SPE-184859-MS

Current Regulatory Issues Regarding Hydraulic Fracturing

Michael Gray, Nicholas Deutsch, and Melissa Marrero, Shook, Hardy & Bacon LLP

Copyright 2017, Society of Petroleum Engineers

This paper was prepared for presentation at the SPE Hydraulic Fracturing Technology Conference and Exhibition held in The Woodlands, Texas, USA, 24-26 January
2017.

This paper was selected for presentation by an SPE program committee following review of information contained in an abstract submitted by the author(s). Contents
of the paper have not been reviewed by the Society of Petroleum Engineers and are subject to correction by the author(s). The material does not necessarily reflect
any position of the Society of Petroleum Engineers, its officers, or members. Electronic reproduction, distribution, or storage of any part of this paper without the written
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Abstract
This paper provides an assessment of federal, state, and local regulations and legal activity regarding
hydraulic fracturing as of late 2016. It includes a post-election assessment of how some results are likely
to further impact hydraulic fracturing. The analysis includes a review of recent court cases, pending legal
challenges and appeals, relevant statutes, and recent environmental studies affecting hydraulic fracturing.
The paper also discusses possible future regulatory trends, recommendations for practicing engineers, and
suggestions for corporate policy decision makers.

Introduction
Advancements in hydraulic fracturing and horizontal drilling have revolutionized the global energy industry,
and the legal landscape is only now beginning to catch up. As with most things, changes in the law can lag
significantly behind changes in technology.
An initial question to consider is exactly who has the authority to regulate hydraulic fracturing in the
U.S. The answer is complicated and can be a source of significant tension between agencies. Authority can
reside at the federal, state, county, or city level. The paper begins with a discussion of federal regulations
and related issues followed by a state level analysis.

Federal Laws and Regulations

As stated above, there is significant disagreement about what authority, if any, federal agencies have to
regulate most hydraulic fracturing activity. Primary authority to regulate hydraulic fracturing (as of late
2016) exists at the state level or for tribal lands, at the tribe level. Over the past two decades, however,
the federal government has gained increasing regulatory authority over hydraulic fracturing. As will be
discussed, there is significant litigation regarding the authority to regulate hydraulic fracturing.

Safe Drinking Water Act

The principal federal law regulating "underground injection" activities is the Safe Drinking Water Act
(SDWA), enacted in 1974 and administered by the Environmental Protection Agency (EPA). A key
component of the SDWA requires the EPA to regulate the underground injection of fluids in order to
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protect underground sources of drinking water. Specifically, Part C of the SDWA establishes a national
regulatory program, and requires the EPA to promulgate regulations setting forth minimum requirements
for state underground injection control (UIC) programs. In turn, states must submit to the EPA a proposed
UIC program that meets those minimum requirements. The SDWA gives states primary enforcement
responsibility for UIC injection programs, provided the state program meets EPA requirements. But if the
state's UIC program is not approved (or the state has chosen not to assume program responsibility), then
the EPA administers the program.
For the first 20 years after enactment of the SDWA, hydraulic fracturing was not regulated under
the act. The EPA maintained this position because the technique for enhancing the recovery of natural
resources from underground formations did not, by its interpretation, fall within the regulatory definition
of "underground injection."
In 1994, an environmental group called the Legal Environmental Assistance Foundation (LEAF)
challenged the EPA's approval of the Alabama UIC program on grounds that the program did not regulate
hydraulic fracturing activities associated with production of methane gas from coalbed formations. The EPA
denied LEAF's request to withdraw its approval of the Alabama UIC program, finding that the definition
of "underground injection" applied only to wells whose "principal function" is the underground injection of
fluids. According to the EPA, the principal function of gas production wells, including those that have used
hydraulic fracturing, is gas production, not underground injection of fluids.
LEAF challenged the decision before the Court of Appeals for the Eleventh Circuit in 1997, which
ultimately held that hydraulic fracturing "unquestionably falls within the plain meaning of the definition
[of underground injection]," and the Alabama hydraulic fracturing activities must be regulated under the
SDWA.
In response to the LEAF decision, the EPA undertook a study to evaluate the environmental risks
to underground sources of drinking water from hydraulic fracturing practices associated with coalbed
methane production (CBM). The EPA completed its study"Evaluation of Impacts to Underground Sources
of Drinking Water by Hydraulic Fracturing of Coalbed Methane Reservoirs"in 2004, and found that
hydraulic fracturing "poses little or no threat" to drinking water and required no further study. It determined,
however, that "the use of diesel fuel in fracturing fluids poses the greatest potential threat to USDWs
[underground sources of drinking water] because the BTEX constituents in diesel fuel exceed the MCLs
[maximum contaminant levels] at the point-of-injection." As a precautionary measure, the EPA entered into
a Memorandum of Agreement with three companies that provided roughly 95% of hydraulic fracturing
servicesBJ Services Company, Halliburton, and Schlumberger. Under this agreement, the companies
agreed to remove diesel fuel from CBM fluids injected directly into drinking water sources if cost-effective
alternatives were available.
The methodology used in the 2004 EPA studybased primarily on an assessment of the available
literature and extensive interviewshas been harshly criticized. One agency whistleblower claimed the
EPA's conclusions were "scientifically unsound" and that the study was flawed because the agency
"conducted limited research" and five of the seven members on the Peer Review Panel had conflicts of
interest.

Energy Policy Act of 2005

Although the LEAF decision applied only to hydraulic fracturing for CBM production in Alabama, the
Court's holding raised the issue of whether the EPA could be required to regulate hydraulic fracturing
generally under the SDWA. Shortly after LEAF and the 2004 EPA study, Congress adopted an amendment
to the SDWA, as part of the Energy Policy Act of 2005, exempting all non-diesel hydraulic fracturing from
the definition of "underground injection":
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The term "underground injection"(A) means the subsurface emplacement of fluids by well injection;
and (B) excludes(i) the underground injection of natural gas for purposes of storage; and (ii) the
underground injection of fluids or propping agents (other than diesel fuels) pursuant to hydraulic
fracturing operations related to oil, gas, or geothermal production activities.

Thus, although the LEAF decision arguably mandated EPA regulation of hydraulic fracturing, the Energy
Policy Act of 2005 made clear that the EPA need not regulate hydraulic fracturing that did not involve the
use of diesel fuels.

Environmental Protection Agency

Since the Energy Policy Act of 2005, the EPA has become increasingly involved in the regulation of
hydraulic fracturing. In June 2015, the EPA published a draft report on its multi-year study on "the
relationship between hydraulic fracturing and drinking water." The Executive Summary includes, as a
"major finding," that there are certain "above and below ground mechanisms by which hydraulic fracturing
activities have the potential to impact drinking water resources." It also states that the EPA "did not find
evidence that these mechanisms have led to widespread, systemic impacts on drinking water resources in
the United States." The EPA did find "specific instances where one or more mechanisms led to impacts on
drinking water resources, including contamination of drinking water wells. The number of identified cases,
however, was small compared to the number of hydraulically fractured wells."
The EPA has a Science Advisory Board (SAB), which it tasks with providing scientific advice and
peer review of EPA studies. At the EPA's request, the SAB reviewed the 2015 draft and provided its final
assessment on August 11, 2016. The SAB found the EPA's approach to be "comprehensive but lacking
in several critical areas." The SAB also expressed concerns that the language quoted above regarding
"widespread, systemic impacts" was "ambiguous and appear[s] inconsistent with the observations, data,
and levels of uncertainty presented and discussed in the body of the draft Assessment Report." The SAB
reported that a majority of its members believed the language should be clarified, and if kept, supported
by citations to specific evidence in the body of the report, and that the EPA should "consider modifying
adjectives before the words widespread, systemic impact." The SAB also made other recommendations
for the final Assessment Report, including: the recognition of local, as opposed to national, impacts; the
use of prospective case studies; clearly defining the "probability, risk and relative significance of potential
hydraulic fracturing-related failure mechanisms"; a compilation of toxicological information on constituents
employed in hydraulic fracturing; a discussion of the importance of baseline water testing; and clearer
information regarding the treatment of hydraulic fracturing wastewater.

Bureau of Land Management

The Bureau of Land Management has regulatory authority over public lands within the U.S. and has also
become increasingly involved in the regulation of hydraulic fracturing on such lands. In 2015, the US
Department of the Interior's Bureau of Land Management (BLM) issued a new set of rules (BLM Rule) to
regulate hydraulic fracturing on federal lands. Several states and Indian tribes filed suit in Wyoming federal
district court to prevent the new rules from being implemented. The federal judge issued a preliminary
injunction in 2015, deciding that the states would likely prevail in their arguments that the rules were invalid.
The BLM and several environmental agencies which supported the new rules appealed that decision to the
Tenth Circuit.
Shortly after the appeal briefing was complete but before the appellate court could rule, the district court
judge entered his ruling on the merits of the case. Finding BLM's hydraulic fracturing rule unlawful since
it "attempted an end-run around the 2005 EP [Energy Policy] Act," Judge Skavdahl explained that the
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"regulation of an activity must be by Congressional authority, not administrative fiat." He further added
that "Congress inability or unwillingness to pass a law desired by the executive branch does not default
authority to the executive branch to act independently, regardless of whether hydraulic fracturing is good
or bad for the environment or the citizens of the United States." Indeed, the Court held that the federal
government had exceeded its authority and the proposed rules were permanently enjoined nationwide. The
BLM and the environmental agencies supporting the new rules are appealing this order to the Tenth Circuit.
The initial appeal of the preliminary injunction was dismissed as moot and, at the request of the federal
government entities, the Tenth Circuit ordered the Wyoming court to vacate its preliminary injunction order.
One aspect of this litigation concerns an EPA study of groundwater contamination near Pavillion,
Wyoming. In 2009, the EPA started an investigation into groundwater contamination potentially resulting
from drilling and hydraulic fracturing activity near Pavillion. The EPA's initial conclusion was that hydraulic
fracturing may have impacted groundwater near Pavillion, but in 2013, following "heavy criticism" of the
scientific data on which that conclusion was based, the EPA abandoned that report and did not finalize
it. When the states and industry groups opposing the BLM Rule pointed this out to the district court, the
environmental groups supporting the BLM Rule advised the Court that the EPA investigator who had been
on the 2009 team had returned to Pavillion following his retirement and completed the study on his own.
His results were published March 29, 2016, and addressed the issue of hydraulic fracturing done at shallow
depths. The report states that it has, "for the first time, demonstrated impact to [underground sources of
drinking water] as a result of hydraulic fracturing." The report also noted that "[s]hallow fracturing poses
greater risks than deeper fracturing does." The appeal of the final district court order is pending at the Tenth
Circuit.

Resource Conservation and Recovery Act

In addition to attempting to add new hydraulic fracturing regulations under the BLM Rule, certain
groups have also recently attempted to use another federal statute to pursue similar goals: the Resource
Conservation and Recovery Act (RCRA). The RCRA was enacted in 1976 to address the disposal of wastes,
including solid wastes and hazardous wastes. Two categories of lawsuits have been recently launched
alleging RCRA violations. The first category alleges that induced seismicity events violate the RCRA while
the second claims that EPA failed to perform periodic regulatory reviews, thus violating the RCRA. A
discussion of two such cases follows.

The RCRA and Induced Seismicity

In February 2016, the Sierra Club filed a lawsuit in Oklahoma alleging that induced earthquakes were
caused by water disposal wells, and that harm was done which violated the RCRA. The suit was filed
against certain specific energy companies, and alleged that their injection of liquid wastes have "contributed
and continue to contribute to the increased seismicity," and that the induced earthquakes "present an
imminent and substantial endangerment to health and the environment in violation of [the RCRA]." As
relief, the Sierra Club seeks a declaration that the defendants have caused the alleged harms, an order that
the defendants substantially reduce the amount of waste injection, an order that the defendants "reinforce
vulnerable structures that current forecasts show could be impacted by large magnitude earthquakes," and
an order establishing "an independent earthquake monitoring and prediction center to analyze and forecast
the volume of Production Wastes which can be injected into a particular well or formation in a given area
before seismicity is induced."
The defendants moved to dismiss the case on various grounds, including that the RCRA does not cover
the alleged harms, but instead only covers pollution or contamination. Regarding the demand that the Court
order the creation of an "independent earthquake monitoring and prediction center," the defendants argued
that the Oklahoma Corporation Commission, the state entity which oversees oil and gas regulations in
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Oklahoma, is already addressing the induced seismicity question, and the Court should not interfere with
its efforts by adding another entity to do the same work. As of November 2016, this case was pending and
the motions to dismiss had not been ruled upon.

The RCRA and EPA Regulations

Shortly after the February 2016 Sierra Club lawsuit, the Environmental Integrity Project, along with other
environmental groups, filed suit in the federal district court in Washington, D.C. The suit was filed against
the EPA, and alleged that the EPA failed to meet certain nondiscretionary duties, including a periodic review
of "regulations and guidelines for the disposal, storage, transportation, and handling of oil and gas wastes."
The suit seeks to compel the EPA to conduct necessary evaluations and make any necessary revisions to
regulations regarding oil and gas wastes, which the suit alleges have not been updated since the 1980s, and
are allegedly not up to the standards necessary given the explosive growth in the energy industry over the
past decade.
Various interested parties have sought to join this litigation, including the state of North Dakota, The
American Petroleum Institute, Independent Petroleum Association of America, and the Texas Independent
Producers and Royalty Owners Association ("industry groups"). These entities have stated that their interests
"are not adequately represented by the EPA," and therefore they wish to participate in the suit. Both the
environmental groups who filed the suit and the EPA opposed the request to join the case, stating that the
industry groups have no standing to join, and that if there are any revised regulations to which the industry
group objects after the conclusion of the lawsuit, they will be free to challenge them in the future. The
industry groups counter that the plaintiffs are not merely seeking revised regulations, but judicial findings
of certain facts, and therefore the industry groups, including specific states, "must play a substantial role in
the review process." As of November 2016, the case was pending and no ruling had been made regarding
which parties, if any, will be permitted to join the suit.

Patents and Trade Secrets

Another area of federal involvement in hydraulic fracturing is the protection of patents and trade secrets.
Patents are governed by federal law, and until recently, trade secrets were governed exclusively by state
laws. Because the general area of intellectual property is covered under both federal and state laws, the
paper will address it alongside the federal laws.
Hydraulic fracturing fluids can be the object of some companies trade secret portfolios. However,
trade secret claims can conflict with regulations requiring public disclosure of fracturing fluid chemicals.
Therefore, there are exceptions for chemical disclosures in some states if a compound, substance, or mixture
is claimed as a trade secret. These regulations vary significantly by state, as do related aspects of trade
secret laws.
There are at least two statutes in Texas that directly address trade secret claims for hydraulic fracturing
chemicals. Under the Natural Resources Code, the state must define a process for a company to "withhold
and declare certain information as a trade secret [], including the identity and amount of the chemical
ingredient used in a hydraulic fracturing treatment." The statute further limits the timeframe for a challenge
to trade secret claim, limits who may make such a challenge, and defines a process for health providers or
emergency responders to be able to access such information in the event of a health emergency.
Under the Texas Administrative Code, a company may withhold hydraulic fracturing chemical
information if that information is subject to a trade secret claim. However, "the chemical family or other
similar description associated with such chemical ingredient must be provided." This statute similarly
provides for access to such withheld information by health professionals and emergency service providers.
It also specifies what must be disclosed when there is a trade secret claim, and outlines a procedure for trade
secret challenges. Colorado laws are similar to those of Texas.
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California recently changed its laws regarding what can be claimed as a trade secret relative to hydraulic
fracturing fluids. Specifically, none of the following may be protected as a trade secret in California: "(a)
The identities of the chemical constituents of additives, including CAS identification numbers; (b) The
concentrations of the additives in the well stimulation treatment fluids; (c) Any air or other pollution
monitoring data; (d) Health and safety data associated with well stimulation treatment fluids; (e) The
chemical composition of the flowback fluid." The law requires that the chemical constituents be disclosed
to the state even if there is a trade secret claim, and the state will decide if the trade secret claim is valid.
If the claim is invalidated, the information will be made available to the public. The law also sets out what
is required to substantiate a trade secret claim, including requirements to show the extent to which the
information is known inside and outside the supplier's business, the measures taken to guard the secret,
the value of the trade secret to both the supplier and its competitors, and the amount of effort which was
expended to develop the trade secret. As with other recent statutes regarding this subject, the statute permits
access to the information by health professionals and emergency responders.
Although not a regulation per se, hydraulic fracturing methods and equipment may be the subject of
a U.S. patent, which could require a company to not use a particular method or apparatus without first
obtaining permission from the patent owner. Unlike trade secrets, patents are fully disclosed to the public
as part of the bargain between an inventor and the public, which gives the inventor a time-limited right to
exclude others from practicing the invention.

North America Free Trade Agreement

Although the North America Free Trade Agreement (NAFTA) does not regulate hydraulic fracturing, one
company has used NAFTA as the basis for a lawsuit regarding a Canadian hydraulic fracturing moratorium.
Lone Pine is headquartered in Calgary, but incorporated in Delaware. Because of its Delaware incorporation,
it is eligible to sue Canada under NAFTA. Following a ban on hydraulic fracturing in Quebec, Lone Pine did
file a NAFTA arbitration claim. Lone Pine claims that it obtained leases and expended significant money
in pursuing those leases, but later Quebec issued a moratorium on hydraulic fracturing that prevented Lone
Pine from moving forward with developing its leases. The arbitration was pending as of late 2016.

State Laws and Regulations

As mentioned previously, there is considerable tension within individual states as to which level of
government should appropriately regulate oilfield activities, including hydraulic fracturing. In addition to
knowing the current regulations, an important question is under what claims have lawsuits been brought
against oil and gas companies relating to hydraulic fracturing. Such claims may arise from alleged induced
seismicity which results in earthquake damage, contamination to water sources, or general nuisance, such
as noise or air pollution. These internal state tensions and various legal claims are discussed in detail below.

Pre-emption of Local Regulations

Within the past decade, many cities and counties enacted local bans on hydraulic fracturing. However, some
states overturned those bans, recognizing that the authority to regulate oil and gas operations including
hydraulic fracturing resides at the state level. In 2015, the state legislatures in Texas and Oklahoma passed
laws prohibiting local regulations that impact hydraulic fracturing. The state supreme courts in Ohio and
Colorado similarly ruled that local oil and gas regulations are pre-empted by state regulations. In Louisiana,
a state appellate court recently ruled that state oil and gas regulations pre-empt local zoning laws. Although
the local government and a citizens group appealed that ruling to the Louisiana Supreme Court, the Court
denied the petition to review, as well as a subsequent petition for reconsideration.
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State Bans and Moratoriums

As of late 2016, some states have banned or imposed moratoriums on hydraulic fracturing. Vermont was
the first state to ban hydraulic fracturing, but there has been little effort to drill in Vermont since the 1980s.
More significantly, New York banned hydraulic fracturing in 2014. Maryland imposed a 2-year moratorium
on hydraulic fracturing in May 2015. The moratorium bars the state from issuing permits for hydraulic
fracturing until 2017, and requires Maryland's Department of the Environment to issue regulations by
October 2016. However, several Democratic lawmakers in Maryland have stated that they plan to push for a
complete ban in 2017. Although the moratorium was not vetoed by the Republican governor who supports
hydraulic fracturing, the moratorium vote likely had sufficient votes to override a veto. The Maryland state
legislature serves four year terms, and the next election is in 2018. Thus, the same lawmakers will be in
political control in 2017 when the moratorium ends, making a state-wide ban in 2017 likely.
California, one of the largest oil producing states in the country, continues to refuse to ban hydraulic
fracturing at the state level. Jerry Brown, who is in his final term as California governor, has rejected calls
from environmental groups to enact a statewide ban. However, in the November 2016 election, voters in
Monterey County, California passed Measure Z, which is the first ban in a California county that actually
has significant oil industry. Now that a county with significant oil industry has passed a ban, this measure
and other local measures may be challenged in the California courts. Challenges through the courts would
ultimately be decided by the California Supreme Court. That court consists of seven justices, four of whom
were appointed by a Republican governor and three by a Democratic governor. Importantly, the question
which may ultimately be posed to the California Supreme Court will likely not be about hydraulic fracturing,
but rather whether state laws pre-empt local laws in such an important industry. The state legislature could
also pass a new law banning local regulations, as Texas and Oklahoma did, but since the California state
legislature is controlled by a Democratic majority, and the relevant county level ban is likely favored by
that majority, this path may be less likely.
Other states have considered but not yet enacted bans. These states include Arizona, Florida, Hawaii,
Illinois, Massachusetts, Nevada, New Hampshire, New Jersey, and Oregon. Anti-fracturing regulations were
recently proposed for the 2016 ballot in Colorado, but those measures failed to reach the ballot.

Regulations and Lawsuit Activity Regarding Seismicity

Many articles about induced seismicity have been written recently. While the articles vary in scope and
claims, the focus is primarily on the significantly increased seismic activity in various parts of the country,
particularly Oklahoma.
On September 3, 2016, a 5.8 magnitude earthquake struck the region near Pawnee, Oklahoma, now on
record as the largest quake in the state's history. In response, Oklahoma declared a state of emergency and
the Oklahoma Corporation Commission (OCC) ordered the closure of 37 waste water injection wells within
ten days. Shortly thereafter, the OCC modified its September 3 directive to shut in 32 wastewater injection
wells and another 16 to reduce volume. While these actions were taken in direct response to the earthquake,
the OCC has in fact been ordering volume cuts, well shut-ins, and setting goals such as bringing "total
disposed volume in [a particular] area to 30 percent below 2012 (pre seismicity)" in separate steps over
the last few years.
In 2013, the OCC implemented a "traffic light" system in response to seismicity concerns. This system
involves a seismicity review for every new disposal well, regardless of location. Wells that pass red
light criteria but are still of some concern must go through various steps before final approval, including
public review, be approved only on a temporary basis (six months), and can be required to have onsite
seismometers. The OCC also increased requirements for both mechanical testing and water volume
reporting over the last few years. The OCC states that its systems are constantly evolving in response to new
information and review, so specific regulations regarding wastewater disposal wells will continue to change.
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Lawsuits over induced earthquakes have been filed under various legal theories, ranging from federal
statutes such as the Resource Conservation and Recovery Act to common law causes of action, including
negligence, nuisance, and subsurface trespass.
One such lawsuit is Ladra v. New Dominion, filed in Oklahoma. The defendants initially had the
case dismissed on the theory that the claims made should be resolved by the OCC, which has exclusive
jurisdiction over oil and gas operations in Oklahoma. That decision was appealed to the Oklahoma Supreme
Court, which reversed the trial judge, saying that the claims were in fact proper for a court to consider, not
the OCC. Since that decision, the case resumed in the Oklahoma state courts and is pending.
The Texas Supreme Court recently was asked to determine whether Texas recognizes a legal claim for
subsurface trespass. However, the subsurface trespass cause of action in that case was not based on an
earthquake. The Texas Supreme Court declined to answer whether Texas recognizes such a claim, which
means that another case will likely have to work its way through the courts before there is a clear answer
on whether Texas recognizes a claim for subsurface trespass.

Regulations and Lawsuit Activity Regarding Water Contamination

The potential risk for water contamination caused by drilling and hydraulic fracturing processes has
prompted a great deal of media attention throughout the years. In response to these concerns, the American
Petroleum Institute (API) published a guidance document recommending that operators conduct baseline
water quality testing before drilling a well that will be hydraulically fractured. Several states have also
enacted regulations that either require or encourage baseline testing before and/or after a well is drilled or
fractured.
Wyoming's regulations require testing water wells and springs located within a half-mile of the planned
drill siteregardless of any plans to hydraulically fracture the wellno more than 12 months before drilling
begins. Two rounds of post-drilling testing are also required under the rule. The first round must occur
between 12 and 24 months after the production casing is set, while the second round occurs between 36 and
48 months after the production casing is set. The test results must be submitted to the Wyoming Oil and Gas
Conservation Commission within three months of the sample collection, and the Commission subsequently
makes the results publicly available. The operator must also test for a broad range of analytes listed in
the rule (e.g., total dissolved solids, dissolved gases, presence of bacteria, total petroleum hydrocarbons,
and presence of the BTEX compounds, etc.), and requires isotopic characterization of methane if the
concentration of that compound exceeds five milligrams per liter.
In 2016, the Nebraska Legislature approved a bill to reform the Nebraska Oil & Gas Conservation
Commission and impose stronger protections for water and land against hydraulic fracturing waste.
Nebraska law now requires operators to conduct annual sampling and analysis of injected wastewater and
report these test results to the state Oil and Gas Conservation Commission.
Unlike Wyoming and Nebraska's regulations, the Pennsylvania statute does not technically require
baseline testing, but instead it creates certain presumptions that may encourage testing. For example, an
operator is responsible for water contamination if (1) the groundwater supply is within 1,000 feet of the oil or
gas well, and the contamination occurs within six months of the completion of drilling or (2) the groundwater
supply is within 2,500 feet of the vertical section of an unconventional well, and the pollution occurred
within twelve months of the completion of drilling or hydraulic fracturing of the well. If the operator opts
to not perform any baseline testing, the statute arguably appears to make the presumption of contamination
irrebuttable. Indeed, the statute refers to the obligation of an oil and gas operator to conduct pre-drilling
testing if the operator "elect[s] to preserve" its right to rebut the presumption. Thus, an operator who does not
perform baseline testing may be held legally responsible for water contamination, even if the operator could
affirmatively prove that he did not cause the contamination and that instead there was a different cause.
SPE-184859-MS 9

Like Pennsylvania, West Virginia does not require baseline testing, but it establishes certain presumptions
that may encourage testing. West Virginia law provides that, if a water supply is located within 1,500 feet
of the center of the wellhead of a horizontal oil or gas well, and water contamination occurs, there will be
a presumption that the operator of the oil or gas well caused the contamination. Although the presumption
is rebuttable regardless of whether the operator performs baseline testing, the statute seems to prohibit the
operator from rebutting the presumption by proving that the "pollution existed prior to the drilling," unless
the operator has performed baseline testing using an independent, certified laboratory. The test results must
be provided to the owner of the water supply and the West Virginia Department of Environmental Protection.

FracFocus
FracFocus is a website that acts as "the national hydraulic fracturing chemical registry." It exists to "provide
the public access to reported chemicals used for hydraulic fracturing within their area." The website also
provides information regarding hydraulic fracturing and chemical disclosure regulations for each state. It
also serves as a resource for the public to obtain information about hydraulic fracturing, the protection of
groundwater sources, and information about what chemicals are in particular wells. Some states require
the entry of information into FracFocus by regulation, while others are considering or implementing state-
specific registries as opposed to FracFocus. FracFocus is a tool that has been evolving since its introduction
in 2011.

Regulations and Lawsuit Activity Regarding Noise and Nuisance

Noise and nuisance regulations are typically set at local government levels. Some localities have attempted
to use these regulations in a manner that effectively bans hydraulic fracturing, without expressly saying
so. Recognizing this attempt as an end-around the state's authority, Texas addressed this in its recent law
pre-empting local regulations of hydraulic fracturing. The Texas pre-emption statute states that a local
government may regulate "only aboveground activity related to an oil and gas operation that occurs at or
above the surface of the ground, including a regulation governing fire and emergency response, traffic,
lights, or noise, or imposing notice or reasonable setback requirements" but only if that regulation "does
not effectively prohibit an oil and gas operation conducted by a reasonably prudent operator." The statute
concludes by acknowledging that a regulation is "considered prima facie to be commercially reasonable if
the ordinance or other measure has been in effect for at least five years and has allowed the oil and gas
operations at issue to continue during that period."
However, companies may still be subject to lawsuits where a plaintiff claims that a hydraulic fracturing
operation created a private nuisance. Nuisance laws vary from state to state. A Pennsylvania jury verdict
earlier this year concluded a case that had lasted seven years with a finding that a company had "negligently
created a private nuisance" and owed monetary damages.
In private nuisance cases there is a significant difference in damages depending on whether there was
a permanent nuisance or a temporary nuisance. Two recent Texas cases have involved the question of
temporary damages, rather than permanent or future damages. The Parr v. Aruba case was appealed to the
Texas Fifth District Court of Appeals, and in the Crowder v. Chesapeake case, a jury found there was only
a temporary nuisance rather than future ongoing nuisance, and therefore limited the damages awarded.
Another recent Texas nuisance case was filed by landowners who claimed that drilling and hydraulic
fracturing operations near their home created a private nuisance. Despite the fact that the landowners
negotiated a lease agreement with an energy company that permitted drilling operations to be conducted
"on adjoining or nearby lands" owned by others, a jury awarded the landowners damages. A Texas court of
appeals reversed that jury award, holding that the landowners were precluded from bringing a nuisance suit
because they "unconscionably accepted benefits of the transactions their lease and easement agreement
while taking positions that inconsistently attempt to avoid the obligations and effects (including all of
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the circumstances forming the gravamen of their nuisance claim) of those same transactions." The Texas
Supreme Court denied a petition to review the appellate decision.

International Regulations
Canada
Although some provinces and federal territories in Canada have enacted bans against hydraulic fracturing,
including Quebec, New Brunswick, Nova Scotia, and Yukon, other provinces are proactively assessing
responsible regulations in efforts that have been praised by industry leaders. Alberta has the most
comprehensive approach and regulatory framework to date in Canada, and British Columbia is making
significant strides in the same direction. As part of its efforts, British Columbia is sponsoring the Canadian
implementation of FracFocus, the industry website for companies to identify chemicals associated with
specific wells.
One difference in hydraulic fracturing regulations between the U.S. and Canada is that Canada, at least
Alberta, has enacted depth restrictions on hydraulic fracturing. In 2013, the Alberta Energy Regulator
Alberta's entity governing oil and gas operations in the province issued Directive 083, which puts limits
on vertical depths at which a well may be fractured. If a well to be fractured is within 200 meters of a
water well, such fracturing may not take place within 100 vertical meters of the bottom of the water well.
The 2016 Wyoming study stated that "shallow fracturing poses greater risks than deeper fracturing," and
Canada recently implemented depth restrictions, so it is possible depth restrictions could be included in
future United States regulations.
Another regulatory difference between the U.S. and Canada concerns baseline water testing. In 2006,
Alberta Energy Regulator issued Directive 35, which requires companies wanting to complete or recomplete
wells that produce CBM, to offer to baseline water test any active water wells within 600 meters. If there
are no water wells within 600 meters, the company must offer to test the nearest water well which is within
600 to 800 meters. Given the developments in the United States regarding baseline water testing previously
discussed, and the Science Advisory Board recommending baseline water testing, it is possible that more
U.S. regulations will be added in the future.
Regarding seismicity, the regulatory bodies in Alberta and British Columbia recently investigated
particular seismic events. In Alberta, the Duvernay zone has been called the next gold rush. Seismic events
were experienced in 2014 and 2015 in the Fox Creek region of the Duvernay zone. In response, the Alberta
Energy Regulator issued Subsurface Order No. 2. This order set out a traffic light system. Under this system,
any hydraulic fracturing operations in the defined zone must assess the potential for seismicity, submit a
plan to monitor for, mitigate, and respond to seismicity, and the monitoring must be sufficient to detect a 2.0
magnitude event within 5 kilometers. Under the traffic light system, as long as there are no seismic events
equal to or greater than 2.0, no further actions are required. If there is an event of 2.0 or more, the operator
must inform the AER and execute its seismic plan. If there is an event of 4.0 or more, the operation must
cease, inform the AER, execute its seismic plan, and await approval before resuming any activity.
In British Columbia, the British Columbia Oil & Gas Commission investigated seismic events in remote
areas in the Horn River Basin between 2009 and 2011. The investigation "concluded that the events observed
within remote and isolated areas of the Horn River Basin between 2009 and 2011 were caused by fluid
injection during hydraulic fracturing in proximity to pre-existing faults."
The British Columbia Oil & Gas Commission also investigated seismic events in the Montney Trend area
between 2013 and 2014. The investigation found that between August 2013 and October 2014, "231 seismic
events in the Montney were attributed to oil and gas operations 38 induced by wastewater disposal and
193 by hydraulic fracturing operations." In response, the commission made a number of recommendations,
including increased regulatory scrutiny for disposal wells, improvements to seismicity monitoring stations,
SPE-184859-MS 11

continuing to improve regulations, increase public access to related data, and assessing the use of buffer
zones as a way to protect sensitive infrastructure and subservice projects.

Other Countries
The question of regulating or banning hydraulic fracturing is a top news item in many countries. Some
European countries have banned it outright, such as France and Germany, while others continue to
allow hydraulic fracturing but have implemented stricter regulations, such as the United Kingdom. These
regulations change frequently and have a history of being reversed, so current information is particularly
important.

The November 2016 Election

United States Federal Government
The 2016 elections resulted in a Republican president and a Republican majority in both the Senate and
the House of Representatives. There was not much discourse about hydraulic fracturing by the candidates
during the campaign. However, President-elect Trump has been critical of the hydraulic fracturing ban in
New York, highlighting the jobs and business prosperity in neighboring Pennsylvania where there was no
ban. Once the new administration is in place, Mr. Trump will appoint a new Secretary of the Interior. The
change will likely result in significant policy changes regarding hydraulic fracturing.

Pending Federal Litigation

The change in administration from Democrat to Republican will likely have an effect on several pending
lawsuits. For example, the proposed BLM Rule, currently on appeal at the Tenth Circuit, may be withdrawn
by the new Secretary of the Interior, rendering the appeal moot. And if the appeal is ruled upon before a new
Secretary is appointed, even if the rule is found to be valid, the rule may still be withdrawn. It is also possible
that the new Congress could pass legislation to resolve any alleged ambiguity in the Federal authority to
regulate hydraulic fracturing other than with diesel oil.
Another lawsuit that will significantly change is the challenge to the EPA in the District Court of the
District of Columbia. There, environmental groups are suing the Secretary of the Interior and the EPA,
seeking to force the EPA to make new regulations, and seeking to block states and industry groups from
participation in that lawsuit. Again, with the impending change of the Secretary of the Interior, this lawsuit
will take on a new dynamic. The environmental groups will likely continue the suit, but the individuals who
comprise the defendants (the Secretary of the Interior and the EPA) will change. The new defendants will
likely be more amenable to letting the states and industry groups participate in the lawsuit.
Finally, now that the entire Federal government is controlled by Republican majorities, there may be a
significant increase in the number of lawsuits by environmental groups related to hydraulic fracturing.

Suggestions
As shown throughout this paper, the legal landscape is constantly changing regarding hydraulic fracturing
and wastewater disposal wells. Some suggestions for operators and corporate policymakers include:

Review company operating procedures to ensure they comply with current regulations and laws

Become actively involved in educating landowners and the public about hydraulic fracturing

Invite and encourage involvement by landowners and nearby landowners during the planning
phase, and before site selection if feasible
Test nearby water sources before and after operations, and maintain good records of the results
12 SPE-184859-MS

Record appropriate data in FracFocus

Consider adding onsite seismometers, depending on location and conditions

Anticipate increased and changing regulations, and be diligent about updating policies and
procedures
Planning teams should work with vendors to determine what chemicals can be excluded or
minimized
Keep accurate records related to pumping, including locations and amounts

Be a good corporate citizen; engage landowners and nearby communities to help facilitate a
positive and open atmosphere
Disclaimer: This paper is not legal advice. The authors have done their best to report on current regulatory,
litigation, and other legal information related to hydraulic fracturing. For legal advice regarding a particular
situation, please consult an attorney.