United States: California's New Hydraulic Fracturing Regulations: Implications And Next Steps

Elizabeth Lake is a Partner in the San Francisco office

California's Senate Bill 4 (SB 4) is one of the first laws in the United States to regulate hydraulic fracturing (or "fracking"). On November 15, 2013, the state's Division of Oil, Gas, and Geothermal Resources (DOGGR) issued its first set of draft regulations implementing the controversial new law, in accordance with SB 4's statutory requirements. DOGGR also issued a notice of preparation of an Environmental Impact Report (EIR), kicking off a year-long process intended to result in final regulations by January 1, 2015. The draft regulations are available here.

Comments on the currently proposed draft regulations must be submitted by January 14, 2014. Comments on the scope of the EIR must be submitted by January 16, 2014.

Interim Regulations Forthcoming

DOGGR has indicated that draft emergency interim regulations will be issued on December 13, 2013. They will be in place by January 1, 2014, and will govern hydraulic fracturing during the coming year. To that end, on November 20, 2013, DOGGR sent out a Notice to Operators to alert them to the pending emergency regulations and to clarify that if operators want to use well stimulation treatments in January 2014, they must notify neighbors by December 2, 2013. The interim well stimulation treatment notice form is available here.

DOGGR has also announced that in January 2014, it will convene a working group to help develop draft regulations addressing group permit procedures. Those draft regulations will be issued in March 2014.

Finally, DOGGR is working on formal agreements with other resource agencies, such as the Department of Toxic Substances Control, the California Air Resources Board and the State Water Resources Control Board, to develop formal agreements (due on January 1, 2015) regarding the agencies' respective authority, responsibilities and other matters regarding the implementation of SB 4.

Looking Ahead to 2014

It will be a busy year, and not just for DOGGR. Other agencies are also undertaking independent actions related to hydraulic fracturing and SB 4 implementation. Specifically, as required by SB 4, the State Water Board is developing groundwater monitoring criteria associated with the new regulations, and must develop by July 1, 2015 the model criteria that address, among other things, sampling scales and sampling methods.

The California Air Resources Board needs to address the SB 4 notification and reporting requirements associated with air quality. (In October 2013, its staff proposed some modifications to the regulation for mandatory reporting of greenhouse gases associated with hydraulic fracturing.) In addition, the Natural Resource Agency is conducting its SB 4-required study of well stimulation treatments and in December 2013 will begin its analysis to meet the statutory report deadline of January 2015.

There will be lots of regulatory activity to track, and it will be important for interested parties to stay involved. As a first step, understanding the scope and implications of the first set of DOGGR draft regulations is critical. This process will be informative to other states thinking of developing their own laws and regulations.

This alert provides a quick primer on hydraulic fracturing, a summary of California's regulations and a discussion of next steps.

Hydraulic Fracturing 101

Hydraulic fracturing and other well stimulation treatments break down (fracture) dense rock that has natural gas (or oil) bound tightly in the interstitial pores and allows the gas to be extracted. The basic process involves drilling a well deep down to the targeted layer, typically 2,000 to 10,000 feet below the earth's surface. Once the rock layer with natural gas (called the hydrocarbon zone) is reached, the drill moves horizontally through that layer. At this time, a mixture of water, sand and chemicals is injected at high pressure. The high-pressure fluid cracks or fractures the rock; the sand particles or other proppants hold the cracks open, allowing the oil or gas to flow more freely to the well.

The same well that is drilled to inject the well stimulation fluid is then used to extract the natural gas. This well passes through other layers of soil and rock and in some places will pass through drinking water aquifers — layers beneath the earth in which all the interstitial pore space is filled with water. Critics are concerned that chemicals from well stimulation fluids can leach into groundwater and pollute drinking water sources, and some are also concerned that the injection of high-pressure fluids can cause earthquakes. Due to the depth of hydraulic fracturing versus the depth of groundwater aquifers, the most likely way for groundwater contamination to happen is through a breach in the well itself, rather than upward migration of well stimulation fluid from the hydrocarbon zone. The extent and magnitude of earthquake impacts, if any, are not well understood. Therefore, California's draft permitting regulations provide one piece of the regulatory puzzle and will be further informed by the various concurrent processes, including the EIR and other agency actions.

Key Provisions of the Draft Regulations

DOGGR's draft regulations establish a permitting process for well stimulation drilling operations. The newly proposed permitting process applies only to well stimulation activities (hydraulic fracturing, acid fracturing and acid matrix stimulation) not to subsurface injection or disposal projects, which remain subject to existing regulations. The draft hydraulic fracturing regulations focus on disclosure, well integrity testing and impact modeling, well stimulation fluid handling, and monitoring and reporting, as discussed below. The anticipated costs of these regulations are provided in DOGGR's Economic Impact Analysis, available here.

Disclosure

Operators must submit a permit application with a long list of informational items (26 total), including, among other things, the anticipated volume of well stimulation fluid to be injected, the identity and concentration of chemicals used in the well stimulation fluid, water management and disposal plans, and certification from the Regional Board that the well is covered by a groundwater monitoring plan. The draft regulations preserve the trade secret exception provided in SB4 if the claim is substantiated and asserted in the application. However, the trade secret might not be protected if there is a breach under Section 1785(d) of the draft regulations.

In addition, operators must provide public notification at least 30 days before commencing well stimulation treatments. This notice must be provided by an independent third party to surface property owners and tenants within a 1,500-foot radius of any wellhead that will be used for well stimulation treatments, or within 500 feet of the surface projection of where the any horizontal parts of the wellbore is located, if greater than 1,500 feet from the wellhead. The notice must include a copy of the well stimulation permit and notice of the availability for surface water and groundwater sampling.

Well Integrity Testing and Impact Modeling

California's existing well construction standards are designed to ensure zonal isolation, meaning that oil, gas or any well stimulation fluids will stay in the well. This is done by placing a cement barrier between the well and the surrounding soil or rock. SB 4 and the associated DOGGR draft regulations do not require new well construction techniques. Instead, SB 4 and the draft DOGGR regulations build on these standards.

  • Operators must perform an evaluation to ensure that there are no voids or cracks in the cement before performing a well stimulation treatment. DOGGR estimates that at least 95 percent of well stimulation treatments already involve some sort of cement evaluation. Costs for a radial cement evaluation log can be $3,000 for a shallow well and up to $10,000 for a deep well.
  • Operators must perform a three-dimensional modeling analysis to demonstrate that there is no potential for well stimulation fluids to migrate out of the hydrocarbon zone that they were injected into. This analysis must include all wells and faults within a radius of twice the anticipated well stimulation treatment length. If the productive hydrocarbon zone extends more than five times the anticipated well stimulation treatment length, the model must include the geologic formations adjacent to the hydrocarbon zone to ensure geologic and hydrologic isolation during and following well stimulation. DOGGR assumes that operators have a good understanding of the geology near and around the wells subject to well stimulation treatments based on modeling such that the proposed regulations simply make a standard practice a requirement. DOGGR estimates that the modeling software can cost between $37,000 and $100,000, and that additional costs will be incurred through professional time required to perform the analysis.
  • Operators must pressure test the well and associated equipment prior to starting any hydraulic fracturing. DOGGR states it is generally standard practice to pressure test prior to well stimulation, and may cost up to $4,000 to $8,000 for a full day.

Well Stimulation Fluid Handling

One concern raised by critics of hydraulic fracturing in California is the potential storage and handling of well stimulation fluids in open, unlined pits that could leak into drinking water aquifers. The draft regulations address this concern by requiring operators to:

  • store well stimulation fluids in compliance with current secondary containment requirements (unless it is a temporary or portable production facility),
  • account for stimulation treatment fluids in spill contingency plans, and
  • test unused stimulation treatment fluids to determine if they are hazardous before transporting them offsite.

Monitoring and Reporting

To ensure integrity of wells that are using and have used well stimulation treatments, the draft regulations require ongoing monitoring, specify minimum standards for that monitoring and include reporting requirements. For example:

  • Operators must monitor key parameters during the well stimulation and notify DOGGR if there is any indication that a breach occurred.It is current industry practice to monitor fluids and pressure during well stimulation treatment, so DOGGR does not anticipate that this requirement will add new costs for operators.
  • Operators must immediately report a breach or well failure to DOGGR and the Regional Water Quality Control Board. DOGGR notes that costs to notify and rectify the breach will depend on the nature of the incident.
  • Operators must monitor the well once every two days for 30 days after the well stimulation treatment, and monthly until the operators sees a 95 percent reduction in well stimulation fluid in the fluid produced by the well. The cost of additional monitoring required by the proposed regulations could range from $3,000 – $7,000 per well, or $216,000 – $504,000 for a representative operator.
  • Operators must report and disclose on a public website specified information, including, among other things, the composition and amount of well stimulation fluids used. This provision includes the limited trade secret exception.
  • Operators must submit a report within 60 days after cessation of well stimulation treatment to DOGGR, detailing what happened during the well stimulation treatment. This report must note if the USGS recorded any earthquakes over magnitude 2.0 in the area of the well since the start of well stimulation treatment.

Next Steps

The 60 days of public comment period on the draft regulations is underway. Again, comments are due on January 14, 2014. Given the contentious nature of the law, there will likely be numerous comments from both industry and environmental groups. In addition, the regulations may change as a result of the California Environmental Quality Act (CEQA) review process that is also just getting underway.

Significant uncertainty revolves around the benefit of third-party notice provisions, the extent of groundwater monitoring, the type/costs/effectiveness of modeling sufficient to understand the extent of the treatment area of influence, the extent of trade secret protection in the event of a well breach, the need for hazardous testing of stored fluids so long as they remain stored, to name but a few issues.

Holland & Knight is prepared to help you navigate these proposed regulations. We have extensive experience in permitting and entitlement work for projects, including oil and gas projects, in California.

The author wishes to thank Holland & Knight Associate Joanna "Joey" Meldrum for her assistance with this alert.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions