Hydraulic Fracturing: State Regulatory Roundup Vol. 9
Fracking Insider Readers: We are pleased to bring you Volume 9 of our State Regulatory Roundup, including updates on Colorado, West Virginia and New Jersey. As we explained in earlier volumes, we designed the Roundup to provide quick overviews on state regulatory activity. If you have any questions on any of these summaries, please do not hesitate to ask.
Colorado – The Colorado Oil and Gas Conservation Commission has had a number of issues with municipalities over local ordinances that improperly constrain, or even ban, oil and gas operations. One town, however, may have figured out a way of going beyond statewide standards without risking preemption.
Leveraging its required “local” approval of permits for oil and gas development operations within the municipality, Erie, Colorado was able negotiate with Anadarko and Encana to include additional conditions in local permits. The energy companies were pleased to strike the agreement because it allowed them to provide the local community a greater level of comfort without subjecting the companies to cumbersome permit-by-permit negotiations. The more robust requirements included increased setbacks from occupied buildings; increased notifications to all landowners within a half mile; integrity standards for sand and soil berms, and increased use of vapor, dust, light, and traffic mitigation technologies/techniques.
Colorado(2) - U.S. District Judge Richard Matsch of the United States District Court for the District of Colorado rejected an agreement between Gunnison Energy Corporation and the U.S. Department of Justice to settle antitrust allegations from 2005. The action stems from alleged collusion between Gunnison and SGI Interests, wherein the companies allegedly coordinated their lease bids on federal mineral rights lease sales to avoid competing and bidding up prices. DOJ sued the companies and, in February 2012, reached an agreement wherein the companies would pay $275,000 in penalties, would not need to admit liability, and could retain their leases. That agreement was opposed by environmental groups and never approved. In December 2012, DOJ and Gunnison presented a new agreement to the court wherein the company would be forced to pay a penalty of $550,000. This settlement proposal was again rejected by Judge Matsch as being insufficient to serve as a deterrent to future collusion.
West Virginia – On October 25th, the United States District Court for the Northern District of West Virginia denied landowners trespass claims against a subsurface mineral rights owner’s use of waste pits and storage of drill cuttings. Teel v. Chesapeake Appalachia LLC, (N.D. W. Va., No 5:11-cv-5, Oct 25, 2012). The action was brought by landowners (the Teels) who had sold their subsurface mineral rights, that were ultimately purchased by Chesapeake, which conducted drilling operations on the 100-acre parcel. In doing so, Chesapeake created waste pits of drill cutting, muds, and other materials. The Teels sued for trespass (among other claims) arguing that pits were not reasonably necessary for the extraction of the mineral – here, natural gas. The court disagreed and found that the use of waste pits was “fairly necessary to the extraction of natural resources under the circumstances.” Because they were “fairly necessary,” they were contemplated under the conveyance of subsurface mineral rights.
New Jersey – The Federal Energy Regulatory Commission (FERC) approved the construction of the Transco’s $341 million Northeast Supply Link pipeline to bring Marcellus shale gas from Pennsylvania Gas fields to New York markets. The pipeline has been opposed by environmental groups because it would span bog turtle habitat and the Raritan River watershed. In reality, as we have reported here before, environmental groups routinely oppose projects such as natural gas pipelines and LNG facilities, not because of habitat or watershed concerns, but because they are fundamentally opposed to hydraulic fracturing. They believe that the only way to stop hydraulic fracturing is to sever its products from markets and to make it unprofitable.