CHAPTER 3 FRACTURED FAIRY TALES: THE CONTEXT AND REGULATORY CONSTRAINTS FOR HYDRAULIC FRACTURING

• Jurisdiction: United States

Development Issues in the Major Shale Plays
(Dec 2010)
CHAPTER 3
FRACTURED FAIRY TALES: THE CONTEXT AND REGULATORY CONSTRAINTS FOR HYDRAULIC FRACTURING
John C. Martin
W. Kyle Parker
Susan M. Mathiascheck
Sarah Gleich ¹
Crowell & Moring, LLP
Washington, D.C.
Anchorage, Alaska

JOHN C. MARTIN, Attorney, Crowell & Moring, LLP, Washington, D.C. and Anchorage, Alaska. John represents clients in complex litigation involving natural resources and environmental issues. John has litigated a number of cases under various environmental laws including the National Environmental Policy Act, the Endangered Species Act, the Clean Air Act, the Clean Water Act, and Superfund. He has developed a particular focus on the application of environmental regulation to the energy industry. In addition to federal district court litigation, John has argued several cases before the U.S. Courts of Appeals, including both appeals and regulatory matters. He represents clients before the Interior Board of Land Appeals and in administrative proceedings at the Environmental Protection Agency. Early in his career, John served as an attorney in the Solicitor's Office at the Department of the Interior and, later, as a trial lawyer with the Lands and Natural Resources Division of the Department of Justice. At DOJ John litigated cases under the Comprehensive Environmental Response, Compensation, and Liability Act, the Clean Air Act, and the Clean Water Act, and received a Special Achievement Award. John has contributed to various publications, and has served as co-author to three environmental law texts. He is also a frequent speaker on various environmental and natural resource topics.

KYLE W. PARKER, Attorney, Crowell & Moring, LLP, Washington, D.C. and Anchorage, Alaska. Mr. Parker counsels clients in the energy and natural resource industries with issues related to project permitting and complex litigation. He has specific experience in securing workable state and federal environmental authorizations for major resource development and energy projects - and in defending those permits when they are challenged in administrative or judicial forums. Mr. Parker regularly provides legal advice and counsel to industry clients on a wide range of business matters, including drafting and commenting on joint venture, joint operating, alignment of interest and area of mutual interest agreements; facility access and sharing agreements; and transportation and interconnection agreements. Mr. Parker has substantial experience in state and federal land, lease and right-of-way acquisitions, oil and gas unit formation, and achieving project permitting and regulatory approvals. In the oil and gas sector, Mr. Parker has worked on the development of new upstream projects (both onshore and offshore), and on the development and construction of new pipeline and storage projects. With substantial litigation experience in environmental cases arising under NEPA, RCRA, the Safe Drinking Water Act, the Oil Pollution Act, the Coastal Zone Management Act, the Alaska Land Act, and the common law, Mr. Parker has served as counsel in defending against multi-million dollar claims for response and cleanup actions. He negotiates and defends civil and criminal enforcement actions on behalf of clients and provides compliance counseling under a broad range of federal and state environmental laws.

SUSAN M. MATHIASCHECK is a partner in the Washington, D.C. office of Crowell & Moring, working with large and small clients to achieve business goals in the face of environmental challenges. Representing clients ranging from major industrial concerns and resource extraction companies to trade associations and governmental entities, she advises and litigates under the various federal environmental statutes--including the Clean Water Act, Clean Air Act, Safe Drinking Water Act, Endangered Species Act, Resource Conservation and Recovery Act, National Environmental Policy Act and Superfund--as well as under state and local requirements. Ms. Mathiascheck has particular experience in complex judicial challenges to agency actions. She regularly advises clients on endangered species concerns, emergency response, resource and property use and development, air and water emissions, hazardous waste, and permitting and other regulatory approvals. She also assists clients with cost recovery, environmental aspects of corporate and real estate transactions, and bankruptcy-related environmental issues. She received her A.B. in 1985 from Harvard College, cum laude, and her J.D. from Boston University School of Law in 1988.

Hydraulic fracturing -injecting water, sand, and chemicals into underground formations to allow the flow of natural gas and oil- has received significant media and Congressional attention recently as prospects for large scale production of hydrocarbons from shale formations have become a reality around the country. The Environmental Protection Agency ("EPA") projects that by 2020, shale gas will comprise over 20% of the nation's gas supply² and current predictions suggest that oil from unconventional plays requiring hydraulic fracturing will make up a very significant portion of U.S. oil supply in the next several years.³

Although various regulatory schemes governing the use of hydraulic fracturing in oil and gas development currently operate at the state level, pressure is mounting for increased federal regulation to address perceived environmental issues. This paper will outline the context of this regulation, review the historical and current federal regulatory authority and then discuss the anticipated avenues for federal regulation of fracturing in the United States. Additionally, this paper will examine newly promulgated regulations in the state of Wyoming which may well suggest the sorts of regulations forthcoming from othe states.

I. Regulatory Context: The Public Perception of Hydraulic Fracturing

In the wake of the Deepwater Horizon disaster, the American public is newly sensitized to the environmental risks of oil and gas. These perceptions may be magnified in highly populated areas that have been exposed to concentrated oil or gas development, including the Marcellus and Barnett shales. Indeed, press coverage reflects a generalized distrust and apprehension toward the oil and gas industry. And, in some cases, scientific fact seems to have given way to a fairy tale of fracturing that has little relationship to reality. Nevertheless, it is against this backdrop of public fears for water contamination, water scarcity, oil spill and earthquakes, that regulators will be devising schemes to control hydraulic fracturing.

A. Public Fears that Hydraulic Fracturing Will Lead to Water Contamination

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The most common concern related to fracturing is that the injection of fluids will lead to water contamination. A recent controversy may be a harbinger of future claims. In Pavillion, Wyoming community members contacted the EPA in 2008 with complaints about "smells, tastes and adverse changes" in their private well water.⁴ While an initial EPA study of sample wells found the presence of some Safe Drinking Water Act ("SDWA") regulated constituents at unhealthy concentrations, the agency has not made any findings which connect these constituents to regional fracturing activity.⁵ Despite the absence of a scientifically proven connection from EPA, many have attributed the well contamination directly to hydraulic fracturing.⁶

Such reports of drilling-related groundwater contamination are widely disseminated although the scientific validity of these associations is often questionable.⁷ The widely viewed 2010 documentary "Gasland" characterized groundwater pollution as an inevitable consequence of fracturing. The filmmaker includes a provocative scene in which tap water was ignited as a purported demonstration that fracturing-related contaminates were present in local drinking water. Scientific evidence suggests alternative explanations for the presence of flammable chemicals in this water but, nonetheless, images such as this engender national concern for the safety of groundwater in areas near fracturing operations.

B. Western States' Concern Regarding Water Scarcity

"Whiskey is for drinking; water is for fighting over." - attributed to Mark Twain

Another major concern related to hydraulic fracturing - especially in the western United States - relates to water scarcity. Fracturing can require significant volumes of water - according to Chesapeake Energy it takes an average of five million gallons of water for each well.⁸ In states such as Wyoming and Colorado where water is a scare and closely guarded commodity, emotions run high when people learn that water reserves are being tapped for the purposes of drilling. Not surprisingly, deals between operators and farmers and ranchers to take water from agricultural wells for use in fracturing have been controversial.⁹ Although government frameworks are already in place to regulate the use of water in these states, many in the communities surrounding drill sites have nonetheless expressed skepticism as to the advisability of allowing fracturing out of concern for protection of this scare resource.

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C. Public awareness of Oil Spills from Hydraulic Fracturing Wells

Against the backdrop of the Macondo spill in the Gulf, spills from any of these exploration projects are the subject of heightened scrutiny. Recently, national news was made by a spill from a remote drill site in southeastern Wyoming.¹⁰ This spill, caused by a sudden surge of oil, overwhelmed site equipment at the Niobrara Shale and sprayed oil onto surrounding ranch land. While such spills have been limited, the sensitivity of the public to any environmental damage connected to the oil and gas industry means that this will be a part of the increased regulatory attention to this activity.

D. Reported Connections Between

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