HBW Resources: Hydraulic Fracturing Report

HBW Resources: Hydraulic Fracturing Report

Below is a summary prepared by HBW staff of publicly available activities currently underway at the local and state level that could impact natural resource extraction, particularly related to hydraulic fracturing and shale development.  To better utilize this document, we’ve broken the information down by region. With numerous state legislatures now in session, HBW Resources is monitoring these activities to ensure that responsible and feasible policies based on sound science are advanced. Be sure to check each week for updates in various regions that pertain to your business operations.

Highlights

  • A new 9.5% severance tax would be assessed on all oil extracted in California, with revenues directed to schools, parks and health needs
  • Three Colorado energy companies have already adopted environmental standards that state air quality commissioners are considering making mandatory
  • Kansas Gov. Sam Brownback (R) appointed a task force to study the possibility that oil and gas operations in Kansas to withdraw hard-to-reach deposits and to inject waste fluid into the ground were sparking minor earthquakes
  • Ohio’s business community can look forward to increasing economic strength thanks to a manufacturing comeback and burgeoning shale energy development
  • Marcellus Shale natural gas production in Pennsylvania topped three trillion cubic feet in 2013
  • An effort to refill the Glade Run Lake is gathering steam. Butler County (PA) Commissioners have agreed to fund the project with $110,000, to be disbursed over two years from the Marcellus Shale Legacy Fund.
  • KCF Technologies has received a $20,000 grant from the Ben Franklin Shale Gas Innovation & Commercialization Center (SGICC). This is the first grant awarded as part of the funding that SGICC received through Governor Corbett’s “JOBS1stPA” initiative.

States 
State Legislative Update: Please see the linked spreadsheet for an updated listing of state legislation dealing with hydraulic fracturing.

California
A new tax would be assessed on all oil extracted in California, with revenues directed to schools, parks and health needs, under legislation unveiled. Sen. Noreen Evans (D, District 2) in a press conference at California State University, Sacramento, said SB 1017 is a needed step to keep the state’s budget healthy. The measure would charge a 9.5 percent severance tax on each barrel of petroleum, raising an estimated $2 billion annually, she said. Half of the money would be shared by the University of California, California State University and community college systems. State parks would receive one-quarter and health and human services the other fourth. “California remains the only oil-producing state in the nation that does not impose an oil extraction tax,” Evans said. “Meanwhile, our debts grow, our population increases, and our services are strained, while new revenues from our own natural resources earn $331 million a day for big oil companies. Not taxing oil extraction is simply fiscally unsound.”

SB 1132, introduced by Sen. Holly Mitchell (D, District ) and Sen. Mark Leno (D, District ) calls for a moratorium on all forms of extreme well stimulation, including hydraulic fracturing and acidization, until a comprehensive, independent and multi-agency review exploring the economic, environmental and public health impacts is complete. The study will also include evaluation of the adverse and disparate health impacts and environmental burdens affecting lower-income and minority communities. The bill also requires that California Governor Jerry Brown determine if and where fracking and other well stimulation may resume based on the study’s findings.

Colorado
trial in Broomfield that could determine the validity of the embattled Nov. 5 election has been rescheduled for Feb. 24. The trial, which was slated to start last Thursday, but was moved because of lawyers’ scheduling conflicts, aims to clear up the legitimacy of the election. The election has been mired in controversy since a five-year ban on fracking passed by just 20 votes. Plaintiffs in the election challenge case want Judge Chris Melonakis to declare that Question 300 — a five year ban on fracking — did not really pass because of numerous election flaws. Yet Broomfield, which wants the judge to declare that the election results are valid, said the razor-thin outcome was the result of a close election, not election flaws. In unofficial election night results, the anti-fracking measure was failing by 13 votes, but after outstanding ballots were counted a week later, it was approved by 17 votes. The measure, which was subject to a mandatory recount because the margin of victory was so slim, passed by 20 votes after the recount was complete. Plaintiffs in the case include pro-fracking group Broomfield Balanced Energy Coalition and Tom Cave, a member of pro-fracking group It’s Our Broomfield, Too. The trial likely will not clear up the question of whether Broomfield voters will have to go back to the polls for a new election, even though some voters’ groups have called for an election-do over.

After protests by environmental groups, BLM agreed to withdraw six oil and gas lease parcels in South Park from auction and committed to developing a master leasing plan that would guide where oil and gas may be developed in the area. The groups have argued that the South Park region slated for leasing is untouched wilderness area and that development would harm wildlife habitat pronghorn, mule deer, and elk. The region in question rests atop of the Niobrara Shale formation, which is rich in tight oil and gas. Master leasing plans typically take several years to develop, putting oil and gas leasing off the table for the near future.

At least three Colorado energy companies have already adopted environmental standards that state air quality commissioners are considering making mandatory. Anadarko Petroleum Corp., Encana Corp. and Noble Energy Inc. have removed storage tanks, which are a primary source of toxic fumes, from their facilities. The companies have also replaced automatic igniters with vents to burn off gas instead of releasing it into the air, and they’ve implemented “low-bleed” valves in the place of constantly hissing ones. The companies have said paying for the cleaner technologies is the right thing to do. Rules under consideration would require members of the state’s booming oil and gas industry to capture or control at least 95 percent of all emissions and would mandate leak inspection and abatement. Oil and gas industry officials have pushed back against the proposed rules, arguing for clarification and some changes. The head of the Colorado Petroleum Association has also said state officials don’t have the authority to regulate methane emissions. Colorado’s air quality standards in recent years have dipped below federal requirements, with ozone levels in excess of the 75 parts per billion requirement in at least 10 locations across the state, according to the Regional Air Quality Council. Industry pumps 350 tons a day of ozone-creating materials into the atmosphere, a level that could increase to as much as 500 tons by 2018, the council said. U.S. EPA is expected to lower the acceptable ozone level to 70 parts per billion or less next year.

Proponents of a statewide measure to give Colorado’s local governments control over hydraulic fracturing and other issues related to oil and gas development in their communities have submitted proposed ballot language to the Legislature. The proposed measure would write into the state Constitution language stating that “not withstanding any other provision of law, local governments in Colorado may place restrictions on the time, place or method of oil-and-gas development, including but not limited to the use of hydraulic fracturing, that are intended to protect their communities and citizens.” Traditionally in Colorado, state authorities regulate most aspects of oil and gas operations. The measure will need some 86,000 voter signatures by August in order to make the November ballot. The drive for the measure is spearheaded by Laura Fronckiewicz and Kelly Giddens, who campaigned for passage of local fracking restrictions in Broomfield and Fort Collins respectively. Backers are organized under the name Local Control Colorado.

Illinois
There was a heated meeting in Johnson County to discuss a ballot issue that would ban hydraulic fracturing. Voters will weigh in on that ballot referendum in March. Hydraulic fracturing has been the source of much debate in the community in recent months. The county commissioners announced a coalition opposing the ban on fracking. They say an outright ban is too radical and not in the state’s best interest. Some residents think the commissioners are overstepping. “I don’t think that a county commissioner has any right to form a coalition of any kind to affect a ballot initiative,” said concerned citizen Annette McMichael. “Johnson County can’t ban fracking because there’s state law in place,” explained Commissioner Ernie Henshaw. “Johnson County cannot ban fracking and when we ban fracking, we open ourselves to lawsuits not only from energy companies, but we also open ourselves to lawsuits from citizens.” Fracking opponents collected a thousand signatures to put the referendum on the ballot. The Johnson County fracking ban will be up for a vote in theMarch 18 election.

Kansas 
Gov. Sam Brownback (R) appointed a task force to study the possibility that oil and gas operations in Kansas to withdraw hard-to-reach deposits and to inject waste fluid into the ground were sparking minor earthquakes. The governor instructed the group to research the issue and develop a formal plan related to “induced seismicity” tied to human activity or the result of natural events. Modest tremors in Kansas, Oklahoma and Texas prompted questions about whether fracturing of rock layers around wells to release deposits or whether operation of deep, high-pressure injection wells for disposal of millions of gallons of waste from fracking may be a factor. “This is a matter of public safety,” Brownback said. “Recent seismic activity in south-central Kansas has raised concerns that fluid injection might be related.” The oil and gas industry in Kansas is a $4.3 billion business and employs more than 100,000 people. Ed Cross, president of the Kansas Independent Oil and Gas Association, said the task force would develop an appreciation for natural forces underground in Kansas that give rise to earthquakes. There is potential that injection wells might be a contributing factor in recent seismic activity in south-central Kansas, he said. The governor’s working group includes Rex Buchanan, interim director of the Kansas Geological Survey; Kim Christiansen, executive director of the Kansas Corporation Commission; and Mike Tate, chief of the water bureau at the Kansas Department of Health and Environment. The governor said the task force’s emphasis should be to consider public safety, environmental issues and the impact on industry development. They will assess Kansas’ seismic monitoring capabilities to determine if additional funding would be required to enhance monitoring systems. The group’s first meeting is scheduled forApril 16 at Wichita State University.

Massachusetts
Environment Massachusetts said it delivered letters signed by hundreds of health professionals in support of a proposed Massachusetts moratorium, as well a national effort to ban fracking. Activists say the practice can lead to pollution and damaged rural landscapes. A legislative committee approved in November a bill that would place a 10-year moratorium on fracking, which involves blasting chemical-laden water deep into the ground. The measure has yet to come up for a vote before the full Legislature.

Ohio
Ohio’s business community can look forward to increasing economic strength, U.S. Bank economist Jim Russell says, thanks to a manufacturing comeback and burgeoning shale energy development. While those industries will continue supporting a national recovery, Ohio in particular stands to gain, Russell said in keynoting the Ohio Bankers League’s annual economic summit. Russell, a regional investment director out of Cincinnati, says a national manufacturing rebirth is bringing jobs back from increasingly costly overseas operations. “It’s a multi-year or multi-decade renaissance,” Russell said. “We believe there are many companies looking to move back to the U.S.” Combined with Ohio’s nascent Utica shale play, that’s helping to overcome national debt and unemployment concerns, Russell told the crowd of nearly 300 bankers from around the state. Russell provided a forecast of regional, national and global economies. Ohio, he said, is well positioned to take advantage of broader economic trends.  Manufacturing makes up about 17 percent of the state’s GDP, for example, but less than 13 percent nationwide. “Ohio’s going to be an epicenter of something very good,” Russell said. Employment in that industry grew by 8.3 percent between 2010 and 2013, outdoing neighbors Indiana and Kentucky, as well as the national average of 3.8 percent.

Less than three years after signing legislation opening up Ohio state parks and forests to fracking, Gov. John Kasich now opposes horizontal drilling for oil and gas on public lands. “At this point, the governor doesn’t support fracking in state parks,” Kasich spokesman Rob Nichols told The Dispatch. “We reserve the right to revisit that, but it’s not what he wants to do right now, and that’s been his position for the past year and a half.” While Kasich hadn’t made his change of feelings public, he never appointed a five-member commission that would have leased park and forest mineral rights to the highest bidders. The state law Kasich signed in mid-2011 gave him until November 2011 to appoint the panel, which then had until June 2012 to come up with rules.

Pennsylvania
Pennsylvania’s governor is calling for a fraud investigation into Chesapeake Energy Corp., the state’s biggest natural gas driller. “I have grown increasingly concerned about the treatment of Pennsylvania leaseholders with respect to the deduction of post-production costs from their royalty statement,” Gov. Tom Corbett (R) said in a letter to a state politician with similar concerns, StateImpact Pennsylvania reports. Corbett has reached out to state Attorney General Kathleen Kane to investigate allegations that the company is ripping off landowners on natural gas royalty payments. Pennsylvania, whose Marcellus Shale play is one of the biggest dry natural gas producers in the country, requires oil and gas drillers to pay at least 12.5 percent in royalties to mineral rights owners. Companies are allowed to deduct some funds from the royalties for post-production costs such as processing and transporting the gas. But Corbett says Chesapeake skims more than is legal, and misreports gas production data, StateImpact reports.

State regulators report that Marcellus Shale natural gas production in Pennsylvania topped three trillion cubic feet in 2013. That’s more than double the previous year’s production, and the energy equivalent of over 500 million barrels of oil. The Department of Environmental Protection reported the production figures. The data is submitted by energy companies and sometimes contains errors, but the report of 3.1 trillion feet for total 2013 production is very close to independent estimates. The U.S. Department of Energy estimates that the Marcellus Shale now provides about 18 percent of the nation’s natural gas.

An effort to refill the Glade Run Lake is gathering steam. Butler County Commissioners have agreed to fund the project with $110,000, to be disbursed over two years, a commitment that helps the project financially and as a demonstration of community support. “This project is very valuable to the region. It’s a recreational spot that has been enjoyed by people from all over this county for a long time. We’re very much behind it,’’ said commissioners Chairman Bill McCarrier. Sigmund Pehel, president of the Glade Run Lake Conservancy, said his team is happy to have the support. “There are a lot of pieces in play right now and this is a key piece.” The money from the county commissioners, approved earlier this year, is from the dedicated proceeds of Marcellus Shale drilling. Known as a “legacy fund,” the money has to be used for environmental concerns.

new environmental impact study is needed before any more gas drilling takes place on state parks and forests, a Luzerne County senator said. The drilling proposal in Gov. Tom Corbett’s 2014-15 state budget represents a major shift in state environmental policy because it would bring deep Marcellus Shale drilling to state parks for the first time, said Sen. John Yudichak (D, District 14), ranking Democrat on the Senate Environmental Resources and Energy Committee. “I think a study should be done,” he said. The governor hopes to generate $75 million from lease payments to help balance the budget by allowing gas companies operating on parcels of privately owned land adjacent to or within a state forest or state park to drill underground to tap state-owned subsurface gas deposits.

KCF Technologies has received a $20,000 grant from the Ben Franklin Shale Gas Innovation & Commercialization Center (SGICC). This is the first grant awarded as part of the funding that SGICC received through Governor Corbett’s “JOBS1stPA” initiative, called “Discovered in PA ―Developed in PA.” This grant is focused on expanding shale gas-related innovations and technologies.

Williams Partners has announced that its Transco pipeline system received binding commitments from nine shippers for 100 per cent of the 1.7 million dekatherms of firm transportation capacity under its proposed Atlantic Sunrise expansion project. The project includes 15-year shipper commitments from producers, local distribution companies and power generators. The project represents vital energy infrastructure that would connect surging, new supplies of natural gas in the Marcellus producing region in northeastern Pennsylvania with growing demand centers along the Atlantic Seaboard.

Texas
A newly formed group of residents seeking a ban on hydraulic fracturing will begin collecting signatures this week on a petition to force a ballot initiative in Denton. If they are successful, Denton could become the first Texas city with a ban on fracking and the first city in the nation to ban fracking after permits have already been granted, according to the Denton Drilling Awareness Group. The group, which was expected to announce the drive last week, plans to formally launch the petition drive in downtown Denton. Once they start, they will have 180 days to gather the 571 signatures needed to put the measure before the City Council. Once the signatures are verified, the council can either approve the proposed ordinance or call an election to let voters decide. The group has been working on the project for some time, according to Denton resident Cathy McMullen, a member of Denton DAG. After energy companies returned in the past year to reinvigorate some of the city’s 270 old gas wells with hydraulic fracturing — pressure-pumping a chemical and water solution to release gas and oil from shale and other tight rock — several groups of residents became convinced that the city’s new ordinance was a failure, she said. The City Council adopted new rules in early 2013 that established a 1,200-foot setback between well sites and a number of places where people gather, including homes, parks, churches and schools. The council also included an exception, however, to allow developers to build homes up to 250 feet from an existing well. The city faced opposition from energy companies, however, who claimed their vested rights in the property and prior permits meant the city’s new rules didn’t apply to their old wells. The city sued EagleRidge Energy in late 2013 but dropped the suit soon after a Denton judge refused to grant the city a temporary restraining order. The city recently extended a “standstill agreement” while it continues to negotiate with the company.

A new investigative report from InsideClimate News, the Center for Public Integrity and The Weather Channel that concludes Texas regulators turned a blind eye to pollutionfrom fracking has given fresh ammunition to foes of the oil and gas technology, but industry supporters and state regulators say the charges distort the facts. Energy-in-Depth has tried to refute a number of claims included in the report.

HBW Resources Contact Information

If you have any general questions, please contact us anytime. Previous versions of the HBW Hydraulic Fracturing Report and other reports can be viewed on the Intelligence Tab on the HBW Resources website at: https://hbwresources.com/intelligence/.  Hope you all have a great day.

Thanks,

Michael Zehr
HBW Resources
1666 K Street, NW, Suite 500
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Direct: 202-429-6081
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E-mail: mzehr@hbwresources.com