California has recently issued proposed regulations that will significantly impact oil and gas extraction in the State. Oil and gas producers that use well stimulation techniques, including hydraulic fracturing (HF), should be aware of these extremely important developments and determine how the proposed regulations will affect their operations. The California Department of Conservation will accept public comments on the proposed regulations until January 15, 2014, and affected parties should consider submitting comments to the agency.
The Proposed Regulations
On November 15, 2013, the Department of Conservation issued its highly anticipated proposed regulations for HF, commonly known as "fracking." The proposed regulations would enhance existing rules and implement the requirements of SB 4, which was passed by the California Legislature and signed by Governor Jerry Brown in September. Although the focus of attention has been on HF, the proposed regulations apply more generally to the use of well stimulation in oil and gas production throughout the State.
In developing these proposed regulations, the Department of Conservation aimed to strike a balance between industry needs, environmental conservation, and protection of neighboring communities. In accordance with SB 4, the proposed regulations require that anyone proposing to use well stimulation, including HF, must obtain a permit from the Division of Oil, Gas & Geothermal Resources (DOGGR). A permit application must include detailed information about the fluids to be used, a groundwater monitoring plan, and a water management plan. Neighboring property owners and tenants must be given 30-days notice prior to treatment, and independent baseline and follow-up water well testing must be provided upon request at the operator’s expense.
The proposed regulations also require the following:
- evaluation of the well and casing prior to a well stimulation treatment;
- a permit application that includes the identification and location of the well, the time period during which the well stimulation treatment is planned to occur, the identity and concentration of the chemical constituents of the fluids that the operator plans to use, modeling of the well stimulation treatment, results of the modeling, identification of plugged and abandoned wells and geologic faults within the area, and an estimate of treatment-generated waste materials;
- a groundwater monitoring plan meeting the criteria of the applicable regional water quality control board;
- pressure testing of the well prior to the stimulation treatment;
- monitoring during and after the stimulation treatment to detect well breaches;
- disclosure of the identity and disposition of well stimulation fluids, including HF fluids, within 60 days on the fracfocus.org website and eventually on DOGGR’s website; and
- a post-well stimulation treatment report describing the results of the stimulation treatment, the pressures encountered during the treatment, whether the operations differed from the design, and whether there were any seismic events in the area.
The proposed regulations also clarify that well stimulation fluids are subject to the reporting, response, and clean-up requirements of current State laws administered by DOGGR pertaining to oil field development. Concentrated well stimulation fluid stored on-site prior to mixing, mixed well stimulation fluids, and produced fluids, including the well stimulation fluid flowback, will all be subject to those requirements. Further, in the event of a chemical release or spill, operators will be required to self-report to DOGGR the activities leading up to the release, the types and volumes of chemicals released, the cause of the release, actions taken to mitigate the release, and steps taken to prevent future releases by the operator.
One of the several concerns voiced by industry in developing these proposed regulations involve loss of trade secrets and confidential business information regarding the composition of the fluids used in the well stimulation process. Second, disclosure of chemical names without understanding exposures and exposure pathways could result in increased but unsupported toxic tort claims from alleged exposure to HF chemicals in groundwater and soil vapor. DOGGR has attempted to address these concerns by requiring operators to disclose the chemical constituents of treatment fluids used, but not the concentrations. In other words, operators must disclose the ingredients but not the recipe, which will maintain its status as a trade secret, with some limited exceptions.
Next Steps in the Rulemaking Process
The proposed regulations are intended to go into effect on January 1, 2015. The Department’s public notice begins the formal rulemaking process and the 60-day public comment period required by law. The Department also will have emergency regulations in place by January 1, 2014.
Opportunities for Public Comment
DOGGR will hold five public meetings to discuss the proposed regulations, at which the agency will take public comments. The public meeting schedule is as follows:
- Sacramento – January 6
- Long Beach – January 6
- Bakersfield – January 8
- Salinas – January 8
- Santa Maria – January 13
DOGGR will also accept written public comments by mail and email.
How Reed Smith Can Help
Reed Smith’s transnational Energy & Natural Resources team has decades of collective experience advising clients in complying with regulations relevant to well stimulation, including HF. Our substantial experience working with oil and gas developers across the country, including in the Barnett and Marcellus Shale formations, provides insight into how California’s proposed regulations will affect their operations. Consequently, our team of expert attorneys can provide top-quality advice on submitting comments on these regulations and complying with the regulations that are ultimately adopted as final.
More information about the proposed regulations is available on DOGGR’s website.
The text of the proposed regulations is also available on DOGGR’s website.
Client Alert 2013-309