Shale oil and gas state regulatory issues and trends.

• Author: Kulander, Christopher S.
• Position: The Law and Policy of Hydraulic Fracturing: Addressing the Issues of the Natural Gas Boom

CONTENTS INTRODUCTION I. TRENDS IN REGULATIONS AFFECTING FRACING A. Control of Water Acquisition and Use B. Disclosure of Fracing Fluid Ingredients C. Flowback Water Disposal Requirements D. Completion Requirements II. SPECIF1C STATE LAWS AND REGULATIONS A. Idaho B. Kansas C. Maryland D. Ohio E. Pennsylvania F. Texas CONCLUSION: ONE FRACING REGULATORY SCHEME TO RULE THEM ALL? INTRODUCTION

Development of hydrocarbons froin shale has dramatically changed the picture of American reserves. Advancements in directional drilling and hydraulic fracturing have inade possible widespread development of oil and gas in rock formations previously believed to be too imperineable for coinmercial development. In a time of economic want, this American boom employs tens of thousands in tough but lucrative work and significantly reduces the United States' dependence on hydrocarbons imported from unstable and unfriendly countries. Moreover, unlike past booms (and busts) that repeatedly inflated (and deflated) only the economies of the traditional oil patch, the shale gas boom has rippled everywhere prospective shale tbrmations are found, including the long--moritmnd Northeast. While New York watches, Ohio, Pennsylvania, and West Virginia have embraced a thriving new industry.

But it is in Texas, where the shale craze started, that the most frantic activity continues today. Since the curtain rose on the Barnett Shale in the early 2000s, bringing production onto the grounds of DFW Airport and into the city of Fort Worth, shale gas production has blasted off in the Eagle Ford Shale of South Texas, leaving a brightly lit footprint caused by production that Call be seen from orbit. (1) Twenty active Eagle Ford Shale fiehts produce "over 900 million cubic feet per day of natural gas." (2) Producers have stampeded into the Haynesville Shale along the Texas--Louisiana lille. The newest target, the Cline Shale in West Texas, is thought to have an isopach thickness of 200 to 550 feet "the equivalent of ten Eagle Ford shales stacked on each other." (3) The Cline Shale joins other West Texas shale targets, like the Bend and Avalon shale formations, and other shale formations thought to be analogous to the Barnett and Woodford shale formations. (4)

This latest rush has the downsides of harining environmental assets if the related machinery is not correctly deployed and definitely ibisting inconvenience, delay, and nuisances on various surface parties through truck traffic, pulverized roads, noise, foul slnells, surface degradation, and more onto parties that may not be directly benefitting from shale development. Theretore, the states wherein shale hydrocarbon development is now blossoming are scrambling to craft regulations that promote environmentally responsible development.

This Article surveys proposed and existing state laws and regulations to describe the most common statutory and regulatory issues associated with hydraulic fracturing--the drilling-completion technique necessary to make recovering hydrocarbons from shale economic. (5) It includes discussion of individual state laws and regulations as well as general trends and policies among the states regarding state regulation of well drilling and hydraulic fracturing. Laws and regulations affecting both groundwater and surface water supplies and acquisition, fracturing fluid ingredient disclosure, and drilling completion and monitoring standards will be compared across the states wherein hydraulic fracturing is common. Finally, a few thoughts oil whether federal agencies, mainly the EPA, should seek to preempt or direct state action regarding fracturing regulation on private and state lands will be provided.

This Article also includes an appendix that briefly describes both horizontal drilling techniques and the hydraulic fracturing process. This appendix further contains information explaining how hydraulic fracturing may detrimentally affect surface and groundwater.

Finally, an explanation of the terminology used in this Article is necessary. The issue of hydraulic fracturing is so prickly that no consensus exists as to even the spelling of the informal terms used for it. "Fracing." "frac'ing," and "fracking" have all been used in media outlets as a substitute for "hydraulic fracturing." This Article uses "fracing." Similarly, a "fraced well" is a well that has undergone hydraulic fracturing. Also, in the oil and gas context, "operator" is used to describe any mineral developer, whether it be a self-developing mineral owner or a mineral owner's lessee.

1. TRENDS IN REGULATIONS AFFECTING FRACING

   Control of hydraulic fracturing has always been primarily a matter of state regulation--except when done on federal or Indian lands. Generally, states with a long history of oil and gas production have powerful state agencies, such as Oklahoma's Corporation Comlnission, that cover both general exploration and production rules of oil and gas, such as spacing and density rules, and the environmental regulation related thereto. In contrast, states that are new to oil and gas development, thanks to fracing, have generally left the environmental side of their oil and gas regulation to their respective state environmental agencies, such as Pennsylvania's Department of Environmental Protection.

   Despite the geological and geographical differences among the prospective shale plays nationwide, the abundance and location of water, regional water uses, topography, population density, road network, and many other issues, similarities can be found in regulation schemes across the various states. Some of these laws and regulations were in effect prior to the advent of the shale gas development boom. For example, existing state law provisions requiring that well logs and pressure test results be included in disclosures to state authorities also commonly cover shale development.

   Responding to popular dissatisfaction with the secrecy surrounding the chemicals included by operators in their hydraulic fracturing fluid, a wave of new state rules requiring disclosure of additives have swept the nation in the past three years. Along with ingredient disclosure, a number of states now require state-issued permits for fracturing. Such permits may be contingent on adequate reporting to state authorities before, (luring, and after hydraulic fracturing. The reports over subjects such as the plans for disposal of used fracing fluid, the amount of water to be used for fracturing and its source, and contingency plans for a loss of pressure during fracturing or other inishaps.

   A lot of the current state regulation of fracing is simply an extension of the regulations that have always covered all oil and gas secondary and tertiary development processes. Generally, fracing is not expressly mentioned in older existing laws and regulations such as those requiring permits to be acquired before secondary and tertiary recovery methods are tried. (6) Questions then arise about whether fracing is covered by such a law. In Texas, the Texas Railroad Commission regulates almost all oil and gas matters. It has jurisdiction over all "oil and gas wells in Texas; ... persons owning or operating pipelines in Texas; ... and persons owning or engaging in drilling or operating oil or gas wells in Texas." (7) This cloak of regulatory power includes fracing operations and the operators that conduct them.

   Besides general regulations covering oil and gas operations that happen to include fracing, a wave of fracing-specific laws and regulations have swept the nation over the last four years or so. Four key areas where the regulations of the states have had an impact on fracing operations are: (a) control of the acquisition and use of water for fracing; (b) disclosure of chemicals used in fracing fluid; (c) flowback water disposal requirements; and (d) requirements for casing, cementing, drilling, and completion. An additional emerging issue is the promulgation of surface use limitations, either by local governments or at the state level.

   With regard to the disposal of used fracing fluid, in addition to permitting regulation, state laws commonly regulate the storage, transfer and disposal of oil and gas wastes of all varieties. Even if such regulations do not expressly mention fracing, these general regulations often cover any fracing fluids that are brought back to the surface as part of oil and gas production waste. Although such laws are specifically intended to regulate injection of fluids as part of enhanced oil recovery or waste injection process, their language can generally be interpreted to include fracing operations. In addition, states are gradually expressly adding wastes attributable to fracing to the list of oil and gas production wastes under regulation.

   Regulation of casing and cementing is another way in which the state's general oil and gas laws affect fracing. A primary worry of cities and environmentalists has long been the potential for fracing fluids to contaminate groundwater. States therefore have recently begun "beefing up" their casing, cementing, drilling, and completion regulations to protect surface and groundwater resources from being contaminated by fracing fluids. One common requirement, for example, is that cemented casing must be run fifty to one hundred feet below the lowest potable aquifer. Specific permits for fracing, similar to those required for other injection operations, are also becoming common state requirements.

   Some recent state laws and regulations expressly require written authorization from state authorities before allowing well perforation for fracing. Other rules require that specifically designed pits or even steel tanks be utilized for storing used fracing fluid; both must be maintained according to a specific code established by the state oil and gas regulators. Most states with significant production impose restrictions on drilling within certain specified distances from sources...