Fracturing becoming a common municipal ballot item

Feb. 10, 2015
Various municipalities, including Denton, Tex., have banned or sought to ban hydraulic fracturing through ballot issues while some states such as New York have imposed moratoriums, citing environmental issues or health concerns.

Various municipalities, including Denton, Tex., have banned or sought to ban hydraulic fracturing through ballot issues while some states such as New York have imposed moratoriums, citing environmental issues or health concerns (see story this issue, p. 24) .

The bans and moratoriums frequently prompt legal battles. At least two lawsuits were filed within days of the November 2014 election in which Denton residents voted 59% in favor of a ban on fracturing within city limits, marking the first fracturing restriction in Texas.

Denton sits above the Barnett shale in North Texas and has about 280 gas wells within city limits. The Texas Oil & Gas Association (TXOGA) and the Texas Land Office each separately filed a lawsuit against the city of Denton. Denton Mayor Chris Watts has vowed to defend the ban.

"This phenomenon is not unique to Denton," Amy Myers Jaffe, executive director of energy and sustainability at the University of California, Davis, told UOGR in an email in late December.

In Susquehanna County, Pa., a fleet of bifuel, hydraulic fracturing pump units powered by a combination of diesel and line gas completed more than 170 fracture stimulation stages on this 10-well pad. Photo by Cabot and Croxen Design. UOGR archives.

She believes that the merits of allowing fracturing will prove to be very case-specific "based on best practices or bad practices" both by community and by company.

"In communities where the industry is not sensitive to environmental and social factors (water safety, noise, traffic, air quality, tremors) the companies will find themselves dealing with increased community activism and eventually increased local bans or regulations," Jaffe said.

"We have seen similar actions in localities in Pennsylvania and Colorado. In the latter case, problems in Colorado communities almost ended in a statewide ban as stakeholders pressed for change. The jury is still out how the Colorado issues will be resolved," she said.

As increased drilling takes place in Ohio and elsewhere, industry's performance will determine how contagious the idea of local bans or restrictions will become, said Jaffe, a member of a steering committee reviewing well completion techniques, including fracturing, in California.

Litigation over Denton ban

The TXOGA filed its lawsuit in Denton County state district court asking for an expedited schedule to keep the ordinance from taking effect, claiming the Denton ordinance is unconstitutional because a city cannot write ordinances that go against the Texas Constitution.

Tom Phillips, attorney with Baker Botts in Houston and a former chief justice of the Texas Supreme Court, represents TXOGA's request to have the ordinance declared invalid and unenforceable.

He said that the ordinance exceeds the authority of cities and is "an impermissible intrusion" on the powers that the Texas Legislature granted the Texas Railroad Commission and the Texas Commission on Environmental Quality.

The lawsuit maintains the state of Texas has sufficiently regulated fracturing, meaning that no municipality within the state has the legal authority to ban fracturing.

"The ordinance's complete ban second guesses and impedes this state regulatory framework," the lawsuit said. "The ban will result in the total inability to develop hydrocarbon interests within the city because wells in Denton produce gas from the Barnett shale, and the only way to produce such gas in commercial quantities is through the use of hydraulic fracture stimulation of this dense shale formation that would not otherwise economically produce."

The Supreme Court of Texas already recognized fracturing is essential in the play, the lawsuit said, citing a 2008 case involving Coastal Oil & Gas Corp. vs. Garza Energy Trust.

Separately, Texas Land Commissioner Jerry Patterson filed a lawsuit in Travis County, Tex. The land office maintains the Denton ordinance does not differentiate between privately owned and state-owned minerals. The land office oversees state-owned land.

Patterson asked for a permanent injunction against what he called an "arbitrary, capricious, and unreasonable" prohibition.

"This ban on hydraulic fracturing is not constitutional, and it won't stand," Patterson said. "If it were allowed to be enforced, it would hurt the school children of Texas." A share of oil and gas revenues from state-owned lands go into the state's Permanent School Fund although the amount coming from Denton was not immediately available.

Patterson said the Denton prohibition is pre-empted by state law, and that he filed the lawsuit in defense of the state's mineral interests.

"The law is clear, the Railroad Commission regulates oil and gas in Texas, not local municipalities," Patterson said.

Texas Railroad Commission Chairwoman Christi Craddick has said TRC will keep issuing drilling permits in Denton.

TRC Commissioner David Porter issued a statement saying he was disappointed "that Denton voters fell prey to scare tactics and mischaracterizations of the truth in passing the hydraulic fracturing ban." He said bans are based on misinformation rather than science and fact.

Elsewhere across the nation, residents of Athens, Ohio, approved a fracturing ban but three other Ohio communities defeated such a ban. The communities that defeated the ban were Gates Mills, Kent, and Youngstown. It was the fourth time in 2 years that Youngstown voters have soundly rejected a move to ban fracturing in its share of the Utica shale formation.

Voters in three California counties considered broader measures to ban fracturing, horizontal drilling, and other methods of well stimulation. A ballot issue in Santa Barbara County failed while measures passed in San Benito and Mendocino counties.

San Benito and Mendocino counties lie on the Monterey shale, a formation estimated to contain more than 10 billion bbl.

Earlier in 2014, the California Senate narrowly voted against a statewide fracturing moratorium.

Opposition mounts in Canada

New Brunswick Premier Brian Gallant and Energy Minister Donald Arseneault in December announced plans to introduce a bill that would impose a moratorium on hydraulic fracturing in New Brunswick.

Separately, an environmental review board in Quebec concluded the potential negative consequences outweigh economic benefits of fracturing. Quebec's government was expected to use the report in its deliberations on whether to extend a 2011 moratorium on shale exploration.

In New Brunswick, Gallant told reporters at a news conference that "We have been clear from day one that we will impose a moratorium until risks to the environment, health, and water are understood."

He said the moratorium will apply to all types of fracturing, regardless of whether the process uses water, propane, or another substance.

Galant said the moratorium will not be lifted until five conditions are met:

• The establishment of a social license to lift the moratorium following consultations.

• The availability of credible information regarding the consequences on air, health, and water so a regulatory regime can be developed.

• A plan to mitigate impacts on public infrastructure and address issues such as waste water disposal.

• Implementation of a process to fulfill the province's obligation to consult with First Nations.

• Establishment of a royalty structure to ensure maximum benefits for New Brunswick residents.

Gallant said there will be no grandfather clause provided for projects already under way. Gas companies will be permitted to continue with seismic testing or drilling wells, but they will not be permitted to fracture any wells while the moratorium is in place.

Jean-Guy Leclair, general manager of PotashCorp New Brunswick said his company would consider its options, and he noted in December that it was premature to discuss those options.

"What PotashCorp needs is access to a secure, stable supply of natural gas, regardless of the source," Leclair said in a news release. "If this moratorium removes a source of supply, we will have to review what it means for our operations. It could have a serious impact on our costs."

Separately, Quebec's environmental officials released a report in December 2014 saying fracturing presents potential risks to air and water quality as well as noise and light pollution. It said the environmental risks outweighed the financial benefits.

Previously, the Quebec government imposed a partial drilling moratorium pending completion of an environmental study to evaluate hydraulic fracturing (OGJ Online, Oct. 11, 2010).

A review board concluded exploration and production of shale gas in the St. Lawrence Lowlands "would not be advantageous...because of the magnitude of the potential costs and externalities compared to royalties."

The report also cited other concerns "including plans of social acceptability, legislation, and a lack of knowledge, particularly with respect to water resources."

Quebec has no substantial commercial oil or gas production although companies are interested in developing an emerging play for gas in Ordovician Utica shale in the St. Lawrence Lowlands roughly between Montreal and Quebec City. Several million acres of land licenses are in force in the province.

An aide to Quebec Environment minister David Hurtle said the report raises "many serious questions" as the government develops its strategic environmental assessment on hydrocarbons.

Stephane Forget, vice-president of Quebec's Federation of Chambers of Commerce, said the report was "not very positive for the development of [shale gas] in Quebec."

Moody's: Federal frac regs unlikely in 2015-16

The results of the midterm elections make federal regulation of hydraulic fracturing highly unlikely in the next 2 years, said Moody's Investors Service, adding that maintaining the regulatory status quo is credit positive for exploration and production companies working in unconventional plays.

But in the absence of federal regulation, state and local governments are likely to enact their own rules and legislation in response to environmental concerns, Moody's analyst Zev Halstuch wrote in a report issued shortly after New York state announced plans to formally ban high-volume fracturing.

Legislation has been proposed in Congress, most recently in June 2013, to define fracturing as a federally regulated activity under the US Safe Drinking Water Act.

But Halstuch believes the current possibility of passing such legislation is remote because Republicans, who have generally taken the position that state regulation of fracturing is sufficient, have a decisive majority in both the House and the Senate.

"That said, federal regulation is not the only regulatory challenge E&P companies will face," Halstruch said. Fracturing has raised questions about ground-water safety, air quality, and whether it triggers seismic activity.

"In the last few years, several hundred local governments have passed rules restricting or banning fracturing within their borders," Halstuch said. "Courts in Pennsylvania and New York have ruled that municipalities can curtail fracturing, even if it is permitted by the state. Courts in Colorado and Texas are examining the same issue."