The California Department of Conservation, Division of Oil, Gas and Geothermal Resources recently issued a “final” set of rules for regulating hydraulic fracturing in California that replace the interim rules that have been in effect since January 2014.
Across the United States, interested parties have been watching California to see how the state would wrestle with the myriad of issues related to hydraulic fracturing (commonly referred to as “fracking”). The California Department of Conservation, Division of Oil, Gas and Geothermal Resources (DOGGR) just issued the next installment on this highly charged subject in the form of the final proposed regulations on well stimulation, as mandated by Senate Bill 4 (SB 4), the law signed by Governor Jerry Brown in September 2014 that set basic fracking standards. These new regulations, which will become effective on July 1, 2015, replace the emergency interim fracking rules that have been in effect since January 2014.
Although the final fracking regulations are the result of extensive public input and consultation with other state regulatory agencies from November 2013 through October 2014, they are not the final chapter on fracking regulation in California or in the United States. Environmental groups object to the finalization of these regulations before DOGGR completes a comprehensive Environmental Impact Report (EIR) and approves an independent scientific study on the effects of fracking, both of which are required under SB 4 and both of which are currently in progress. That these studies have yet to be completed raises questions as to whether they will have any true import; it is currently unclear whether DOGGR intends to revise the regulations based on the results of these studies. For regulated industry, the fracking rules will impose a new level of cost and regulatory burden on affected parties, but the real question is how these regulations will be implemented.
The final fracking rules are generally consistent with the draft regulations proposed in November 2013, but they also include additional requirements not addressed by the interim rulemaking, such as fracking permit application disclosures, prefracking well analysis and testing, pressure monitoring during fracking, storage and handling of fracking fluids, and postfracking monitoring. The following is a summary of some of the key provisions of the final rules.
Well Stimulation Permits
Unlike the interim regulations, which require only that operators notify and provide certain information to DOGGR before stimulating a well, the final regulations require operators to obtain a DOGGR permit for such activity. Permit applications will be shared with other state regulators to ensure that they have specific information about well stimulation before it occurs. The permit application will require operators to collect and supply a substantial amount of information to DOGGR before operations may commence, including the wellbore path; the estimated depth of the planned stimulation treatment; the anticipated volume, rate, and pressure of fracking fluid injected; the identity of all wells that have previously been subject to well stimulation treatment in the same production horizon; plans for cement evaluation, spill contingency, and water management; the anticipated source, amount, and composition of the base fluids used in the treatment; the identity and concentration of each chemical used in the fracking fluid; an estimate of waste generated and a disposal plan; whether radiological components or tracers will be injected into the well; and certification from the Regional Water Quality Control Board that the well is covered by a groundwater monitoring plan.
The regulations also give DOGGR the flexibility to approve multiple applications that are part of a “single project,” which may somewhat ease the regulatory burden on larger, multiwell projects, depending on how DOGGR implements this provision.
Evaluation Prior to Well Stimulation Treatment
Before beginning well stimulation activity, operators are required to conduct a cement evaluation to ensure that the productive zone will remain isolated. The analysis must consider nearby wells and faults and must also evaluate geologic formations adjacent to the productive horizon. Operators must also conduct a pressure test 30 or fewer days prior to beginning a well stimulation treatment and must give DOGGR notice and an opportunity to witness the test.
It is conceivable that the EIR and/or the independent scientific study may highlight other concerns that the preoperation evaluation will need to address.
Neighbor Notification and Water Testing
At least 30 days before beginning fracking operations, operators must retain a third party to provide to all property owners and tenants within a 1,500-foot radius of the wellhead a copy of the approved DOGGR permit and a completed well stimulation treatment notification form. The third party must also submit to DOGGR a declaration of notice that identifies information for the well receiving well stimulation treatment and the operator of that well, a list of all notices provided by property parcel number, the names of each surface owner and tenant notified, the specific method by which the notice was effectuated, the date that each notice was received and the effective date of each notice, and copies of the completed notification forms. Any surface property owner notified of nearby fracking operations may request water quality testing on any existing water well or surface water suitable for drinking or irrigation purposes.
In light of the widespread concern over fracking’s effects on groundwater resources, regulated industry should anticipate that such requests will be common.
Monitoring During a Well Stimulation Treatment
While fracking activities are under way, operators are required to monitor injection pressure, slurry rate, proppant concentration, fluid rate, and all annuli pressures. If pressures exceed certain enumerated limits or the operator suspects a breach, fracking activities must cease, and the operator must perform diagnostic testing and provide DOGGR with notice and an opportunity to witness the tests. If testing shows that a breach has occurred, the operator must provide information about the well and the breach to DOGGR and the Regional Water Quality Control Board.
Such monitoring is not required under the interim regulations and may give DOGGR and other governmental agencies an opportunity to be more involved in reviewing day-to-day fracking operations.
Operators must track seismic activity during and after well stimulation treatment. The final regulations have expanded seismic monitoring requirements to incorporate use of the California Integrated Seismic Network and to require specified evaluations if an earthquake larger than magnitude 2.7 occurs within the vicinity of a well stimulation treatment.
Recent studies that link fracking to seismic activity, including at least one magnitude 3.0 earthquake in Ohio, may affect the EIR’s and/or the independent scientific study’s conclusions, which may result in governmental agencies imposing further regulations to ensure safety in the area near the fracked well.
Monitoring After Well Stimulation Treatment
After a well has undergone fracking or another well stimulation treatment, the operator remains responsible for monitoring that well’s continued production to ensure that the well has not failed. Under these regulations, operators will be required to treat fracked wells with special scrutiny to ensure that they do not fail or cause any special problems during their productive lives. Production pressure, as well as the amount of gas, oil, and water produced, must be monitored and reported to DOGGR every two days for the first 30 days, and production pressure must continue to be reported on a monthly basis. Annular pressures must be reported annually, or immediately upon exceeding certain enumerated values. The regulations also require the installation of a pressure relief device, although DOGGR may waive this requirement if the operator can demonstrate that the device is unnecessary. If installed, all pressure releases must be immediately reported to DOGGR.
These monitoring reports may give DOGGR additional opportunities to be more involved in reviewing and regulating fracking operations.
Disclosing information that concerns the constituents of fracking fluid and related additives is a particularly sensitive topic for both regulated industry and environmental groups. On one hand, industry interests have dedicated significant resources to developing formulas that achieve the best results and have a substantial business interest in ensuring that that information is protected. Environmental groups, on the other hand, argue that the public has a right to know what is being injected into the ground, particularly where the fracking activity is in close proximity to drinking water sources. The regulations attempt to strike a balance by allowing for some trade secret protection, although the scope of that protection is quite limited.
The final regulations require an operator to disclose, within 60 days following the cessation of a well stimulation treatment, specified information regarding the source, volume, composition, and disposition of well stimulation fluids, including, among other things, hydraulic fracturing fluids, acid well stimulation fluids, and flowback fluids. Operators must provide the information to DOGGR, and DOGGR will make the information available on its website in a format that allows for searching and aggregating the information. Information about the chemical composition of hydraulic fracturing fluids will also be posted to http://fracfocus.org. The regulations adopt the standard for trade secret protection set forth in SB 4. SB 4 imposes substantial limitations on the ability to claim that the chemical composition of well stimulation fluids is subject to trade secret protections. Although fracking fluid suppliers are permitted to claim trade secret protection for the fluids in certain circumstances, they must still provide the protected information to DOGGR.
The impact of the disclosure requirements has been hotly debated, and these requirements may need to be adjusted once the effects of the actual implementation are analyzed.
Storage and Handling of Fracking Fluids
The regulations require operators to store fracking and other well stimulation fluids in accordance with the “secondary containment requirements” of preexisting regulations to account for fluids in a Spill Contingency Plan, to store fluids in containers (as opposed to sumps or pits), and, in the event of a spill, to notify “appropriate response entities” as well as DOGGR.
These requirements are not substantially different or additional to those already regulating the industry and appear more intended to clarify that such preexisting rules are still applicable, however, DOGGR’s implementation of these requirements may have a different effect.
Post-Fracking Disclosures and Reporting
Within 60 days after fracking a well, the operator must submit a report to DOGGR that describes the activity, the pressures encountered, and how the activity differed from that anticipated. In addition, the operator is required to describe any hazardous wastes generated during well stimulation and provide copies of hazardous waste manifests if such waste was transported.
Collecting this information will help DOGGR better understand the fracking process from start to finish and could conceivably result in more refined regulations in the future.
Acid Volume Threshold
In lieu of the acid concentration threshold found in the draft regulations, the final regulations specify that an acid concentration threshold will be calculated on a case-by-case basis, factoring in the formation porosity and the wellbore volume.
The purpose of this regulation is to distinguish between well stimulation treatment and other routine operations. In other words, to satisfy regulators that where acids and pressures are used in nonfracking settings, well stimulation is not in fact the purpose of that use.
Interagency Information Sharing
Finally, it is worth noting that the final regulations include additional references and descriptions regarding information sharing between DOGGR and other state regulators and regarding key requirements of other state regulators not included in the draft regulations. These include a new requirement that the permit application be provided to the Regional Water Quality Control Board, the Department of Toxic Substances Control, and the Air Resources Board. Further, when nearby property owners or tenants request water testing, the test results must be provided to the Regional Water Quality Control Board and the State Water Resources Control Board.
These new requirements should not substantially increase compliance costs, but they do suggest that greater and more diverse scrutiny will be applied to this information.
California’s fracking regulations will have widespread impact on interested parties once they go into effect on July 1, 2015, and the rest of the nation will continue to watch.
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:
. For additional information about SB 4 and the development of California’s fracking regulations, see “Department of Conservation Proposes Emergency Rulemaking to Implement Interim Fracking Regulations,” available here; “California Moves Closer to Regulating Fracking,” available here; “Future of Fracking in Calif. Is Still Hazy,” available here; and “Calif.’s Road to Fracking Regulation Will Be Bumpy,” available here.