why a little fracking knowledge is a good thing - … a little fracking knowledge is a good thing...
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Why a Little Fracking Knowledgeis a Good Thing
Alex MacWilliam, Partner - CalgaryJason Schumacher, Partner - Dallas
Association of Corporate Counsel - Houston ChapterJune 11, 2013
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• We are the product of three firms combining: FMC in Canada,Salans in Europe, and SNR Denton in the US, Africa, Asia, theUK and the Middle East
• A law firm with 2500 attorneys and one the largest firms in theworld
• One of the largest oil, gas and energy sections in the world
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Fracking Knowledge Is a Good Thing
What will we talk about today?
• Fracking – What is it and how is it being portrayed?
• Fracking regulations
• Fracking litigation
• Lessons and future trends
What will we talk about today?
• Fracking – What is it and how is it being portrayed?
• Fracking regulations
• Fracking litigation
• Lessons and future trends
Why is Fracking Done?
• Huge deposits of oil and natural gas in low porosity/lowpermeability formations not producible using conventionaldrilling technology
• Combination of two existing technologies – horizontal drillingand hydraulic fracturing – allows for economic production ofthese resources
• Vertical wells vs. Horizontal wells – horizontal drilling allows forfar greater exposure to the productive formation
• Multi-stage hydraulic fracturing creates multiple artificialpathways to the wellbore and thus vastly increases recoveryrates of the resource
• Essentially creates a reservoir in rock that would not have beenpreviously considered to be commercially productive
• Huge deposits of oil and natural gas in low porosity/lowpermeability formations not producible using conventionaldrilling technology
• Combination of two existing technologies – horizontal drillingand hydraulic fracturing – allows for economic production ofthese resources
• Vertical wells vs. Horizontal wells – horizontal drilling allows forfar greater exposure to the productive formation
• Multi-stage hydraulic fracturing creates multiple artificialpathways to the wellbore and thus vastly increases recoveryrates of the resource
• Essentially creates a reservoir in rock that would not have beenpreviously considered to be commercially productive
Key Environmental Issues
• Increase in horizontal multi-stage fracturing operations hasled to enhanced scrutiny of issues including: fracture fluid constituents (including disclosure to regulators and
public) well integrity water usage (particularly in water stressed areas) waste disposal by injection Issues have been recently considered in numerous U.S. and
Canadian jurisdictions
• Concerns about fracking have potential to also impactresource development overseas
• Increase in horizontal multi-stage fracturing operations hasled to enhanced scrutiny of issues including: fracture fluid constituents (including disclosure to regulators and
public) well integrity water usage (particularly in water stressed areas) waste disposal by injection Issues have been recently considered in numerous U.S. and
Canadian jurisdictions
• Concerns about fracking have potential to also impactresource development overseas
Shale Gas Potential Outside North America
• Significant “technically recoverable” reserves in many countriesbut production is dependent on use of hydraulic fracturing
• Development of these reserves has significant economic, tradeand geopolitical implications
• Actions of governments varies widely from country to country• Dealing with public ownership of the resource• Little history of petroleum development and no established
regulatory regimes• Exploration and production lags far behind Canada and U.S.
• Significant “technically recoverable” reserves in many countriesbut production is dependent on use of hydraulic fracturing
• Development of these reserves has significant economic, tradeand geopolitical implications
• Actions of governments varies widely from country to country• Dealing with public ownership of the resource• Little history of petroleum development and no established
regulatory regimes• Exploration and production lags far behind Canada and U.S.
Ukraine
• One of largest shale gas and tight gas reserves in Europe (42Tcf)
• Currently imports vast majority of natural gas needs fromRussia (Gazprom) and is Russia’s largest export customer
• Development of shale gas will reduce Russian economicinfluence
• Ukraine signed $10B shale gas deal with Shell in January 2013 50 yr Production Sharing Agreement
• No specific legislation applicable to shale gas so dealt with viaPSAs
• Opposition to fracking could lead to delays in development
• One of largest shale gas and tight gas reserves in Europe (42Tcf)
• Currently imports vast majority of natural gas needs fromRussia (Gazprom) and is Russia’s largest export customer
• Development of shale gas will reduce Russian economicinfluence
• Ukraine signed $10B shale gas deal with Shell in January 2013 50 yr Production Sharing Agreement
• No specific legislation applicable to shale gas so dealt with viaPSAs
• Opposition to fracking could lead to delays in development
Poland• Largest shale gas and tight gas reserves in Europe 187 Tcf – technically recoverable
• Imports 2/3 of natural gas needs and 90% of imports come fromRussia
• Development of shale gas will reduce Russian economicinfluence
• Still at exploration stage – less than 50 wells drilled to date• Government taking steps to reduce opposition to fracking legislation introduced to prevent groups from getting involved in
administrative processes governing drilling (including fracking)unless they have been actively involved for one year prior to theprocess
could preclude newly formed environmental groups fromchallenging permitting of wells and approval of drilling operations
• Largest shale gas and tight gas reserves in Europe 187 Tcf – technically recoverable
• Imports 2/3 of natural gas needs and 90% of imports come fromRussia
• Development of shale gas will reduce Russian economicinfluence
• Still at exploration stage – less than 50 wells drilled to date• Government taking steps to reduce opposition to fracking legislation introduced to prevent groups from getting involved in
administrative processes governing drilling (including fracking)unless they have been actively involved for one year prior to theprocess
could preclude newly formed environmental groups fromchallenging permitting of wells and approval of drilling operations
South Africa
• Heavily dependent on domestic coal and imported oil
• Technically recoverable shale gas reserves of 485 Tcf in Karoo Basin
would be 4th largest in world and bigger than Canada’s (388 Tcf)
• Majors interested in developing but government imposed a moratoriumon exploration in 2011 due to widespread public concerns regardingenvironmental and health impacts of fracking
• Task force released report in September 2012 recommending normalexploration be allowed but fracking only be authorized under strictsupervision
• Despite recommendations, no further drilling applications processed
• Government now preparing fracking regulations, based oninternational best practices, to be released for comment in July, 2013
• Heavily dependent on domestic coal and imported oil
• Technically recoverable shale gas reserves of 485 Tcf in Karoo Basin
would be 4th largest in world and bigger than Canada’s (388 Tcf)
• Majors interested in developing but government imposed a moratoriumon exploration in 2011 due to widespread public concerns regardingenvironmental and health impacts of fracking
• Task force released report in September 2012 recommending normalexploration be allowed but fracking only be authorized under strictsupervision
• Despite recommendations, no further drilling applications processed
• Government now preparing fracking regulations, based oninternational best practices, to be released for comment in July, 2013
Elsewhere• France - first nation to ban fracking. Ban still in place but some
suggesting other methods of extraction being developed to get aroundban.
• China – world’s largest technically recoverable reserves of 1275 Tcfbut located in faulted and folded bores in mountainous regions, whichwould make horizontal drilling and fracking more difficult
• New York – state “temporarily” banned fracking in 2010 and missedFebruary 2013 deadline for completion of study report. More than 150towns passed bans of their own covering nearly 20% of land atopMarcellus Shale. On May 2, 2013 NY appellate court upheld bansimposed by two towns, dismissing claims by energy company andlandowner that bans were preempted by state oil and gas law. Appealto NY Court of Appeals is expected.
• France - first nation to ban fracking. Ban still in place but somesuggesting other methods of extraction being developed to get aroundban.
• China – world’s largest technically recoverable reserves of 1275 Tcfbut located in faulted and folded bores in mountainous regions, whichwould make horizontal drilling and fracking more difficult
• New York – state “temporarily” banned fracking in 2010 and missedFebruary 2013 deadline for completion of study report. More than 150towns passed bans of their own covering nearly 20% of land atopMarcellus Shale. On May 2, 2013 NY appellate court upheld bansimposed by two towns, dismissing claims by energy company andlandowner that bans were preempted by state oil and gas law. Appealto NY Court of Appeals is expected.
Misperceptions Related to Fracking
• Fracking Explained
• Video - from YouTube User tdkota
The Eye Popper
• Video from Gasland by Josh Fox Documentary on fracking The money shot
Online Stats as of 06/09/2013
• Google Results for Fracking - About 11,800,000 results• Google Video Results for Fracking - 4,080,000 results• Twitter Results for Fracking – 34 tweets in one hour between
11:00 PM Central – 12:00 AM Central
Industry not out in front of the issue
• Opponents of fracking winning the public relations battle
Gasland documentary nominated for 2011 Academy Award
“Gasland Part II” about to be released
o Premiered at Tribeca Film Festival – April 21, 2013
Hollywood also getting on the anti-fracking bandwagon
o Promised Land released in December 2012
• Opponents of fracking winning the public relations battle
Gasland documentary nominated for 2011 Academy Award
“Gasland Part II” about to be released
o Premiered at Tribeca Film Festival – April 21, 2013
Hollywood also getting on the anti-fracking bandwagon
o Promised Land released in December 2012
Drinking Water is Big Problem for Industry
• Two principal issues: Fracking chemicals getting into the water Gas migrating up through the formation into water sources
• What do the experts say?
• Two principal issues: Fracking chemicals getting into the water Gas migrating up through the formation into water sources
• What do the experts say?
Three Studies
• Duke University Study on Marcellus Wells• University of Texas Study on Multiple Plays• EPA Draft Report on Wyoming Wells
Duke Study – Paper Released 5/2011
• Conducted random sampling of wells Marcellus Shale inPennsylvania and New York.
• Drew water from 68 private water wells - some near gas wells;some not
• Report available at:http://www.nicholas.duke.edu/cgc/pnas2011.pdf
• Conducted random sampling of wells Marcellus Shale inPennsylvania and New York.
• Drew water from 68 private water wells - some near gas wells;some not
• Report available at:http://www.nicholas.duke.edu/cgc/pnas2011.pdf
Duke Study - Paper Released 5/2011
• Results Could not make a determination that any fracking
chemicals were in the water Did determine higher levels of methane in water wells near
gas wells• Explanation of the Results Did not believe methane seeped through 1000’s of feet of
rock to water table Most likely cause is poor casing
• Results Could not make a determination that any fracking
chemicals were in the water Did determine higher levels of methane in water wells near
gas wells• Explanation of the Results Did not believe methane seeped through 1000’s of feet of
rock to water table Most likely cause is poor casing
University of Texas Study – Released February 15,2012
• Areas of Focus Barnett Shale Haynesville Shale Marcellus Shale
• Report at:http://energy.utexas.edu/images/ei_shale_gas_reg_summary1202.pdf
• Areas of Focus Barnett Shale Haynesville Shale Marcellus Shale
• Report at:http://energy.utexas.edu/images/ei_shale_gas_reg_summary1202.pdf
University of Texas Study – Released February 15,2012
• Results Could not make a determination that any fracking
chemicals were in the water No migration of gas from shale wells
• Explanation of results - Poor well casing can lead toheightened levels of substances in water tables (such asmethane)
• Results Could not make a determination that any fracking
chemicals were in the water No migration of gas from shale wells
• Explanation of results - Poor well casing can lead toheightened levels of substances in water tables (such asmethane)
Environmental Protection Agency Study – Draft ofResults Released 12/2011
• Evaluated wells located in Wyoming where hydraulic frackingwas employed
• Drew water from private wells and two public wells• Report available at:
http://www.epa.gov/region8/superfund/wy/pavillion/EPA_ReportOnPavillion_Dec-8-2011.pdf
• Evaluated wells located in Wyoming where hydraulic frackingwas employed
• Drew water from private wells and two public wells• Report available at:
http://www.epa.gov/region8/superfund/wy/pavillion/EPA_ReportOnPavillion_Dec-8-2011.pdf
EPA Study - Draft of Results Released 12/2011
• Results Contamination was found
• Explanation of the Results No direct conclusions could be made that fracking caused
contamination But, fracking causes contamination
• How? Why?
• Results Contamination was found
• Explanation of the Results No direct conclusions could be made that fracking caused
contamination But, fracking causes contamination
• How? Why?
(From the report) Detection of contaminants in ground waterfrom deep sources of contamination (production wells, hydraulicfracturing) was considerably more complex than detection ofcontaminants from pits necessitating a multiple lines of reasoningapproach common to complex scientific investigations. In thisapproach, individual data sets and observations are integrated toformulate an explanation consistent with each data set andobservation . . .
(From the report) Detection of contaminants in ground waterfrom deep sources of contamination (production wells, hydraulicfracturing) was considerably more complex than detection ofcontaminants from pits necessitating a multiple lines of reasoningapproach common to complex scientific investigations. In thisapproach, individual data sets and observations are integrated toformulate an explanation consistent with each data set andobservation . . .
. . . While each individual data set or observation represents animportant line of reasoning, taken as a whole, consistent data setsand observations provide compelling evidence to support anexplanation of data. Using this approach, the explanation best fittingthe data for the deep monitoring wells is that constituentsassociated with hydraulic fracturing have been released into theWind River drinking water aquifer at depths above the currentproduction zone.
. . . While each individual data set or observation represents animportant line of reasoning, taken as a whole, consistent data setsand observations provide compelling evidence to support anexplanation of data. Using this approach, the explanation best fittingthe data for the deep monitoring wells is that constituentsassociated with hydraulic fracturing have been released into theWind River drinking water aquifer at depths above the currentproduction zone.
Fracking Regulations
28Month Day Year Dentons US LLP Document reference #
Legislative and Regulatory Management - Canada
• Despite occasional rumbling from Ottawa, no federal regulationof hydraulic fracturing
• Some provinces have experience with regulation of drillingoperations, including fracking Alberta (over 100 years of drilling and 60 years of fracking) Saskatchewan British Columbia (more recent)
• Other provinces are new to the game and are wary Quebec – moratorium pending study (current current favors
complete ban) Nova Scotia – moratorium to mid-2014 to allow for review New Brunswick – rules released in February 2013
• Despite occasional rumbling from Ottawa, no federal regulationof hydraulic fracturing
• Some provinces have experience with regulation of drillingoperations, including fracking Alberta (over 100 years of drilling and 60 years of fracking) Saskatchewan British Columbia (more recent)
• Other provinces are new to the game and are wary Quebec – moratorium pending study (current current favors
complete ban) Nova Scotia – moratorium to mid-2014 to allow for review New Brunswick – rules released in February 2013
Legislative and Regulatory Management - US
• State• Federal
Texas
• Chemical Disclosure Requirements as of February 1, 2012• Must disclose within 15 days after well is drilled what chemicals
were used in the fracking process
Other States That Have Rules Like Texas
• Louisiana• Ohio• Michigan• Arkansas• Tennessee• Wyoming
• Louisiana• Ohio• Michigan• Arkansas• Tennessee• Wyoming
New York
• No permits for high-volume hydraulic fracturing pending theoutcome of a study by the state Department of EnvironmentalConversation
• Causes a de facto moratorium on the process• State of Maryland has similar legislation
Pennsylvania
• Drilling impact fee• Stiff penalties for violations of applicable regulations;• Increased setbacks from streams, wells and public water
systems;• The establishment of best practices and enforcement
mechanisms to ensure compliance;• Greater public disclosure requirements, especially with respect
to any hazardous substance content of fracking fluids andwaste.
• Drilling impact fee• Stiff penalties for violations of applicable regulations;• Increased setbacks from streams, wells and public water
systems;• The establishment of best practices and enforcement
mechanisms to ensure compliance;• Greater public disclosure requirements, especially with respect
to any hazardous substance content of fracking fluids andwaste.
Vermont
• No Fracking• From Governor Shumlin – "I hope other states will follow us," he
said. "The science on fracking is uncertain at best. Let the otherstates be the guinea pigs. Let the Green Mountain Statepreserve its clean water, its lakes, its rivers and its quality oflife."
• No Fracking• From Governor Shumlin – "I hope other states will follow us," he
said. "The science on fracking is uncertain at best. Let the otherstates be the guinea pigs. Let the Green Mountain Statepreserve its clean water, its lakes, its rivers and its quality oflife."
Federal Regulations Related to Fracking
• EPA Regulations on Air Related to Fracking• Proposed Bureau of Land Management Regulations
Fracking Litigation
37Month Day Year Dentons US LLP Document reference #
Fracking Litigation
• Producers face litigation risks from: landowners other producers
• Risks magnified where fracturing taking place: on freehold (privately held) lands near urban areas in jurisdictions with no history of oil and gas development
(e.g. Quebec) in jurisdictions without highly developed regulatory regimes
• Producers face litigation risks from: landowners other producers
• Risks magnified where fracturing taking place: on freehold (privately held) lands near urban areas in jurisdictions with no history of oil and gas development
(e.g. Quebec) in jurisdictions without highly developed regulatory regimes
Fracking Litigation
• U.S. has seen fracturing litigation in both landowner andproducer contexts approx. 40 active private landowner lawsuits commenced
also numerous lawsuits between producers
significant body of law re rights and liabilities as between producers,particularly regarding subsurface trespass and “Rule of Capture”
• Canada has seen little fracturing litigation to date, all in Alberta Ernst v. EnCana et al alleges contamination of a landowner’s water well
from hydraulic fracturing operations – note that ERCB and ESRD alsosued
Zimmerman v. Quicksilver contains similar allegations regarding CBMwells
CrossAlta v. Bonavista Energy alleges breach of a gas storage reservoir
all lawsuits at early stages
• U.S. has seen fracturing litigation in both landowner andproducer contexts approx. 40 active private landowner lawsuits commenced
also numerous lawsuits between producers
significant body of law re rights and liabilities as between producers,particularly regarding subsurface trespass and “Rule of Capture”
• Canada has seen little fracturing litigation to date, all in Alberta Ernst v. EnCana et al alleges contamination of a landowner’s water well
from hydraulic fracturing operations – note that ERCB and ESRD alsosued
Zimmerman v. Quicksilver contains similar allegations regarding CBMwells
CrossAlta v. Bonavista Energy alleges breach of a gas storage reservoir
all lawsuits at early stages
• Issues of proof may be challenging multiple producers operating in a relatively small area, subsurface
“facts”, lack of baseline information, multiple exposures over manyyears
fracturing fluid disclosure and baseline environmentalassessments may simplify these issues
effective record keeping and monitoring by producers may becritical to both sides
• Damages issues also problematic required level of reclamation
future monitoring requirements
predicting future impacts
Fracking Litigation
• Issues of proof may be challenging multiple producers operating in a relatively small area, subsurface
“facts”, lack of baseline information, multiple exposures over manyyears
fracturing fluid disclosure and baseline environmentalassessments may simplify these issues
effective record keeping and monitoring by producers may becritical to both sides
• Damages issues also problematic required level of reclamation
future monitoring requirements
predicting future impacts
Lessons and Future Trends
41Month Day Year Dentons US LLP Document reference #
Lessons and Future Trends
• Producers will be well-served by establishing sound operationalpractices, adhering to or exceeding all regulatory requirements, andundertaking effective and detailed monitoring and record keeping
• Producers, industry associations and others are increasing efforts to“set the record straight” about fracturing CAPP - http://www.capp.ca/canadaIndustry/naturalGas/ShaleGas/
Energy in Depth – http://www.energyindepth.org/debunking-gasland/
“FrackNation” released on U.S. TV in January and in Canada last weekhttp://fracknation.com/
Attempts to increase the quality of information and decrease the noise
o Rational Middle - http://www.rationalmiddle.com/
• International Energy Agency suggests operators follow “golden rule”: measure, disclose, engage
• Producers will be well-served by establishing sound operationalpractices, adhering to or exceeding all regulatory requirements, andundertaking effective and detailed monitoring and record keeping
• Producers, industry associations and others are increasing efforts to“set the record straight” about fracturing CAPP - http://www.capp.ca/canadaIndustry/naturalGas/ShaleGas/
Energy in Depth – http://www.energyindepth.org/debunking-gasland/
“FrackNation” released on U.S. TV in January and in Canada last weekhttp://fracknation.com/
Attempts to increase the quality of information and decrease the noise
o Rational Middle - http://www.rationalmiddle.com/
• International Energy Agency suggests operators follow “golden rule”: measure, disclose, engage
Lessons and Future Trends
• Be sure your compliance department is aware of the February1, 2012 change to the RRC’s rules related to chemicaldisclosures
• Be sure your company has a way to keep up with changingfederal legislation
• Consider testing water before and after drilling so that yourcompany can defend itself if chemicals occur naturally in thearea.
• Be sure your compliance department is aware of the February1, 2012 change to the RRC’s rules related to chemicaldisclosures
• Be sure your company has a way to keep up with changingfederal legislation
• Consider testing water before and after drilling so that yourcompany can defend itself if chemicals occur naturally in thearea.
Lessons and Future Trends
• If water issues are found near your wells, what does your riskprofile look like? Are you indemnified by the fracking company?Should you be indemnified going forward? What do your fileslook like re: chemicals used for fracking?
• Is your company’s future tied to hydraulic fracturing? Shouldyour company be lobbying the federal or a state government?
• Does your company need to think about PR campaign in areaswhere it is active to dispel rumors about water contamination?
• If water issues are found near your wells, what does your riskprofile look like? Are you indemnified by the fracking company?Should you be indemnified going forward? What do your fileslook like re: chemicals used for fracking?
• Is your company’s future tied to hydraulic fracturing? Shouldyour company be lobbying the federal or a state government?
• Does your company need to think about PR campaign in areaswhere it is active to dispel rumors about water contamination?
Thank you
Jason A. SchumacherDentons US LLP2000 McKinney AvenueSuite 1900Dallas, Texas 75201-1858
Alex MacWilliamDentons Canada LLP15th Floor, Bankers Court,850 - 2nd Street SWCalgary, AB T2P 0R8 Canada
Jason A. SchumacherDentons US LLP2000 McKinney AvenueSuite 1900Dallas, Texas 75201-1858
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Alex MacWilliamDentons Canada LLP15th Floor, Bankers Court,850 - 2nd Street SWCalgary, AB T2P 0R8 Canada