGEM,” effective January 1, 2020. Similar to Colorado’s S.B. 19-181, California’s A.B. 1057, which was signed into law in October 2019, also specifically requires that CalGEM’s mission include “protecting public health and safety and environmental quality, including reduction and mitigation of greenhouse gas emissions associated with the development of hydrocarbon and geothermal resources in a manner that meets the energy needs of the state.” DOGGR began a review of its process for approving well stimulation permits in July 2019, after it was reported that the issuance of such permits had doubled since Governor Newsome took office in January 2019. More recently, DOGGR requested an independent audit of its permitting processes for well stimulation and underground injection control by the California Department of Finance’s Office of State Audits and Evaluations.
In addition to this ongoing review of well stimulation permitting procedures, DOGGR announced a new rulemaking effort aimed at strengthening protections for public health and safety near oil and gas extraction facilities. The rulemaking process will begin in 2020 with “a series of pre-rulemaking workshops with interested parties to seek input on the best ways to protect human health through new rules.” A variety of environmental and public health authorities are expected to consult on the forthcoming rulemaking, including the California Department of Public Health and the California Environmental Protection Agency. Finally, DOGGR also announced a moratorium on new extraction wells that use high-pressure cyclic steaming to break apart underground geological formations to extract oil, a process that has been linked to recent oil leaks in Kern County, California.
It remains to be seen how the independent panel will implement its new authority to evaluate well stimulation permits pending California’s continuing review of its permitting processes. To the extent that this review recommends regulatory changes to California’s permitting regime, such changes would require a future notice and comment rulemaking. In the meantime, operators should prepare to engage in the forthcoming rulemaking effort relating to protections for public health and safety near oil and gas extraction facilities. As Colorado’s failed Initiative 97/Proposition 112 demonstrated in 2018, measures as simple as increased setback distances can have devastating effects on the percentage of surface lands available for production.
Read DOGGR’s announcement in full here.
- Texas Publishes Proposed Safety for Rural Gathering PipelinesOctober 18, 2019Texas
The Railroad Commission has formally proposed rules that would add safety requirements for rural gathering pipelines. The action is far narrower than the draft rules that the Railroad Commission proposed this summer for informal comment. Historically, rural gathering pipelines have been largely unregulated. This summer’s draft proposal would have imposed on rural gathering lines broad proscriptive requirements related to corrosion control, damage prevention, public education, line marking, and leak surveys above and beyond rules recently finalized by the federal Pipeline and Hazardous Materials Safety Administration. The potential major change drew significant industry attention and many informal comments, both in writing and at a public meeting, including comments that the draft rules were not tied to identified public safety risks.
At its October 1 meeting, the Commission formally proposed safety rules that are far narrower than the draft proposal this summer. Rather than the proscriptive requirements proposed in draft this summer, the current proposed rules would instead subject pipeline operators to a general performance standard – operate in a “reasonably prudent manner to promote safe operation” – and the following incident related requirements:
- Report incidents and accidents to the Commission (16 TAC 8.110(c));
- Conduct investigations after incidents or accidents and cooperate with the Commission during a Commission investigation (16 TAC 8.110(d)); and
- Submit, at the Commission’s request, corrective action plans to remediate accidents, incidents, threats to the public, or complaints (16 TAC 8.110(e)).
The proposed rules align with H.B. 2982 (2013), which authorizes Commission rulemaking for rural gathering pipelines “based on the risks the transportation and facilities present to the public safety.” Indeed, the Commission acknowledged in the preamble to the proposed rules that it “has recognized the need to compile more accurate and complete information regarding the incidents and accidents that are occurring on gathering systems located in Class 1 locations and rural areas.” That said, the Commission also expressed its belief that these new reporting, investigation, and corrective action requirements “will allow the Commission to gather accurate data and analyze trends in incident or accident occurrences,” permitting it “to more thoroughly assess the risks [that rural gathering pipelines] . . . present to the public safety.” Thus, the data the Commission intends to gather could provide the Commission with the legal basis for a more expansive rule package in the future.
The proposed rules were formally published in the Texas Register on October 18, opening a 30-day public comment period.
- California Legislature Looks to Colorado in Considering Increased SetbacksApril 30, 2019CaliforniaColorado
On April 22, 2019, the California Assembly’s Natural Resources Committee passed Assembly Bill 345 (“AB 345”), which, similar to Colorado’s failed Proposition 112 ballot initiative, would require that all new oil and gas development and rework operations on non-federal land be located at least 2,500 feet from any residences, schools, childcare facilities, playgrounds, hospitals, and health clinics. These requirements would take effect beginning on January 1, 2020. In addition, the bill authorizes cities and counties to impose setback requirements even greater than the 2,500-foot base requirement.
The bill includes a variance mechanism whereby operators could obtain a reduction to the “maximum achievable” setback distance where necessary to access legal subsurface rights. Applications for a variance must include “competent, substantial, and relevant evidence” demonstrating, among other things, that the proposed variance is “consistent with the intent” of AB 345 and “protect[s] public health and safety.” Such variance requests would be subject to review by the state’s Oil and Gas Supervisor. However, an analysis prepared by the Assembly’s Natural Resources Committee observed that “it is unlikely the variance could ever be used” because, counter to the requirement that a variance be “consistent with” AB 345, the bill explicitly declares that “[p]roximity to oil and gas extraction, including the use of hydraulic fracturing, well acidization, and other nonconventional oil and gas extraction techniques, adversely impacts public health and safety.”
As was the case with Proposition 112 in Colorado, implementing the requirements of AB 345 could have a devastating impact on new oil and gas exploration and production activities in California, which currently ranks fourth among states in annual oil production. The Natural Resources Committee’s analysis states that even a lower 1,500-foot setback from only residential developments would have affected 65 permits issued in Los Angeles County alone in 2018. Even more troubling for California operators is the Committee’s observation that, as currently drafted, the “definition of new oil and gas development and rework operations may capture any permit necessary to keep existing wells producing.” The California Division of Oil, Gas, and Geothermal Resources issued 1,100 such permits last year, amounting to 15% of the total permits it issued. Similarly, the Committee found that AB 345’s definitions of “oil and gas development” and “rework operations” subject to the setback requirement could include routine repairs, the addition of new flowlines, or additional treatment of waste.
The bill will now move to the Committee on Appropriations for further consideration. Should the bill advance out of committee, it would move to the Assembly for further readings and a vote. To become law, the bill must be passed by the Assembly and Senate, and then approved by the Governor, who can either sign the bill into law, or allow it to become law without signature. Read the current text of AB 345 in full here.
Finally, AB 345 was not the only bill affecting the oil and gas industry to advance out of the Assembly’s Natural Resources Committee on April 22. The Committee also passed AB 1440, which would again borrow from Colorado by eliminating language encouraging the development of oil and gas resources from the statutory mandate of the California’s Oil and Gas Supervisor. Colorado, of course, recently enacted legislation that revised the mandate of the Colorado Oil and Gas Conservation Commission to focus primarily on the protection of public health and the environment, rather than “fostering” the development of oil and gas resources. Like AB 345, AB 1440 will now move to the Committee on Appropriations for further consideration. Read the current text of AB 1440 in full here.
- Colorado House Passes S.B. 19-181, Sending the Amended Bill Back to the SenateApril 1, 2019Colorado
On March 29, 2019, the Colorado House of Representatives passed S.B. 19-181, the sweeping oil and gas reform legislation introduced by Senate Democrats on March 1. The final House vote to pass the legislation followed nearly six hours of floor debate, the adoption of almost a dozen amendments, and the rejection of several others. While the majority of the amendments adopted by the House are minor and clarifying in nature, several affected the substance of S.B. 19-181:
- New language requires local governments to regulate the surface impacts of oil and gas operations “in a reasonable manner.”
- The House made significant changes to the provisions relating to the composition of the Colorado Oil and Gas Conservation Commission (“COGCC”). The amended bill now requires a seven-member, “professional” COGCC. This means that the five COGCC members appointed by the Governor (subject to the consent of the Colorado Senate) will be excluded from other employment and entitled to compensation. The remaining two COGCC members comprising the seven-person commission will consist of the directors of the state agencies for natural resources and public health and environment, who will serve as non-voting members.
- New language clarifies that the reports issued by the technical review board, the COGCC-appointed body made available to review “issues in dispute” as between local governments and operators in the siting process, must not address the economic effects of local governments’ preliminary or final siting determinations.
- The House lowered the percentage of owners necessary to force pooling from 50% to 45%.
Despite these amendments, the key provisions of S.B. 19-181 remain in place. The bill will now return to the Senate for a floor vote to consider the amended legislation. That vote is currently scheduled for April 2, although additional delays remain possible. If the Senate votes to pass S.B. 19-181 as amended, the bill would move to Governor Polis’s desk for signature. Governor Polis has already expressed his support for the legislation. Read the current version of S.B. 19-181 as amended here.
- Colorado S.B. 19-181 Passes SenateMarch 14, 2019Colorado
The Colorado Senate voted along party lines on March 13, 2019, to pass S.B. 19-181, the sweeping oil and gas reform legislation introduced by Senate Democrats less than two weeks ago. The Senate vote was not without controversy. In an attempt to delay action on S.B. 19-181, Senator John Cooke requested on March 11th that a 2,000-page bill be read in its entirety on the Senate floor. Senate Democrats responded by using five computers to simultaneously read various portions of the bill out loud at speeds well beyond the capacity of human speech. Cooke, along with other Senate Republicans, brought suit against Democratic leadership on March 12th, arguing that the bill must be read intelligibly. Although a Denver judge has issued a temporary restraining order against Democratic leadership and further proceedings in that case are scheduled for March 19th, the fact remains that the Colorado Senate has passed S.B. 19-181, which will now move to the Colorado House of Representatives for further consideration.
The precise timing for House action on S.B. 19-181 remains unknown; currently, the bill does not appear on the House calendar. Nonetheless, given how quickly the bill has moved thus far, and the composition of the Colorado House—41 Democrats to 24 Republicans—the bill could reach the Governor’s desk as early as the week of March 18th. Governor Polis has already expressed his support for the legislation.
While additional amendments remain possible, oil and gas operators in Colorado should consider the version of S.B. 19-181 that passed the Senate likely to become law, and likely very quickly. The reengrossed version of the bill—including all amendments—passed by the Senate is available here. Notable amendments include:
- requiring the Colorado Oil and Gas Conservation Commission (“COGCC”) to review its leak detection and repair rules to consider making them more stringent;
- requiring the COGCC to promulgate rules (i) regulating wellbore integrity and (ii) requiring certification for certain oil and gas industry workers, including compliance officers responsible for OSHA and industry standard codes, those handling hazardous materials, and welders;
- allowing local governments and operators to seek review of local governments’ location and siting decisions by a technical review board appointed by the COGCC Director to assess any “issues in dispute,” including whether (i) the local government’s siting determination “could affect oil and gas resource recovery,” (ii) the local government’s determination is “impracticable” or would require technologies that are “not available,” and (iii) the operator is proposing to use “best management practices”;
- stating explicitly that local governments may regulate the land use and siting of oil and gas facilities in a manner “more protective or stricter” than the state-level requirements; and
- requiring the COGCC Director to submit a report to the Colorado General Assembly by January 1, 2021, regarding “any recommended structural changes to the Commission.”
The REMI Partnership, a “partnership of public and private organizations” that aims “to develop independent, fact-based analysis that quantifies the broader economic impacts associated with policy changes” in Colorado has estimated that if S.B. 19-181 cuts new oil and gas production in the state by 50%, Colorado would lose 120,000 jobs, more than $8 billion in state and local tax revenue, and over $58 billion in GDP by 2030. Read our updated analysis of S.B. 19-181 in its entirety here.
- Colorado S.B. 19-181 Advancing Quickly As Hearings ContinueMarch 8, 2019Colorado
Colorado S.B. 19-181, the sweeping oil and gas reform legislation introduced last week in the Colorado General Assembly, is advancing quickly through the six committee hearings necessary to reach a floor vote. The bill has already been approved by the Senate Transportation and Energy Committee and the Senate Finance Committee after votes along party lines. The Senate Transportation and Energy Committee’s hearing on March 5th demonstrated the controversial nature of S.B. 19-181, drawing almost 200 people to testify over the course of a twelve-hour hearing. Thus far, the amendments made to the bill have been largely clarifying in nature, although additional amendments remain possible should the legislation continue to advance.
S.B. 19-181 is set for hearing by the Senate Appropriations Committee on March 8th. Given the pace at which this bill is currently moving, it remains imperative that all oil and gas operators in Colorado familiarize themselves with this legislation as soon as possible and monitor its continued progress through the General Assembly. Read our analysis of S.B. 19-181 here. The full text of the proposed legislation as introduced is available here.