On September 11, 2013, California moved significantly closer to adopting a statewide regulatory framework for hydraulic fracturing (“fracking”) operations after both the State Assembly and the Senate voted to approve Senate Bill 4. The bill requires energy companies to obtain state fracking permits, provide notice of planned fracking to nearby property owners, disclose chemicals used during operations (with certain trade secret exceptions), and monitor air and groundwater near fracking wells. The legislation now proceeds to Governor Brown, who is expected to sign the bill into law.
Legislation Likely to Shape Fracking Landscape in California
Fracking is the practice of creating fissures in underground rock formations using pressurized fluid and sand to release oil and gas reserves. Although fracking has been commonplace in California for decades, recent technological developments have increased both its efficiency and its prevalence, pushing the issue of fracking onto the national stage. As discussed in previous Alerts, efforts to answer public calls for increased regulation have been underway in three areas: state legislation, agency rule-making, and citizen-suit litigation. With the passage of Senate Bill 4 in both legislative houses, the future of fracking in California comes into much sharper relief.
Content of the Bill
Under current law, the California Division of Oil, Gas and Geothermal Resources (“DOGGR”) is charged with supervising the drilling and operation of oil and gas wells so as to protect human health and the environment. Operators are required to file with DOGGR a written notice of intention to commence drilling, and are prohibited from drilling absent DOGGR’s approval. Senate Bill 4 adds substantially to this existing regulatory structure.
Senate Bill 4 directs DOGGR to work with a number of state agencies to develop regulations by January 1, 2015 that address “well stimulation treatment,” a term defined to include any activity that enhances oil and gas production by increasing the permeability of a geologic formation. The regulations will be informed by a “comprehensive independent scientific study,” to be conducted by the Secretary of the Natural Resources Agency by January 1, 2015, on the hazards and risks that fracking and other well stimulation treatments pose to human health and the environment. These new regulations will require fracking operators to:
The regulations will also set threshold values for acid matrix stimulation treatments, an alternative well stimulation method.
Until the regulations are finalized, fracking activities will be allowed in California as long as the well owner or operator certifies compliance with the disclosure and notification requirements and submits to DOGGR a complete well history. During the pre-regulation period, DOGGR will conduct a state-wide environmental impact report pursuant to CEQA, which must be complete by July 1, 2015.
If and when Senate Bill 4 becomes law, DOGGR permits will be required before operators may engage in any fracking operations. The permit will specify the well ID number and location; the time period during which treatment will occur; a water management plan; information about the chemicals used in the fracking operation; estimates of the length and height of induced fractures; and other information. Permits will expire after one year, and will be available for public viewing on DOGGR’s website.
Operators must provide nearby property owners and tenants with copies of the permit at least 30 days in advance of the start of operations. Any of those individuals will have the right to request water quality sampling at the operator’s expense. The operator must also provide DOGGR 72 hours’ notice before beginning operations.
Under Senate Bill 4, fracking fluid suppliers are allowed to claim trade secret protection over the fluids, but must still provide the protected information to DOGGR. They must also substantiate the claim for protection to DOGGR’s satisfaction. That certain fluids are being claimed as protected trade secrets must be disclosed publicly, and if DOGGR receives a request to release the protected information, DOGGR must give the supplier at least 60 days’ notice to file a court action to prohibit the release of the information. The bill allows DOGGR to disclose protected information to a government officer or to a health professional under certain circumstances.
Information that does not qualify for trade secret protection includes the identities of chemical constituents of additives, the concentration of additives in fracking fluid; pollution monitoring data; health and safety data associated with fracking fluid; and the chemical composition of flowback fluid.
Impact of the New Law
Senate Bill 4 attempts to strike a balance between environmental and health concerns on the one hand, and the opportunity for economic development on the other. On the economic side of the equation lies the Monterey Shale Formation, a resource estimated to hold 15 billion barrels of oil. Assuming that Governor Brown signs Senate Bill 4 into law, California will have foregone the “moratorium” route that certain states and local governments have pursued, opting instead for a policy of fracking with heightened standards of protection, extensive agency oversight, and full disclosure of relevant information. While the precise details of the new fracking rules will not be known until the independent study is complete and DOGGR issues its regulations, Senate Bill 4 provides the framework under which fracking will be allowed in California.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:Gannon-Ella
This article was originally published by Bingham McCutchen LLP.