Fracking

Introduction to Fracking

Fracking, or hydraulic fracturing, has been at the center of much debate in the past decade. The process has had an enormous impact on the energy industry in the US, particularly with regard to natural gas markets. Natural gas will continue to play an important role in the energy future of the US, necessitating responsible developments in the oil and gas industry that will offer potential economic, energy security and environmental benefits across the country.

Scientific Background

Fracking is a stimulation process used to extract natural gas (and in some cases oil) from deep reserves in various rock formations below the surface. This process allows energy companies to extract natural gas and oil that was not previously attainable. The fracking process involves pumping a mixture of water, sand and chemicals into a well at a high pressure, which fractures the surrounding rock formation and opens passages and allows the gas and oil to flow more freely. Once the well is developed, some of the fracking fluid is carried back to the surface with the gas and oil, while the rest remains in the ground.

The force of the water creates a network of tiny fissures in the impermeable rock. The flow of the water forces the sand mixture into these cracks, which then holds them open to allow natural gas or oil to flow through. The average fracturing process takes 3 to 10 days to complete.

History of Fracking

The process of fracking was first discovered in the year 1866, by a Civil War veteran named Edward Roberts. Roberts observed artillery rounds during the war and came up with the idea of creating a concentrated explosion inside of an oil well in Titusville, Pennsylvania. During this process, a "Roberts Torpedo" was lowered into the well to the spot where it was thought it should be exploded. The purpose of this was to fill the borehole with water in order to fracture the oil strata. The technique was extremely successful, and production from the initial wells increased by over 1,000 percent shortly after the wells were "shot." By 1868, nitroglycerin began to be used in place of black powder.

In the 1930s, injecting a non-explosive fluid was attempted, which involved the injection of an acid substance to "acid etch" the rock strata. This process was combined with water injection and was confirmed to be successful in several drilling operations. In 1939, Ira McCullough developed a variation on Roberts's idea. His method consisted of a bullet-shot casing perforator, which sent projectiles through the casing and into the oil formation, also with the intention of fracturing the strata. This greatly enhanced the flow of oil through the well. Soon after, Floyd Farris from Stanolind Oil and Gas Corporation conceived the idea of hydraulically fracturing the formation to enhance the production in their wells. By 1949, the first commercial application of hydraulic fracturing was realized on an oil well in Duncan, Oklahoma. Fracking became the most commonly used method of stimulating wells. The technique was patented by the Pan American Oil Company, and a license was issued to the Halliburton Exploration and Production Company to use the technique in their oil drilling operations. In 1953, the license was extended to other drilling companies.

In the 1970s and 1980s, George Mitchell, owner of Mitchell Energy & Development, applied the fracturing process to the Barnett Shale in Texas, which began the current wave of shale productivity that has lasted to the present day. It was Mitchell's idea to manipulate the naturally occurring fractures in shale formations in order to allow the gas to flow more easily. Mitchell drilled the first horizontal wells and received tax credits through Section 29 of the Internal Revenue Code from the federal government in order to subsidize further well projects.

Since then, hydraulic fracturing has led to increased production from underperforming oil and gas wells. The Environmental Protection Agency (EPA) calls the process of hydraulic fracturing a well-stimulation process, which best describes the use of fracturing for wells which would otherwise be unable to produce further.

Current Issues

Fracking was not used on a large commercial scale until 2003, when companies began exploring natural gas reserves within the shale formations found in states such as Texas, Pennsylvania, West Virginia, Wyoming, Utah and Maryland. Hydraulic fracturing was exempted from regulation (for the most part) under the Safe Water Drinking Act in the Energy Policy Act of 2005 [PDF]. The only regulation of hydraulic fracturing found in the Act is the use of diesel fuels as part of the fracking fluid.

Currently, about 90 percent of wells in operation have been fractured, including in unconventional formations. The majority of current debates over hydraulic fracturing surround the issue of fracturing fluids. After the fracturing is completed, the fracturing fluids can be brought back to the surface; the current methods of disposal are underground injection or discharge into surface water (once properly treated). The surface waters discharged are regulated by the National Pollutant Discharge Elimination System (NPDES). Treatment for this water is done via wastewater treatment facilities.

Although California and Texas oil drillers have been using fracking in their operations for decades, hydraulic fracturing has never before received the same level of media and legislative attention as it has in New York, Ohio and Pennsylvania. Controversial issues include the treatment and disposal of fracking fluid; the possible mismanagement (such as spills, leaks, etc.) of fracking fluid; and how the process of fracturing the rock strata may create small earthquakes, which, according to the US Energy Information Administration, are almost always too small to be a safety concern.

Fracking Legislation and Regulation

Since 2005, there has been a great deal of state legislation passed codifying restrictions on the natural gas industry. Some states chose to embrace precautionary policy and set ground rules for the industry as the natural gas boom was just beginning. Other states have passed legislation aimed at fostering industry. At the federal level, the actions taken thus far have been exploratory, though many environmental groups are demanding further restrictive legislation in this area. Both US President Barack Obama and EPA Administrator Lisa Jackson have emphasized the "need to extract natural gas without polluting our water supplies." In exploring possible federal oversight of the fracking process, the EPA released a guidance document stating that it may regulate wells in which diesel fuel is part of the fluid injected into the well during the process because of the Safe Drinking Water Act's Underground Injection Control (UIC) program. The EPA is also able to use provisions of the Clean Water Act that establish effluent limitation guidelines to regulate several aspects of hydraulic fracturing. Disposing of fracking fluid at a drill site is banned by the effluent guidelines for oil and gas extraction, meaning most fluid must be treated off-site at publicly owned treatment facilities. In October 2011, the EPA announced that it would begin development of standards for wastewater discharges produced from natural gas operations. State Action

At the state level, there have been several notable pieces of legislation passed in order to mitigate potentially dangerous externalities of hydraulic fracturing. In December 2010, outgoing New York Governor David Paterson signed an executive order instituting a seven month ban on gas drilling in the state. The move came on the heels of Governor Paterson's veto of a bill that would have suspended all new natural gas permits until May 2011 based on concerns of citizens and legislators in the state over potential groundwater pollution. In March 2013, the New York State Assembly passed a two-year moratorium on fracking in the state, effectively extending the ban already in place.

At least five states have considered or passed bills limiting or banning gas drilling in parts of those states out of concerns for public health. In May 2012, Vermont became the first state to completely outlaw fracking anywhere in the state. The ban came just four months after the legislature of New Jersey banned gas drilling for one year, which itself followed New Jersey Governor Chris Christie vetoing a bill that would have permanently banned fracking in the state. In July 2012, North Carolina Governor Beverly Perdue vetoed a bill that would have lifted North Carolina's statewide ban on fracking, citing the need for better safeguards before beginning drilling. In June 2013, Illinois enacted the most restrictive fracking regulations in the US into law.

Other state legislatures have chosen to pass legislation that encourages industry presence and limits the ability of local governments to restrict interference with gas industry development. Pennsylvania's House Bill 1950, otherwise known as Act 13, has been subject to extensive litigation as a result of what some see as a violation of the state's constitution. Act 13 requires all municipalities in the state to allow Marcellus Shale drilling operations in all zoning districts, including those classified as residential. The bill also allows doctors treating those who may be affected by drilling chemicals to access the list of chemicals; however, the doctors are barred from ever discussing the contents of that list. Many groups and municipalities protested the bill as unconstitutionally stripping zoning rights from municipalities, and a legal challenge resulted in injunctive relief until the Pennsylvania Commonwealth Court could decide whether the law should stand. The law was ruled unconstitutional by the Commonwealth Court, and the state Supreme Court has agreed to hear the case.

The most frequent state legislation concerning fractured gas wells has focused on regulating disclosure of fracking fluid's chemical composition to the public. In 2010, Wyoming became the first state to require drilling companies to fully disclose the contents of their fracking fluid. Since then, at least two states, Michigan and Texas, have followed suit with their own legislation requiring disclosure of the chemical constituents of fracturing fluid. Other state bills have sought to protect public water supplies, regulate well inspections and even stop drilling altogether.

Fracking Litigation

Shale gas deposits have been identified across the US and drilling efforts had begun as early as the 1940s. As natural gas extraction intensified in the early twenty-first century and environmental concerns gained publicity, some landowners filed lawsuits, particularly in the northeast Marcellus Shale region. Many of these lawsuits allege that existing fracking activity has contaminated private property and should be considered an ultra-hazardous activity subject to strict liability standards. Courts are currently determining whether exhaustive factual support is necessary to allow plaintiffs' complaints to proceed, or whether the discovery process will prove more beneficial. Fiorentino v. Cabot Oil and Gas Corp. In the case of Fiorentino v. Cabot Oil and Gas Corp., 63 residents of Dimock and Montrose, Pennsylvania, signed leases with the Cabot Oil and Gas Corporation permitting Cabot to extract natural gas from their property. Their properties are located in the Marcellus Shale region. These plaintiffs alleged, in a complaint filed in the US District Court for the Middle District of Pennsylvania, that Cabot improperly conducted the fracking process, allowing "...methane, natural gas, and other toxins" to infiltrate their land and groundwater. The Fiorentino court ruled on whether plaintiffs may proceed with "abnormally dangerous" activity claims. The court, relying on Federal Rule of Civil Procedure (FRCP) 12(b)(6) precedent such as Bell Atl. Corp. v. Twombly and Ashcroft v. Iqbal, declined to dismiss "abnormally dangerous" activity claims raised by the plaintiffs. The court held that such claims contained "sufficient factual matter, accepted as true, to 'state claim to relief that is plausible on its face.'" Even though other Pennsylvania courts have ruled that storage and transmission of gas and petroleum products are not "abnormally dangerous," there is, as yet, no settled law on whether drilling and extraction of gas and petroleum products constitutes an "abnormally dangerous" activity. Per the court:
As noted by both parties, Pennsylvania courts have yet to address whether the conduct at issue sub judice, gas-well drilling, is an abnormally dangerous activity that is subject to strict liability under Pennsylvania law. While we understand that there is case law that suggests that other activities, such as the operation of a pipeline, are not subject to strict liability, we believe it improvident to automatically extend this reasoning to drilling activities without more thorough consideration. Plainly, the record at this early juncture is insufficiently developed for the Court to render an informed decision as to whether this line of cases and the logic expressed therein should apply to the gas-well drilling activities at bar. Therefore, we will deny Defendants' Motion to Dismiss with respect to Count IV. If warranted, Defendants may reassert their argument with respect to strict liability in a motion for summary judgment, based upon what we assume will be a more fully developed record on this point, when appropriate.
Berish v. Southwestern Energy Production Co. The February 2011 case of Berish v. Southwestern Energy Production Co., also from the US District Court for the Middle District of Pennsylvania, applied the ruling in Fiorentino. Distinct from Fiorentino, the plaintiffs in Berish did not sign leases with the drilling company defendant, Southwestern Energy (a Texas company). Rather, the defendant engaged in fracking activities at a site located in close proximity to the plaintiffs' properties. The plaintiffs alleged that discharged fracking fluids contaminated their properties and contributed to physical illnesses. Similar procedural issues were present in Berish and Fiorentino. In Berish, the defendant again filed a motion to dismiss under FRCP 12(b)(6), alleging that the plaintiffs' claim that fracking is an "abnormally dangerous" activity did not contain sufficient factual allegations to sustain the claim. However, the Berish court found:
A number of Pennsylvania cases with facts analogous to the instant suit have determined that the activities involved there were not abnormally dangerous ... However, since the determination of whether or not an activity is abnormally dangerous is fact-intensive, courts often wait until discovery is complete before making this determination.
The Berish court also reiterated the holding in Fiorentino that the applicable test in Pennsylvania for determining whether an activity is "abnormally dangerous" can be found in the Restatement (Second) of Torts. The last noted activity in Berish was the amendment of the plaintiffs' complaint in May 2012. Tucker v. Southwestern Energy Co. A case in the early stages of litigation, Tucker v. Southwestern Energy Co. [PDF] encompasses civil procedure issues similar to Fiorentino and Berish. Filed in the US District Court for the Eastern District of Arkansas, Northern Division, Tucker concerns natural gas extraction from the Fayetteville Shale. The judge in Tucker, citing concerns about the factually-intensive nature of determining whether fracking is an "ultra-hazardous" activity and should therefore held to a strict liability standard, cited Fiorentino and Berish in his opinion. Refusing to dismiss the plaintiffs' claim outright, the Tucker court instead requested that the plaintiffs amend their complaint, and scheduled the matter to move forward to summary judgment stage. As of June 2012, this case was still pending. Anschutz Exploration Co. v. Town of Dryden In the New York trial court decision of Anschutz Exploration Co. v. Town of Dryden, the town of Dryden, located within the Marcellus Shale region, passed zoning regulations banning fracking activity within town limits. The plaintiff, a natural gas company with mineral and gas leasing rights to approximately 22,200 acres within town limits, objected to the implementation of the fracking ban after the leases had been obtained and drilling infrastructure had been built. The natural gas company sued the town, seeking rescission of the zoning regulation, arguing that the state permits it had obtained superseded the town's zoning ordinance. Ultimately, the court ruled that the town could not seek to invalidate an otherwise lawful permit. However, the court did not bar all potential remedies in the case:
The Zoning Amendment provides that "[n]o permit issued by any local, state or federal agency, commission or board for a use which would violate the prohibitions of this section or of this Ordinance shall be deemed valid within the Town" (Dryden Zoning Ordinance, Section 2104[5]). While the Town may regulate the use of land within its borders — even to the extent of banning operations related to production of oil or gas — it has no authority to invalidate a permit lawfully issued by another governmental entity. Rather, enforcement of the provisions of its Zoning Ordinance relating to the use of land is restricted to those remedies authorized by Town Law § 268 and Municipal Home Rule Law § 10(4)(a), (b).

Kamuck v. Shell Energy Holdings GP, LLC

In Kamuck v. Shell Energy Holdings GP, LLC, plaintiff Edward Kamuck lived on property in the Marcellus Shale region. All of his neighbors signed an amended mineral rights lease with the defendants, oil and gas drilling companies Shell Energy and Shell Western Exploration and Production (SWEPI), extending mineral rights to natural gas extraction, including methods such as fracking. Kamuck was the only resident who declined to sign this extended lease, and in fact allowed the prior mineral rights lease, which was more limited in scope, to lapse. He then filed suit in the US District Court for the Middle District of Pennsylvania against Shell Energy Holdings and several related entities, alleging several claims in tort and contract.

The court in Kamuck granted the defendants' motion for dismissal of all contract claims, as the plaintiff did not have any contracts with the named defendants. They also granted the motion to dismiss Kamuck's "anticipatory trespass" claim, ruling that an actual trespass had to take place:

[W]e have found no Pennsylvania cases which permit recovery on an anticipatory trespass theory of liability. Moreover, when we endeavor to assess whether the Pennsylvania courts might embrace such a claim, we are struck by the fact that, while Pennsylvania recognizes the tort of trespass, it is well-settled that: "Trespass is a strict liability tort, 'both exceptionally simple and exceptionally rigorous.'"
However, the court denied the defendants' motion to dismiss on the plaintiff's negligence and "ultra hazardous" (strict liability) claims. Referencing Fiorentino, Berish and Tucker, the Kamuck court refused to dismiss an "ultra-hazardous activity" claim before discovery.

Currently, there are few fracking cases pending in the federal court system. Lawsuits that have been filed have not yet reached a high level of appellate review. Some of the more noteworthy, in particular the Fiorentino case, have settled out of court. Given the lack of precedent, it is likely that both industry and environmental groups will watch existing cases closely as new complaints are filed and decisions in existing cases are delivered.


Timeline

6/18/2013: Illinois governor signed strictest fracking law in nation

4/24/2013: Pennsylvania Supreme Court ruled that natural gas is not a "mineral"

3/6/2013: New York lawmakers approved two-year fracking moratorium

12/21/2012: EPA released progress report on study to better understand the effects of hydraulic fracturing on drinking water

9/4/2012: Attorneys for Pennsylvania state agencies submitted briefs in appeal on hydraulic fracturing zoning rights ruling

8/16/2012: Cabot Oil and Gas reached an undisclosed settlement with citizens of Dimock, Pennsylvania, on the issue of water supplies possibly contaminated by hydraulic fracturing

 ...[more]

Support JURIST

We rely on our readers to keep JURIST running

 Donate now!

© Copyright JURIST Legal News and Research Services, Inc., 2013.