Chapter 3C The States' Legal Framework: Rocky Mountain Region Hydraulic Fracturing--Regulatory And Litigation Update For The Rocky Mountain States

• Jurisdiction: United States

Hydraulic Fracturing
(Nov 2011)
CHAPTER 3C
THE STATES' LEGAL FRAMEWORK: ROCKY MOUNTAIN REGION HYDRAULIC FRACTURING--REGULATORY AND LITIGATION UPDATE FOR THE ROCKY MOUNTAIN STATES
Adam S. Cohen
Shannon Stevenson ¹
Davis Graham & Stubbs LLP
Denver, Colorado

ADAM S. COHEN is a Partner with the firm of Davis Graham & Stubbs LLP in Denver, Colorado. He assists the firm's clients with matters involving hazardous substances and hazardous wastes, mining impacts, water quality, natural resource damages and other environmental concerns. His practice generally focuses on: environmental litigation, including toxic tort, personal injury, property damage and CERCLA or "Superfund" cases; defending clients in administrative enforcement proceedings, including water quality and hazardous waste management proceedings; environmental due diligence in association with corporate and real estate transactions; and working long-term with clients facing complex compliance questions or problems associated with environmental statutes, regulations and administrative proceedings. Mr. Cohen received his J.D. from University of Colorado Law School, M.S. from University of Wyoming and B.A. from Cornell University.

SHANNON WELLS STEVENSON has litigated a wide variety of cases for clients in the mining, oil and gas, and renewable energy sectors, including toxic tort cases, contract disputes, mineral ownership disputes, surface owner disputes, implied covenant cases, and technology disputes. Recently, Ms. Stevenson has defended clients in administrative and court proceedings against surface owners complaining about the impacts of hydraulic fracking. Ms. Stevenson received her J.D., graduating magna cum laude, from Duke University School of Law and B.A., graduating cum laude, from Duke University.

TABLE OF CONTENTS

I. INTRODUCTION

II. REGULATORY SUMMARY AND UPDATE

A. COLORADO

Chemical Disclosure

Well Construction and Siting

Pressure Monitoring During Stimulation

Waste Management

Water Quality Monitoring

B. MONTANA

Permitting

Fluids Management and Disclosure of Stimulation Fluids

Well Construction and Pressure Testing

C. WYOMING

Chemical Disclosures

Permitting and Groundwater Protection

Drilling, Well Construction, and Integrity Testing

Disposal of Stimulation Fluids

D. NEW MEXICO

Well Permitting, Construction, and Reporting

Chemical Disclosures

County and Local Ordinances

E. IDAHO

Permitting

Chemical Disclosure

Fresh Water Protection and Well Construction

F. NORTH DAKOTA

Current Rules

Proposed Rule Amendments and Additions

G. UTAH

III. LITIGATION UPDATE: ADDRESSING EARLY ISSUES IN HYDRAULIC FRACTURING LITIGATION

A. Update On Current Rocky Mountain Hydraulic Fracturing Litigation

1. Regulatory Hearing - In the Matter of the Alleged Violations of the Rules and Regulations of the Colorado Oil and Gas Commission, No. 1102-OV-04 (COGCC Mar. 23, 2011)

2. Single-Plaintiff Litigation - Strudley v. Antero Resources Corporation, et al., Case No. 2011cv2218 (Denver Dist. Ct.)

a. The Complaint

b. Motion to Dismiss

c. "Lone Pine" Case Management Order

3. Class Action Litigation - Evenson, et al. v. Antero Resources Corp., et al., Case No. 2011cv5118 (Denver Dist. Ct.)

a. The Complaint

b. Motion to Dismiss

B. The Preemption Argument - Initiating Litigation To Prohibit Enforcement Of Local Bans Or Restrictions On Drilling Or Hydraulic Fracturing

1. The Proliferation of Local Bans or Restrictions on Drilling and Hydraulic fracturing

2. Legal Framework for Preemption Claims

3. Relevant Preemption Law from Rocky Mountain States

a. Colorado

b. New Mexico

c. Wyoming

C. Targeting Claims For Motions To Dismiss

1. Strict Liability for Abnormally Dangerous or Ultrahazardous Activity

a. General Law on Strict Liability for Abnormally Dangerous Activity: Restatement (Second) of Torts

b. Strict Liability for Abnormally Dangerous Activity - Rocky Mountain States

2. Medical Monitoring

a. United States Supreme Court

b. Utah

c. Colorado

D. Procedural Advantages - The Lone Pine Order

1. Federal Authority

a. Ninth Circuit

b. Eighth Circuit

c. Tenth Circuit

2. State Authority

I. INTRODUCTION

Recent discoveries of new sources of oil and natural gas in the Rocky Mountain region and elsewhere in tight shale formations have spawned a sharp increase in the amount of natural gas drilling, including in areas that had not previously seen much conventional oil and gas exploration. This increase has pushed the well stimulation technique of hydraulic fracturing, or "fracking," into mainstream popular culture and onto the agenda of federal, state, and local regulators. While the media emphasizes the alleged dangers of hydraulic fracturing, oil and gas companies tout the benefits of natural gas as a clean and abundant energy source and the advantages of increased domestic oil reserves. Communities and landowners struggle to weigh the financial benefits of drilling against their concerns for health and the environment. In response, the regulatory framework governing drilling activities is evolving as regulators attempt to address the public's concerns over these activities. Nor has hydraulic fracturing gone unnoticed by landowners and lawyers - personal injury and property damage lawsuits are proliferating across the country in areas where hydraulic fracturing is occurring. This article will provide an up-to-date summary of the applicable regulations (in Section II) and litigation activity (in Section III) in the Rocky Mountain states.

II. REGULATORY SUMMARY AND UPDATE

This section examines the regulatory framework governing oil and gas operations, and more specifically hydraulic fracturing activities, in the Rocky Mountain region states. We identify the commissions, divisions, and other agencies that have jurisdiction over oil and gas operations in each state, reference the applicable statutes and regulations, and discuss the regulatory requirements particularly applicable to well drilling and hydraulic fracturing. A comprehensive annotation of all of the specific permitting, reporting, and well construction requirements in each state was beyond the scope of this paper, but the following discussion should serve as a practical guide to the various states' regulatory programs. We have tried to provide thorough citations to each state's statutes, rules, agency websites, and other summary materials, which may be used to guide more detailed research on this topic.

It should be obvious from this discussion that the regulations governing hydraulic fracturing operations in the Rocky Mountain region states are in a state of rapid flux. We are increasingly seeing more stringent requirements for chemical disclosures, reporting, groundwater protection, and operational transparency. States are adding new regulations specially addressing hydraulic fracturing, where such activities previously had simply been implicitly governed under general rules covering well construction and operation. Several states, including Colorado, Idaho, and North Dakota, are (as of the writing of this paper) in the midst of or are soon to be commencing rulemaking proceedings. Others recently adopted new rules, the consequences of which have yet to be fully borne out. The heightened public attention focused on hydraulic fracturing is sure to stimulate further regulatory action at the federal, state, and local levels in the near future, particularly with respect to the disclosure of fracturing fluid constituents and well integrity verification. In this dynamic environment, practitioners are advised to repeatedly consult their state's oil and gas agency's websites and administrative codes to remain apprised of new rulemaking activities and regulatory changes.

A. COLORADO

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In Colorado, hydraulic fracturing operations, as with other oil and gas drilling and production activities, are subject to the jurisdiction of the Colorado Oil and Gas Conservation Commission (the "COGCC"), whose mission is to "foster the responsible development of Colorado's oil and gas natural resources."² Colorado's Oil and Gas Conservation Act³ (the "Act") established the COGCC as part of the department of Natural Resources.⁴ By its terms, the Act provides a framework for balancing effective oil and gas development in Colorado with the protection of the environment, wildlife resources, and public health.⁵

Under the Act, and following revisions adopted by the Colorado General Assembly in 2007 increasing the COGCC's regulatory jurisdiction and oversight obligations, the COGCC has broad authority with respect to the regulation of oil and gas operations in the state, including hydraulic fracturing, and the protection against adverse impacts to the environment and public health resulting from such operations.⁶ Among other things, the COGCC has the power and authority to regulate with respect to: the shooting and chemical treatment of wells;⁷ actions necessary to prevent and mitigate significant adverse environmental impacts "on any air, water, soil, or biological resource resulting from oil and gas operations;"⁸ protection of underground sources of drinking water from the operation of class II injection wells, including wells into which fluids are injected for enhanced recovery of oil or natural gas;⁹ and, in consultation with the Department of Public Health and Environment, protection of the "health, safety and welfare of the general public in the conduct of oil and gas operations."¹⁰

The COGCC exerts its authority through a broad array of rules, permit conditions, and enforcement activities. Colorado substantially updated the rules in late 2008 following a lengthy

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and extensive rulemaking hearing process.¹¹ According to the COGCC, a major reason for adopting the new rules and rule revisions was to "address concerns...