Fracking Insider - Key Insights Into Federal Policy and Regulatory Developments

With stunning alacrity, the United States Supreme Court issued its opinion [PDF] today in Sackett v. EPA (roughly two months since oral argument), resolutely and unanimously striking down EPA’s position that the Clean Water Act (CWA) does not provide pre-enforcement judicial review of compliance orders. This blog has covered the Sackett case and explored the potential ramifications for EPA’s pursuit of regulatory authority over hydraulic fracturing. In this respect, the opinion is surprisingly broad and is not grounded in distinctions between a non-emergency administrative order (like the CWA order at issue in Sackett) and an emergency-type administrative order under other statutes (e.g., the Safe Drinking Water Act (SDWA) or CERCLA). Accordingly, following Sackett, EPA’s ability to regulate hydraulic fracturing under the guise of emergency SDWA authority appears less clear.

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When one thinks of a Superfund site, the image is of a large landfill, a former mining pit, or an industrial site like Love Canal; places where massive contamination has released into the air, ground, or water over many, many years and where it is not safe to live, animals and benthic organisms may not even exist, and where the full power of the federal government is often needed simply to restore environmental and public health to minimal levels. A private water well containing somewhat elevated levels of several naturally occurring substances (like manganese, arsenic, or sodium) is not typically among these images.

Yet, in both Dimock, Pennsylvania and Pavillion, Wyoming, EPA has used its authority under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) to investigate claims of drinking and ground water contamination. While EPA has broad authority under CERCLA to investigate all types of potentially contaminated sites, the Agency’s use of CERCLA at these two sites raises serious policy and legal questions.

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Bubbling up through the state courts in Pennsylvania is a legal dispute with huge implications for the ongoing natural gas boom in that state. Hanging in the balance is the validity of hundreds (if not thousands) of leases entered into by gas companies under the assumption that included in the lease rights is the ability to extract Marcellus shale gas.

Almost 130 years ago the Pennsylvania Supreme Court created what has become a rebuttable presumption that the right to extract “minerals” under a typical lease between private parties does not include the right to extract “oil” or “natural gas” absent specific contrary intent. This has been coined the “Dunham Rule,” after the 1882 case Dunham v. Kirkpatrick, 101 Pa. 36 (1882), and since 1960 has been an established rule of state property law. The controversy created by the instant case, Butler v. Charles Powers Estate, surrounds whether the term “minerals and Petroleum Oils” conveys an interest in unconventional Marcellus shale gas.

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A West Virginia state judge ruled Friday that Morgantown’s municipal ban on fracking violates state law [PDF].  Morgantown, in enacting the ban, had argued that its home rule authority granted it the ability to stop drilling within its jurisdiction. In granting summary judgment to Northeast Energy, the court held that the comprehensive legislative and regulatory scheme promulgated by the state fully and exclusively occupies the field of oil and gas regulation and that the ban was essentially an ultra vires act by the municipality. The court noted that while it was mindful of environmental issues related to drilling, it was confident these were being comprehensively addressed by the state. The ruling is important not only for Northeast’s ability to drill under its permits, but for other drilling companies (both in West Virginia and other states) facing similar bans (and legal arguments [PDF]). It also reinforces the central, comprehensive role states have long played in regulating the oil and gas industry.

The United States Supreme Court has accepted certiorari (cert) in a case that may have ramifications for the Agency’s ongoing initiative to use the Safe Drinking Water Act’s (SDWA) emergency authority to regulate fracking. The issue in Sackett v. EPA, which the Court agreed last week to hear next term, centers on whether the Sacketts—who filled in a half acre of their property near Priest Lake, Idaho with dirt and rock—have a due process right to pre-enforcement review of an EPA-compliance order under Section 404 of the Clean Water Act (dredge and fill permit requirement). The compliance order prevented further construction and required the Sacketts to restore the wetland.

The case comes to the court with several layers of notable context over and above any implications for fracking. First, the Court recently declined to address a similar issue—due process rights to pre-enforcement review of an EPA CERCLA § 106 order—when it denied cert in the closely watched General Electric v. Jackson case. If the Court really wanted to decide the due process issue, it could have accepted cert in the GE case (although EPA’s emergency CERCLA authority is arguably different from a compliance order under the CWA).  This has prompted speculation that the Court has an ulterior motive.  And that is the Court’s ongoing vexation with EPA’s jurisdiction over wetlands. The 2006 decision in Rapanos v. U.S., saw the conservative wing of the Court, led by Justice Scalia, adopt a very narrow view of EPA’s jurisdiction over wetlands. EPA has since grappled with how to regulate wetlands. Accepting Sackett may have as much to do with the Court’s concern with this issue, as anything else—particularly because EPA's alleged expansive definition of wetlands in Sackett has arguably led to property right infringement.

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Andrew Revkin, of the New York Times, has written a short, but very reasonable and worthwhile piece on the ongoing public debate/controversy/vitriol/rhetoric surrounding the shale-gas boom, and the use of hydraulic fracturing (fracking) (which as many do, and should, point out, is a process used to drill for natural gas and oil in certain geologic formations, is not new, and does not, without more [e.g., a spill, broken well casing etc.], cause environmental or public health harms). Revkin argues that inherent human predispositions toward certain outcomes make objective and calm scientific debate difficult, citing global warming as exhibit A. His thesis and plea for reason should be welcomed in the ongoing and nascent fracking debate—which has already seen its share of outlandish claims from all sides. Perhaps Revkin sums up best how to achieve a rational debate in the following statement -

In the absence of data comes spin and overstatement - and a reliance on advocates of one stripe or another, including scientists staking advocacy positions. None of this is a good thing.

The ball is in the industry’s court to acknowledge that there are bad actors and to move toward far deeper transparency and accountability on methods, or it will justifiably lose public faith and the prospect of stronger regulation. The shale gas rush (and a similar oil rush under way in other regions) is clearly in it[s] frontier days.

Hydraulic fracturing (fracking) during natural gas extraction typically takes place thousands of feet below the subsurface. If a nearby residential well or drinking water supply is found to be contaminated, is that automatically due to the fracking activities? Alternatively, might it be due to other naturally occurring influences, such as the natural presence of methane in shallower rock formations?

In what may be a precursor of many lawsuits to come, that question is at issue in a new lawsuit brought in Upstate New York (PDF) on behalf of nine families in Horseheads, New York near Elmira. The lawsuit was brought by Napoli Bern Ripka & Associates, LLP of New York City, which made a name for itself filing claims in the MTBE and World Trade Center litigations. The lawsuit is captioned Baker, et al. v. Anschutz Exploration Corporation, et al. The lawsuit was originally brought in Chemung County State Supreme Court, Index No. 2011-1168, but has now been removed to federal court in Rochester, Index No. 6:11-CV-061190-CJS. The plaintiffs allege that their residential drinking water wells have become contaminated as a result of drilling activities by defendant Anschutz and its drilling subcontractors and that their properties and families have become exposed to combustible gases, toxic sediments, and hazardous chemicals. They seek $150 million in compensatory damages, punitive damages, and future medical monitoring due to fear of contracting cancer.

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If there were any questions about the national importance of the Range case, which this blog has covered since December 2010, the questions have been answered. On February 14, 2011, Senator Inhofe, Ranking Member of the Senate Committee on Environment and Public Works (EPW) sent a letter to EPA’s Inspector General, requesting that he “obtain and secure, as soon as possible, all documents and records throughout the Agency related to the communications between EPA Region 6 and US EPA headquarters, both intra-Agency and with outside entities, in connection with activities” relating to the December 7 Emergency Order against Range. Senator Inhofe’s request comes in the middle of a heated fight between Range and EPA over both the basis for EPA’s decision to issue the Order and Range’s requests to depose certain EPA employees and obtain certain documents.

Senator Inhofe has been a vocal proponent of the oil and natural gas industry, telling Administrator Jackson earlier this year during EPW’s first committee hearing that he expects to be intimately involved in EPA’s ongoing fracking study and future Agency actions. It looks like the Senator is getting involved much sooner then he had anticipated. Expect similar Congressional pressure to continue as EPA grapples with this controversial issue.

Over the past few months, as the debate over hydraulic fracturing has intensified—the issue having even garnered an oscar nomination—drilling companies are increasingly finding themselves the targets of private litigation.  In the past several weeks, a Dallas plaintiffs’ attorney has filed three lawsuits against energy companies in Texas federal court, claiming that fracking wells owned and operated by the companies are responsible for drinking water contamination and other damages.  The lawsuits, which make claims of nuisance, trespass, negligence, fraudulent concealment, strict liability for ultra-hazardous or abnormally dangerous activities, seek damages for, among other things, the loss of use of drinking water, decrease in property value, emotional harm, medical monitoring, and exemplary damages.  Similar lawsuits have been filed in New York and Pennsylvania—which both sit atop the prolific Marcellus shale. A recent plaintiff’s litigation conference titled“Unconventional Gas Drilling & Fracking: Technology, Law & Regulation – The Ins and Outs of This Emerging Environmental Controversey leaves no doubt the issue has hit the national plaintiffs’ bar agenda.

Not all of the lawsuits, however, are related to drinking water contamination.  In Texas and Michigan, Chesapeake Energy has been sued by landowners claiming that the company breached lease agreements in deciding not to further develop wells. Chesapeake maintains that it reserves its rights to cancel the leases if title problems are discovered, including if it becomes known that the title is not marketable.

In a case that has quickly become heated and garnered national attention, a natural gas operator in Texas is claiming EPA has violated its rights. Range Production Company (a subsidiary of Range Resources Corporation) filed a complaint in Texas Federal Court (PDF) on January 5th, calling on EPA to substantiate the claims the Agency made in a December 7, 2010 emergency order accusing the company’s fracking operations of contaminating a nearby drinking water well.  The complaint accuses EPA of unlawfully refusing to allow employees to appear for depositions and withholding documents in response to subpoena’s issued by the Texas Railroad Commission. At bottom, Range wants to see and examine EPA’s proof that the fracking operations (and not other nearby sources) have caused the contamination, so that it may fully rebut EPA’s assertions before the Railroad Commission.

Range, in an expert report (PDF), notes that like all wells in the Barnett shale, the wells at issue were drilled using hydraulic fracturing, but that its own investigation “reveals no link between the drilling or operation of the wells and the alleged . . . contamination.”  Range claims that EPA issued its emergency order unilaterally, without first offering the company an opportunity to be heard, without disclosing the purported evidence upon which the order is based, and now has refused to comply with Range’s discovery requests. Range faces up to $16,500/day for violating the EPA order.

EPA’s refusal to turn over its evidence is potentially concerning in light of the emergency order, which places significant compliance burdens on Range. The Agency has called Range Resources out in a very public manner while asserting a variety of legal arguments to avoid making its own public case. As the shale gas boom continues both in Texas and in shale plays across the country, companies that are drilling near drinking water sources would be well served to pay close attention to this case as it develops.