Slide 1

State Regulation of Hydraulic FracturingApril 12, 2011 Aurana Lewis, MEMNicholas School of the Environment

Bill HolmanDirector of State PolicyNicholas Institute for Environmental Policy Solutions

1Our MissionTo help decision makers create timely, effective and economically practical solutions to the worlds most critical environmental challenges

We engage faculty & students at Fuqua School of Business, Duke Law, Nicholas School of the Environment, Pratt School of Engineering and Sanford School of Public Policy.

Dan River BasinDeep River BasinUS Energy Information Admin with Dan River and Deep River Basins added to show location and size.

3

US Energy Information Administration

This graph shows production. 4Shale Basins in North Carolina

Reid, J.C. and R.C. Milici. 2008. Hydrocarbon Source Rocks in the Deep River and Dan River Triassic Basins, North CarolinaChathamLeeMooreReid, J.C and R. C. Milici, 2008

US Geological Survey and NC Geological Survey are completing a resource assessment in Spring 2011.

NCGS has estimated 59,000 acres may have gas resources.

(See Last Slide for Natural Gas Well Types)Vertical wells have an average spacing of 40 acres per well, single wells per pad, estimated: 1,475 wells vertical wells: 2-3 acres per well, estimated 3,687 acres disturbance. (using 2.5 acre avg.)Horizontal wells have an average spacing of 640 acres per well, multiple wells per pad, estimated: 92 well Multi-well horizontal pads: 4-6 acres per pad, estimated 461 acres disturbance (using 5 acres avg.)

Source: NY State Draft Supplemental EIS: Chapter 5 Natural Gas Development Activities and High Volume Hydraulic Fracturinghttp://www.dec.ny.gov/docs/materials_minerals_pdf/ogdsgeischap5.pdf

The exploratory wells have been drilled primarily by private companies. The report is from the USGS, based on previously unpublished organic chemistry data from 87 samples from 28 drill holes. http://pubs.usgs.gov/of/2008/1108/ofr2008-1108.pdf

This report was published in 2008, Reid and Taylor came out with a new map in 2010 reviewing the information from the Sanford and sub-basin and the Deep River Basin, but it is not available online.

5States Take the LeadLimited federal role due to executive and congressional actionsIndustry prefers state regulationState experience with conventional oil & gas development predates national environmental lawsInterstate Oil & Gas Compact Commission -- STRONGERShale Gas ProductionThis slide depicts activities associated with development. Producing shale gas is an industrial process.

7

Thompson Bros, 2011. Nexen Well Pad 9111 and Access Road.Well Pad and Road ConstructionLease the mineral rightsChoose a location3 5 acresDetermine restricted areasObtain appropriate permitsFollow state and local setback requirements

Construct well padEngineer well pad and roads Plan for chemical and waste storage onsite /prevent spills and leaksControl sediment and erosion Manage stormwater

Construction Time:

7 28 Days(Bradford County, PA) Horizontal drilling generally requires a larger well pad than vertical drilling. This also may extend the time for some of these steps. Mostly, the multi-well pads are drilled and fractured several times so the middle steps (drilling and fracturing) multiply over several times before reclaiming part of the well pad. 8DrillingDrilling, either vertical or horizontal Construct casing for groundwater protectionStore drill cuttings

Granberg, A. 2009. Anatomy of a Gas Well DrillingTime:

21-24 Days (Chesapeake Energy)http://www.propublica.org/article/anatomy-of-a-gas-well-4269Hydraulic FracturingWithdraw freshwater Transport chemicals and proppants to siteMix and inject high pressure solution into the wellCollect, store and dispose of flowback water and wastes

Fracturing Time:

2 5 Days

40 100 Hrs (Pumping)

New York Department of Environmental Conservation, 2009 Draft Supplemental Generic Environmental Impact Statement on the Oil, Gas and Solution Mining Regulatory Program, Chapter 5

Production/Partial Well Pad ReclamationProduce gasProcess gas to remove waterCompress and pipe gas to processing plantsCollect and dispose of produced water and wastesReduce the size of the well padRemove well equipmentClose pits and tanks storing waste fluidsReclaim a portion of the well pad

Time:

7-10 years(Harper, 2010)

Veil, J. 2010. Water Management Technologies Used by Marcellus Shale Gas Producers http://www.evs.anl.gov/pub/doc/Water%20Mgmt%20in%20Marcellus-final-jul10.pdf11

Source: Harper, J. and Kostelnik, J. The Marcellus Shale Play in Pennsylvania. ref: Dewitt, 2008. Well re-fracturing 7-10 years after initial hydraulic fracturingImpacts similar to original fracturing Well PluggingPlug well to prevent gas releases, surface contamination, and groundwater contaminationRestore site Re-Fracturing/ Well ClosureWell re-fracturing would require similar amounts of equipment, water and chemicals as the initial fracturing process.

https://docs.google.com/viewer?a=v&pid=gmail&attid=0.1&thid=12e450442118d6eb&mt=application/pdf&url=https://mail.google.com/mail/?ui%3D2%26ik%3D0f95c11480%26view%3Datt%26th%3D12e450442118d6eb%26attid%3D0.1%26disp%3Dsafe%26realattid%3D289e8541787aefeb_0.1%26zw&sig=AHIEtbRXCf_jQNWHGnpKm2N0RYutsbdUHQ12Cost Estimates for Production Well Costs in the MillionsRoyaltiesFinding and Development Cost (per Mcfe)Haynesville$7.20 25%$1.48 Marcellus$4.50 15%$1.26 Barnett$2.80 25%$1.41 Fayetteville$3.10 17%$1.50 Colony Granite Wash$6.25 20%$1.37 TX PH Granite Wash$4.50 20%$1.18 Average$4.71 20%$1.37 Kulkarni, P. 2010 Arrival of IOCs and increasing legislative interest signal critical mass for Marcellus ref. Chesapeake Energyhttp://www.worldoil.com/Arrival-of-IOCs-and-increasing-legislative-interest-signal-critical-mass-for-Marcellus.html

The finding and development costs cover exploration. I am unclear whether these well costs cover production costs.

The royalties are paid to the mineral rights owner, whether private or the state.

Mcfe = million cubic feet

IOC = International oil companies. Several of the shale gas producers are being acquired by international oil companies (ExxonMobil and StatOilHydro). Chesapeake sold 32.5% stock to StatOilHydro, and XTO energy was bought by ExxonMobil. 13Public Health & Environmental ConcernsNew demand for surface and groundwater resourcesSedimentation & erosion from pads, roads & pipelinesWastewater treatment and disposalLeaks and spills

Potential groundwater contaminationPotential air emissionsManagement of solid, hazardous and radioactive wastesReporting requirementsPlugging wells

Adaptation in Fractured Appalachia Hannah Wiseman Villanova Environmental Law Journal 2010

NCs Natural Gas Reserves: Are We Ready for the Boom John Noor UNC Law Student April 5, 201114State & Local ConcernsPermit and inspection feesExpertiseRoyalties Financial assuranceLocal zoning? State role? Local role?Property rights of neighborsTruck trafficTerms of leasesWater Quantity

DOE National Energy Technology Laboratory. 2009. Modern Shale Gas Development in the United States: A Primer http://www.netl.doe.gov/technologies/oil-gas/publications/epreports/shale_gas_primer_2009.pdf16Oct 2009 Aug 2010Water Usage Data for 494 Haynesville (TX-LA)Shale Gas WellsWater Stats

Source: Welsh, 2010 Creating Successful Community Partnerships Carrizo-Wilcox Aquifer Collaboration in Louisiana

Average Water Use per Well 4,828,464 gallons

Typical Aquifer Keithville CompactorFracturing Source Aquifer South CampSource: Lewis and Hanson, 2010 A Watershed Approach

Two separate sets of information, both in the the Haynesville Shale:1) Welsh gives average water usage in the Haynesville to give a sense of all water usage across the different wells using data from both TX and LA.2) Lewis and Hanson studied water usage in two aquifers in the Louisiana Haynesville : Keithville Compactor and South Camp. 17Water QualityFracturing Fluids

Total Estimated Chemical Usage/Fracture:

14,700 gallons

EPA, 2010. Draft Hydraulic Fracturing Study PlanActual chemical mixture considered proprietary by gas companies. Some states, such as WY, OH and Delaware River Basin Commission, require release of specific chemical mixture. Most gas companies have disclosed their fracture fluid chemicals to EPA and States. 18

Skin, Eye and Sensory Organ

Respiratory

Gastrointestinal and Liver

Brain and Nervous Sys.

Immune

KidneyCardio. and BloodCancer

Mutagen

Endocrine Disruptors

Other

EcologicalHealth Effects from Hydraulic Fracturing Chemicals with CAS NumbersPercent of Total Reviewed ChemicalsSource: Colburn, T. 2010. Natural Gas Operations from a Public Health PerspectiveCAS = Chemical Abstract Service, a division of the Am Chemical Society

19Water & Air Quality Well casing and cementing are critical to prevent groundwater contamination by migration of methane and other pollutants and to prevent explosions

Harrison, S. 1983. Evaluating System for Ground-Water Contamination Hazards Due to Gas-Well Drilling on the Glaciated Appalachian Plateau20Water QualityConstituents in Flowback WaterNYSERDA, 2009. "WATER-RELATED ISSUES ASSOCIATED WITH GAS PRODUCTION IN THE MARCELLUS SHALE" Flow BackEPA Drinking Water Quality StandardsMinMedianMaxUnitsTDS (Brine)153093200337000mg/LNAMetals*Barium0.553661.515700mg/L2 mg/LStrontium0.5018215841mg/LNARadiationAlpha Radiation22.411414.518950pCi/L15 pCi/LBeta9.6813957745pCi/LNAOrganicsBenzene15.7479.51950ug/L5 ug/LEtylbenzene3.353.6164ug/L700 ug/LTouluene2.38333190ug/L1000 ug/LXylenes164872670ug/L10,000 ug/LFrom 56 flowback samples taken from PA and WV* These are the metals limited by the PA DEPThese are picked from a much larger table of chemicals. Note only 56 samples.

The PA Dept of Environmental Protection is regulating these two metals, barium and strontium, with the TDS level.

http://downloads.cas.psu.edu/naturalgas/pdf/TDS_highres_updateDec09.pdf

21Water & Air QualityPrevent spills and leaksPitsLining FailuresPit overflowsIncompatible liner/fluid storageVolatile chemical releasesTanksTank leaksIncompatible chemical storageSecondary containment failurePedler, 2010 Allegheny Defense Project; Lustgarten, 2009, Propublica

22Air Quality Issuesx = Directly Emitted Emission o = Indirectly Generated EmissionEarthworks 2010 Sources of Oil and Gas Air Pollution Fugitive EmissionsDehydrationVehiclesFlaringEnginesPitsVentingParticulate MatterxxxDustxxHydrogen SulfidexxxOzoneooooCarbon MonoxidexxxNitrogen OxidesxxxSulfur DioxidexxxVOCsxxxxxxBTEXxxxxxxPAHsxMethanexxxx23Wastewater Treatment High Total Dissolved Solids>100,000ppmNot removed during treatment High Naturally Occurring Radioactive Material (NORM)Not tested during disposalNot fully removed during treatment

500 mg/L (TDS Limit)ChlorideSulfate

TDSTetraTech, 2009 EVALUATION OF HIGH TDS CONCENTRATIONS IN THE MONONGAHELA RIVERhttp://marcelluscoalition.org/wp-content/uploads/2010/06/Tetra_Tech_TDS_Report.pdf

TDS = total dissolved solids

Policy question: treat, dispose of on-site or truck to wastewater treatment plants. 24Underground Injection Wastewater Disposal

Most common disposal methodPossible risks of seismic activityArkansas, 2010-11Texas, 2008Ohio, 1986US DOE, 2009 Modern Shale Gas: a Primer"NC General Statute 143-214.2(b) prohibits the discharge of any wastes to the subsurface or groundwater of the State by means of wells.

15A NCAC 02C .021325Recycling and Reuse of Wastewater

Commonly used in the Barnett Shale, TX, Fayetteville Shale, AR and Marcellus Shale, PAEnergy intensiveLimits truck travel by treating on siteConcentrates RadioactivityRigzone Staff, 2010 Water Treatment Key to Hydraulic Fracturing's Future

City of Fort Worth, 2010 City of Fort Worth Gas Wells; Fort Worth City Managers Office, 2010. Environmental Impacts of Gas Drilling Exposure to contaminatesAir EmissionsNoise and lightScenic EffectsTruck Traffic Local Regulation by Ft Worth

http://www.fortworthgov.org/gaswells/default.aspx?id=50608http://www.fortworthgov.org/uploadedFiles/Gas_Wells/100112_gasDrilling.pdf

http://www.spectraenergywatch.com/blog/

The Barnett Shale in Texas produced about 2 trillion cubic feet of gas in 2010. This is just under of the 4.5 trillion cubic feet of gas produced in 2010.

27Local Impacts: Trucks

Requires between 4,300 to 6,500 truck trips per wellDamage to roads & bridgesEmissions & dustCongestion

Heavenrich, S. Oct 06, 2010. FrackWaste Truckers Rack up 959 Safety Violations in Three Days Marcellus-shale.us Our look at Road Damage from heavy truck trafficLeasing & Royalties for Property OwnersAvg. Lease LengthEarly Leasing Level 2009 - Leasing LevelYearBonus (per acre)RoyaltiesBonus (per acre)RoyalitiesNew York3-5 years1999$5 12.50%$3,000 15%-20%Pennsylvania5-7 years2002$12 12.50%$2,900 17%-18%West Virginia ---2007$5 12.50%$1,000-$3,00016%-18%Texas---2000$1,00020%-25%$10,000-$20,00025%-28%Andrews, A, et al. 2009. Unconventional Gas Shales: Development, Technology, and Policy IssuesCongressional Research Service:

http://www.fas.org/sgp/crs/misc/R40894.pdf

Note these are the levels for private land owners. Levels are slightly different for state lands (both higher and lower)

29 Selected State Responses to Hydraulic Fracturing

The industry has developed rapidly. States have struggled to keep up, but States have taken the lead in regulating hydraulic fracturing. Most states with shale gas resources have existing oil and gas industries and expertise with oil and gas exploration & development. 302011 Maryland General Assembly is debating a moratorium on fracking and a study.31North Carolina LawOil & Gas Conservation Act of 1945Permits vertical drillingProhibits horizontal drillingEstablishesPermit fees @ $50/wellBonding @ $5000/wellRoyalties @ $0.005/mcf (1000 cubic feet)Article 27, NC GS 113-378-415

Permit fees, bonding, and private & state royalties in other states are much higher. State regulation of oil & gas development in most states is receipt supported. Most NC counties levy higher permit fees for domestic wells than $50. 32Policy OptionsStudy economic and environmental advantages and disadvantages of developing shale gas in North CarolinaUSGS/NCGS Resource Assessment, Spring 2011Learn from other States, the industry, EPA, and the publicStates are primary regulators of this industryDevelop a comprehensive regulatory program/avoid inefficient, fragmented regulatory program Policy Options2010 UNC-CH-Duke Water Allocation Study recommended a moratorium on water withdrawals for shale gas until the Division of Water Resources completes hydrologic models for the appropriate river basins to ensure that water withdrawals will not adversely impact other water usersCollect baseline data before developmenthttp://water.unc.edu 34Resources for States

State Review of Oil and Gas Environmental Regulations (STRONGER): Hydraulic Fracturing Guidelines, 2010America Petroleum Institute (API) releases :Hydraulic Fracturing Operations- Well Construction and Integrity Guideline, 2009Water Management Associated with Hydraulic Fracturing, 2010Practices for Mitigating Surface Impacts Associated with Hydraulic Fracturing, 2011

US Environmental Protection Agency (EPA)Potential Impacts of Hydraulic Fracturing on Drinking Water Resources due 2012

State Review (STRONGER) was formed in 1999 to strengthen state regulation of hydraulic fracturing. The process started in 1988 between the EPA and Interstate Oil and Gas Compact Commission (IOGCC). In 1998 the EPA decided to continue to exempt oil and gas production waste from federal regulation, but worked to strengthen state oil and gas regulation.

EPA has recently started a study. Funding was set aside in the 2010 fiscal year. The draft of the EPA study plan was released in February 2011. EPAs study takes a cradle to the grave approach to water use during hydraulic fracturing, but is limited to the relationship between hydraulic fracturing and drinking water resources. EPA plans to finish its study in 2012.35Contact InformationBill HolmanDirector of State PolicyBill.holman@duke.eduwww.nicholasinstitute.duke.eduAurana Lewis, MEMAurana.lewis@duke.edu Extra slides followFederal Statues:Clean Water ActPrevents discharges of oil and gas waste to waters of the US with a permitCERCLAHolds drilling companies accountable for all non-petroleum or natural gas pollution on siteHazardous Materials Transport Act and Hazardous Materials Transportation Uniform Safety ActRegulates the transport of hazardous fracturing chemicals to the siteEndangered Species ActFunctions when working on federal land

Would you like a second slide showing federal exemptions? Yes38Local Land Use IssuesRestricting well development in scenic areas Requiring stormwater management plansRequiring erosion control plans Setting well spacing requirements

Mandating setbacksResidencesWater bodiesRoad waysSetting Noise and Light Standards: Setting hours of operation in urban areasState policy goals could include: protection of public health and the environment, safe development of the resource, increasing the use of cleaner fuels for heating, power generation and transportation, and protection of the property rights of neighboring property owners

Comprehensive regulation could include: collection of baseline data before drilling, water withdrawal permit, wastewater discharge permit, well construction permit, including identification of nearby wells and closing abandoned wells, sediment & erosion control permit, stormwater permit, waste management permit, air pollution permit, spill response plan, truck traffic, road construction, training for drillers, financial assurance, etc.

39Water Quality Issues: AR, CO, LA, OH, PA, WY Pit and Tank StorageSet standards for constructionEnsure compatible fluid or volatile compound containmentSpill Prevention*Require spill prevention and containment pollution plansIdentify chemicals used in hydraulic fracturingWell casing and cementingIdentify and test surrounding water wells before and after fracturing*Require reporting of well casing and cementing logs* Not required in all States

Water Quantity and DisposalWater Management Plans: Ex: Delaware River Basin CommissionFresh Water ReportObtain water use permitIdentify sourcesCreate Invasive Species Control PlanSubmit hydrologic report (groundwater)Obey Pass-by flow guidelinesRecord volumes deliveredIdentify water conservation efforts Waste Water StorageStore only in enclosed tanksTest for chemical constituentsWaste Water ReportObtain waste disposal permit from approved facilityAddress all wastewater produced on siteRecord produced wastewater volumesRecord locations and volumes of disposalHydraulic Fracturing Reporting STRONGER Recommendations:Identification of contaminate migration pathwaysSeveral states require identification and pre-testing of surrounding wellsReporting should be required before and after hydraulic fracturing operationsNotification should allow time for state oversight of operationsReporting should includeIdentification of the materials used Aggregate volumes of fracturing fluidsProppant usedContinuous logs of fracture pressures

Areas for Regulatory Consideration: Truck Traffic ConsiderationAir Quality Emissions Gas ProductionDiesel Equipment UsageFugitive EmissionsChemical Transport ConsiderationsLeasing Issues

Well Types:

Multiple Horizontal Well Pad Spacing: 640 AcresDisturbance: 4-6 acres

StatOilHydro, 2011. Multiple Well Pad Illustration

DOE National Energy Technology Laboratory. 2009. Modern Shale Gas Development in the United States: A Primer Horizontal WellSpacing: 640 AcresDisturb: 3-5 AcresVertical WellSpacing: 40 AcresDisturb: 2-3 AcresWell Spacing Information from: Source: NY State Draft Supplemental EIS: Chapter 5 Natural Gas Development Activities and High Volume Hydraulic Fracturinghttp://www.dec.ny.gov/docs/materials_minerals_pdf/ogdsgeischap5.pdf

http://www.statoil.com/en/NewsAndMedia/News/2008/Downloads/Muliple_shale_gas_wells.pdf44