American Law and Jurisprudence on Fracing - 2012

12/21/2012

The United States may soon go from natural gas importer to exporter thanks to advancements in the use of hydraulic fracturing and horizontal drilling that have been hailed as revolutionary in their impact. These technologies and their broad application across a number of states, some with little experience in oil and gas drilling, have been met with appreciation, invective, and anxiety. For many, the exploitation of hydrocarbon-bearing shale formations carries the promise of transforming the prospects of the oil and gas industry, as well as world energy trade, geopolitics, and climate policy. But, as we say in Texas, no matter how flat the pancake there is always another side, and the practice of hydraulic fracturing is not without its critics. The critics come in several guises, not surprisingly the environmentalists, a coterie of whom regard this technology’s advancement as a broad-scale threat to water, air, and terra firma. There are also the regulators who, at the federal, state, and local levels, are clamoring to protect their turf or carve out new turf from existing regulatory regimes. This is the backdrop for this chapter, an earlier version of which in 2010 sought to critically examine the revolution in hydraulic fracturing from a number of perspectives. Recognizing the subject as dynamic from the technical, legal, regulatory, environmental, economic, and political perspectives, the authors in this 2012 chapter seek to capture its current jurisprudential status with appropriate commentary. We do not expect that the last chapter on this subject is being written or will be written in the near term, as this revolution’s life cycle is expected to span a period of inestimable duration.

The concept and practice of fracing was used in the 1940s in West Texas in vertical wellbores to create artificial permeability in an oil-bearing formation consisting of a thick geological deposit with little or no permeability. In the past decade, hydraulic fracturing has unlocked oil and natural gas deposits in deep shale formations around the country. America has gone from the shadow of the slow extinction of domestic traditional natural gas production to excited predictions of “energy independence” over the short span of 10 years.

Hydraulic fracturing is generally viewed as a completion technique that is a practical necessity to promote development of unconventional “tight” shale reservoirs, particularly oil shale and gas shale. Hydraulic fracturing entails treating water, oil, or gas wells to stimulate more production than otherwise would be achieved using standard drilling and production techniques. This chapter deals with hydraulic fracturing and the legal and technical issues associated with it.

The chapter first covers what hydraulic fracturing is and why it is done. It identifies the current location of the largest shale fields where hydraulic fracturing is common and the effect of hydraulic fracturing on domestic production. It then covers the environmental issues, focusing on the anecdotal and evidentiary call and response among environmental groups, regulators, landowners, and producers. It discusses how traditional oil and gas jurisprudence impacts hydraulic fracturing, emphasizing both surface versus mineral estate issues and disputes that arise between two adjoining mineral owners. This first section also addresses developments in technology and processes that promise to reduce the environmental footprint of hydraulic fracturing while promoting its efficiencies and economies. These developments are waxing in importance with the increasing scarcity of water resources, especially in states plagued by drought, as well as populist pressures and the specter of the expanding regulatory authority of the U.S. Environmental Protection Agency (EPA).

Next we reexamine the regulatory frameworks currently in place in 18 states where hydraulic fracturing is common (or at least known). This state-level analysis is made with an eye toward regulations specific to hydraulic fracturing and the fluids used, as well as more overarching regulations that include hydraulic fracturing among other exploration and production activities, such as general pollution disposal regulations that cover used hydraulic fracturing fluid as well as other liquid waste from drilling. In several instances, this chapter describes recent state-level legislation and associated regulations, as well as bills under consideration, and important opinions from state courts. We also consider hydraulic fracturing on semi-sovereign tribal land and in Canada.

Finally, this chapter analyzes the current and contemplated laws and regulations governing hydraulic fracturing on the federal level. In particular, it discusses the history of the litigation and legislative efforts challenging the current federal exemption of hydraulic fracturing from various federal statutes and regulations. It also highlights the friction between state and federal oversight.

This paper was originally published by the Rocky Mountain Mineral Law Foundation in the Proceedings of the 58th Annual Rocky Mountain Mineral Law Institute (2012). This version represents updates and revisions reflecting new and revised regulations, statutes, and field development nationwide over the last 15 months. © 2012, Haynes and Boone, LLP. To read the full paper, click on the PDF linked below.

PDF - American Law and Jurisprudence on Fracing 2012.pdf

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