Fracking - Real Property & Environmental Law Alert

New York State Again Defers Decisions Regarding Hydraulic Fracturing

David J. Freeman — Fri, 21 Dec 2012 16:34:00 -0500

On November 28, 2012, New York State confirmed that its health assessment of the proposed regulations governing hydraulic fracturing, also known as “fracking,” being conducted by a panel of three leading public health experts, would be delayed. Immediately thereafter, the State’s Department of Environmental Conservation (“NYSDEC”) filed for a 90-day extension of the November 29, 2012, regulatory deadline for finalizing fracking regulations.

The new set of regulations proposed by NYSDEC can be found at the agency’s website. A public comment period on these proposed regulations opened on December 12, 2012, and will run through January 11, 2013. There will be no public hearings during this review cycle. However, the NYSDEC now has 90 days to complete the regulation or face beginning the entire process anew with a new public comment period.

THE MARCELLUS SHALE FORMATION AND FRACKING IN NEW YORK STATE

The Marcellus shale formation, which is a rich source of oil and natural gas, runs along the southern portion and Finger Lakes region of New York State, providing great potential for the drilling of natural gas.

]]>Fracking is a means of extracting natural gas by injecting a solution to crack the shale, thereby releasing gas that is then collected. However, the decision as to whether to move forward with this process in New York State has proven to be controversial.

There are a number of areas of interest that warrant attention as New York State continues to debate whether high volume hydraulic fracturing will be allowed in the State. They include:

the impact of local laws regulating this practice;
the protections that exist with respect to landowners’ contractual rights and environmental liability exposure; and
the extent of disclosure of the chemical disclosure requirements in the regulations.

Impact of Local Laws

Although New York State legislation provides that the State laws governing oil, gas and solution mining “shall supersede all local laws or ordinances relating to the regulation of the oil, gas, and solution mining industries;” two New York Supreme Courts have upheld municipal bans on oil and gas exploration and production. See Cooperstown Holstein Corp. v. Town of Middlefield, Index No. 2011-0930 (Sup. Ct. Otsego Cty, Feb. 24, 2012) and Anschutz Exploration Corp. v. Town of Dryden, Index No. 2011-0902, (Sup. Ct. Tompkins Cty, Feb. 22, 2012). The courts held that the legislature’s preemption language applies only to local regulations of the operation of oil, gas, and solution mining industries and does not apply to local regulation of land use. Therefore, the courts held that the municipal bans constituted the proper regulation of land use by the municipalities. These cases are being appealed; we should find out early next year how the Appellate Division interprets the extent of the State’s preemptive rights.

Landowner Protections

Well owners under the proposed regulations will be required to file a financial security of up to $250,000. This amount is based on the cost of plugging and abandoning a well. See proposed amended 6 NYCRR Part 551.6. There is no financial security associated with environmental assessment and/or remediation if necessary in the plugging and abandonment of a well.

Chemical Disclosure Requirements

Drillers have been protective of their formulae for fracking fluids and have sought to protect these formulae as trade secrets. The laws governing chemical disclosure vary from state to state. See Brandon J. Murrill & Adam Vann, Hydraulic Fracturing: Chemical Disclosure Requirements (April 4, 2012).

New York State’s proposed regulations require, among other disclosures, Material Safety Data Sheets (MSDSs) for each proposed additive; and the concentrations as a percentage of water of all additives. See proposed amended 6 NYCRR Part 560.3(d)(1). However, under the proposed regulations, drillers may request that information disclosed to NYSDEC be protected from disclosure to the public. See proposed amended 6 NYCRR Part 560.3(d)(4).

Non-disclosure agreements have been a particularly hot-button issue in both New York and Pennsylvania. For example, the bill introduced in the New York State Assembly in June 2012 by Assemblyman Alan Maisel would prohibit the inclusion of non-disclosure agreements in settlements of fracking actions where there is evidence of threat to public health or safety. See A.B. 10630.

Gibbons P.C. will continue to follow these issues, among others, as the future of fracking in New York State is debated.

* Photo courtesy of U.S. Geological Survey Department of the Interior/USGS.

David J. Freeman is a Director in the Gibbons Real Property & Environmental Department. Uzoamaka N. Okoye, an Associate in the Gibbons Real Property & Environmental Department, co-authored this post.

Industry Report Criticizes EPA Fracking Study for Poor Design, Insufficient Data

Paul M. Hauge — Wed, 23 May 2012 15:01:58 -0500

As we reported this past December and January, last year the U.S. Environmental Protection Agency (EPA) released a draft report that linked contamination found in wells near Pavillion, Wyoming to the practice of hydraulic fracturing, or fracking. A report prepared for an oil and gas industry group, however, says the EPA study was deeply flawed.

The new report, prepared for the Washington-based Independent Petroleum Association of America by S.S. Papadopulos & Associates, Inc. of Bethesda, Maryland, concludes that EPA provided neither “sufficient data nor analysis to support most of the report’s conclusions.” It criticizes EPA’s study design, notes to a lack of background and baseline data for many key parameters, and points to analytical concerns that undermine the data cited in EPA’s report. All of the “lines of evidence” that EPA cited to support its findings -- including the conclusion that fluids used in the fracking process have affected the area’s groundwater -- can be explained with alternative hypotheses, according to the Papadopulos report.

Fracking involves the pumping of pressurized water, sand, and chemicals into underground rock formation (such as the Marcellus Shale formation in Pennsylvania and New York) that contains natural gas. The high-pressure fluid creates cracks, or fractures, in the rock, allowing the trapped gas to escape, flow into the well and up to the surface.

]]>The public comment period for EPA’s report, originally set to close in January and later extended to March 12, has been extended through October 2012. EPA is also delaying the convening of a peer review panel until the results of additional sampling done in conjunction with the U.S. Geological Survey are made public.

Paul M. Hauge is an Associate in the Gibbons Real Property & Environmental Department.

EPA Seeks Outside Reviewers for Draft Report That Showed Groundwater Contamination from Fracking

Paul M. Hauge — Thu, 19 Jan 2012 09:19:02 -0500

In December, we reported on the release of a draft report from United States Environmental Protection Agency’s (EPA) Office of Research and Development on a possible link between groundwater contamination in some Wyoming wells and hydraulic fracturing (“fracking”) activity in the area. Now, as promised, EPA is initiating an independent assessment of the report by outside peer reviewers.

The EPA report garnered intense attention from both proponents and opponents of fracking, which extracts natural gas from underground rock formations through the pumping of a pressurized mixture of water, sand, and chemicals that creates cracks, or fractures, in the rock, allowing the trapped gas to escape, flow into the well and up to the surface. Concerns over groundwater contamination could delay or limit fracking in New York, Pennsylvania, and a number of other states.

EPA published a Federal Register notice on January 17, 2012 that seeks nominations for experts to review the draft report as well as all public comments received during a comment period that will close on January 27. An EPA peer review contractor will select five to seven outside reviewers from among those nominated.

The agency is looking for recognized experts in a variety of fields (e.g., petroleum engineering, hydrology, geophysics, and water quality) who have no financial conflicts of interest or whose position would otherwise create an appearance of a lack of impartiality. Nominations (preferably via e-mail) must be submitted by February 17.

Paul M. Hauge is an Associate in the Gibbons Real Property & Environmental Department.

EPA Report Points to Fracking as Possible Source of Groundwater Contamination

Paul M. Hauge — Wed, 14 Dec 2011 11:23:45 -0500

A draft report from United States Environmental Protection Agency’s (EPA) Office of Research and Development has tentatively pointed a finger at hydraulic fracturing (“fracking”) as a cause of groundwater contamination detected in a number of wells near the town of Pavillion, Wyoming. The report, which has not yet undergone outside peer review, is likely to set off alarm bells among both proponents and opponents of fracking, including those in eastern states like New York, New Jersey, and Pennsylvania.

Fracking involves the pumping of pressurized water, sand, and chemicals into underground rock formation (such as the Marcellus Shale formation in Pennsylvania and New York) that contains natural gas. The high-pressure fluid creates cracks, or fractures, in the rock, allowing the trapped gas to escape, flow into the well and up to the surface. Eastern states have adopted a variety of policies toward fracking, ranging from Pennsylvania’s enthusiastic promotion to New York’s temporary moratorium and ongoing effort to promulgate protective regulations to New Jersey’s attempted legislative prohibition that was vetoed in favor of a temporary ban.

Whether fracking may contaminate groundwater is a critical question facing policy makers across the country. The EPA study, conducted in response to complaints from residents about objectionable taste and odor problems in water drawn from the drinking water wells after fracking in nearby gas production wells, concludes, based upon both data and complex scientific reasoning, that fracking has caused impacts to ground water in the Pavillion area. EPA also noted certain limitations of the study: its purpose was “to determine the presence, not the extent, of ground water contamination in the formation,” and the results are specific to the Pavillion area, where fracking occurs in and below a drinking water aquifer and near drinking water wells, unlike production practices in many other parts of the country.

]]>The EPA report drew sharp criticism from the company that is conducting fracking in the area, and praise from opponents of fracking. It is certain to cause additional controversy in the months ahead. As we noted in a recent post, fracking also raises complex legal issues.

Paul M. Hauge is an Associate in the Gibbons Real Property & Environmental Department.

Pennsylvania Appellate Court Injects Uncertainty Into Fracking Industry

Paul M. Hauge — Thu, 08 Dec 2011 09:17:02 -0500

An 1881 deed and an 1882 Supreme Court decision formed the background for a very modern controversy recently addressed by the Pennsylvania Superior Court. The decision, Butler v. Estate of Powers, casts a shadow over ownership rights in natural gas contained in the Marcellus Shale formation, and has left many companies in the “fracking” industry uncertain about what they own.

The deed in question conveyed a 244-acre parcel to the appellees’ alleged predecessors in title, but reserved “one half the minerals and Petroleum Oils” to the grantor. The appellees claimed to own the surface and 100% of the minerals and petroleum -- including, specifically, natural gas contained in the Marcellus Shale formation under the parcel -- based on adverse possession. The appellants, heirs to the estate of the grantor, claimed that the reservation in the deed gave them, and not the appellees, half of the shale gas.

The issue: what legal rule should the court apply? Most observers thought that the Pennsylvania Supreme Court’s 1882 decision in Dunham v. Kirkpatrick, as extended by its 1960 decision in Highland v. Commonwealth controlled. Those cases held that a conveyance of “mineral rights” is presumed not to include the right to extract oil and gas. The Supreme Court later carved out an exception to Dunham in U.S. Steel Corp. v. Hoge, which held that coalbed methane belongs to the owner of the coal. The Hoge rule was thought to apply only to coal and the gas contained within it.

]]>Rather than simply applying the Dunham rule (as the trial court had), under which shale gas would have been excluded from the reservation in the deed and thus conveyed to the grantee, the Superior Court decided that expert testimony was needed before it could make a determination as to exactly what shale gas constituted. Is it a “mineral” under the rule in Dunham and Highland? Is it natural gas under the same rule? Or is it more like coalbed methane, and thus subject to the “whoever owns the rock owns the gas” rule in Hoge? The court thus remanded the case to the trial court, which will hear from the parties’ experts before deciding, for the second time, which rule applies to shale gas. In the meantime, the appellees have appealed to the Pennsylvania Supreme Court.

With the remand and likely appeals, the issues raised by Butler may not be resolved for years. For now, anyone with a stake in the Marcellus Shale or the gas it contains -- or in the Bakken Shale formation in Montana and North Dakota, which also contains natural gas -- should review the relevant documents (deeds, leases, etc.) to determine whether the uncertainty created by Butler affects any of their legal interests.

Paul M. Hauge is an Associate in the Gibbons Real Property & Environmental Department. John H. Klock, a Director in the Gibbons Real Property & Environmental Department, co-authored this post.