Hydraulic Fracturing and Legal Frameworks
Abstract and Keywords
An oil and gas extraction technique called hydraulic fracturing has been common in the United States for many decades. However, a recent change in this technique—the development of a specific fracturing or “fracking” practice called slickwater or slickwater fracturing—has turned the world of petroleum extraction on its head, opening up massive new deposits of oil and gas in the United States and around the world. This article uses the United States as a case study of the benefits and risks of fracturing and the legal frameworks that apply to this practice, exploring how the legal approach has been largely piecemeal and reactive. US states have been the primary regulatory bodies responsible for controlling risks, and their regulations vary substantially. The federal government also has regulated in limited areas, however—again in a largely reactive and patchwork manner.
Keywords: fracking, hydraulic fracturing, hydrofracking, slickwater fracturing, natural gas (“gas”), petroleum extraction, United States hydraulic fracturing, legal framework, oil extraction, gas extraction
For nearly two centuries, energy companies have drilled beneath the earth’s surface to extract abundant oil and natural gas (“petroleum”) resources. Conventional, easy-to-access petroleum resources have become scarcer over time, and industry has developed a range of technological solutions to produce unconventional petroleum resources—resources that are more broadly dispersed and exist at lower densities than conventional sources. These resources are difficult to access because of their dispersed nature and because they tend to be tightly trapped within underground rock formations. For example, one of the most abundant unconventional resources—oil and gas from shales—sits within tiny pores of extremely dense shale formations, and the oil and gas can only be released if the shale is cracked open. One of the key technologies in the transition to increased development of unconventional resources is a process called hydraulic fracturing, which is alternately described as fracking, hydrofracking, or fracing. Through the process of fracturing, after an oil and gas company drills a well and lines it with pipes (“casing”) and cement, the company perforates the portion of the well that is in the productive part of the rock formation. (Alternatively, the company does not line that portion of the well that runs through the productive part of the formation.) The company then injects substances down the well at high pressure. These injected substances travel out of the perforated or unlined portion of the wellbore into the formation from which oil and gas is extracted, and the substances fracture the rock, thus helping release oil and gas from the rock (Yew 1997, 1).
The energy industry first used hydraulic fracturing in the 1940s in the United States, and it has since developed numerous type of fracturing approaches (Montgomery & Smith 2010, 26–27; Rushing & Sullivan 2007). Some fracturing treatments use gels, and some use gaseous substances rather than liquids. One type of fracturing treatment has gained the most attention, however, because it triggered a recent boom in oil and gas development in the United States—a surge in production from shale and dense “tight” sandstone formations. This technique is called “slickwater” fracturing, and it was perfected in the late 1990s in Texas (Sun et al. 2011). Slickwater fracturing uses larger quantities of water and—in some cases—different chemicals than previous techniques. In a slickwater fracturing treatment, an operator injects millions of gallons of water, comprised of approximately 0.5 percent chemicals by weight, down a drilled well. The company injects the water at extremely high pressure, and when it flows out of a well into the rock formation, the pressure of the water fractures the rock, thus exposing surface area and the pores of the rock that contain oil, gas, or both. The company also injects sand or a similar substance down the well, which is called “proppant.” The fracturing fluid carries the proppant into the fractures and releases the proppant, thus propping open the fractures and allowing oil or gas to flow through the fractures and into the well. Slickwater fracturing is not universally applicable—in some formations, gel treatments or “acidization” to weaken the rock are more effective techniques. But slickwater fracturing has been very effective in numerous unconventional shale and tight sandstone formations around the United States. In many wells, oil and gas companies have combined two techniques in order to extract as much oil and gas as possible from unconventional formations. First, the companies drill a vertical well down to the formation targeted for development and then horizontally through the rock, thus targeting more of the formation. Second, the companies then hydraulically fracture the horizontal well in distinct stages, thus ensuring that each portion of the well is subjected to maximum potential pressures.
The use of hydraulic fracturing is also growing internationally. Oil and gas companies have extracted natural gas from shales in British Columbia and Alberta, Canada, with “substantial” production already occurring in British Columbia (Council of Canadian Academies 2014, 4). In Australia, oil and gas companies have primarily used fracturing to extract methane from coal. In 2012 and 2013, the Australian government reports that 6 percent of coal seam gas wells were fractured (Independent Expert Scientific Committee on Coal Seam Gas and Large Coal Mining Development 2014, 6). Some shale oil extraction projects in Australia have also commenced, although there has been declining interest in these projects as worldwide oil prices have dropped (Paton 2015). A small amount of shale gas production has also occurred in Mexico (US EIA 2015a, 8). Although international hydraulic fracturing has not yet been as prevalent worldwide as it has been in the United States, it is likely to increase due to the large reserves of oil and natural gas trapped within shales around the globe, which require fracturing in order to be developed. The US Energy Information Administration (EIA) estimates that in total, there may be 7,576.6 trillion cubic feet of “wet” gas in shales worldwide, which is a substance that has a similar composition to dry gas (methane) but is found in liquid form in its natural state (US EIA 2015b). The EIA also estimates that there could be 418.9 billion barrels of oil found in shales worldwide (US EIA 2015b). These are estimates for “unproved technically recoverable resources,” which include “all the oil and gas that can be produced based on current technology, industry practice, and geologic knowledge,” but for which there is not geologic and engineering data available to provide “reasonable certainty” that the resources will in fact be recoverable (EIA 2014).
The growth in oil and gas development as a result of hydraulic fracturing in the United States has brought renewed attention to the field of oil and gas law—a well-established area of the law. Although the field is well established, the fracturing boom has forced it to change, particularly by requiring more attention to environmental laws that apply to oil and gas operations. This article explores both traditional oil and gas law, which was originally primarily designed to ensure that for each well drilled, the maximum amount of oil and gas would be produced, and oil and gas law as it is now more broadly defined, including laws designed to address the environmental and social impacts of oil and gas development. The article first briefly describes the phases of developing a typical oil and gas well in a US shale formation. It focuses on this type of well because shale wells dominate the new types of wells being drilled and fractured in the United States. The article then explores the risks and benefits of modern oil and gas extraction techniques and concludes by describing the US legal framework that governs these techniques.
As the article will discuss, the general US approach has been to leave most regulation of risk to state and local governments, although states increasingly preempt local regulation. Furthermore, states have tended to modify their existing, often outdated, oil and gas laws rather than enacting and promulgating comprehensive new statutes and regulations to address the rise of fracturing and associated well development. In the cases where the federal government has stepped in to regulate, it, too, has relied on existing statutes such as the Clean Air Act and Clean Water Act and has promulgated new regulations under these statutes to address certain aspects of drilling and fracturing.
The Stages of Oil and Gas Development
Understanding the law that applies to oil and gas development, including the “fracturing” stage of development, requires an understanding of the development process. It is difficult to describe a “typical” well because the rock formations in which oil and gas are trapped vary substantially, and energy companies use different techniques depending on the depth, density, porosity (size of the rock pores in which oil and gas are trapped), permeability (connectivity of the pores), and many other factors. However, this section describes the stages of development that one might witness at a well drilled into a US shale formation. It addresses several stages of exploring for oil and gas, producing oil and gas, and storing and disposing of oil and gas wastes because all of these stages are inextricably linked: without the availability of the process of fracturing, which makes unconventional wells economically productive, the drilling of a well would not occur. And in order for a well to be fractured, it must first be drilled. Further, wastes would not be produced from the well but for the processes of drilling and fracturing. Therefore, while it is important to understand that hydraulic fracturing is just one phase of a larger process, it is helpful to understand the larger process of which fracturing is just one part.
Before an oil and gas company drills a well, it first must ascertain the likely presence of oil and gas underground. To do this, the company purchases existing exploratory data, hires an exploration company, or independently conducts exploration. To conduct an initial survey of the likely presence of oil and gas underground, an exploration or oil and gas company conducts seismic work, which is the production of vibrations underground. The company produces the vibrations by striking the ground with a heavy metal object attached to a truck, or by blasting a small “shot hole” in the ground using dynamite. A machine at the surface measures and maps out the direction and speed of the vibrations as they bounce back from underground formations, thus producing data on the likely productivity of those formations (Anderson & Piggot 1996, 16-4). Companies also often obtain a permit, and the necessary property rights, to drill one or several exploratory wells to produce further details about the likely productivity of the underground formation. Companies are required to receive a permit from the state oil and gas agency before drilling an exploratory well.
After identifying the productive areas of a formation, the oil and gas company obtains the necessary property rights from the individual who owns the mineral rights where the company wishes to drill and fracture a well. In the United States, private individuals own many of the mineral rights, and the oil and gas companies wishing to obtain mineral rights lease the minerals from these owners. An oil and gas lease typically gives the oil and gas company five or ten years in which to start drilling, and if the company begins producing oil or gas by the end of this time frame, the lease typically allows the company to continue drilling (and to continue holding on to the mineral lights) for so long as oil and gas is produced in economic quantities.
After obtaining the necessary property rights and regulatory permits, an oil and gas company, which is called the well “operator” because it is responsible for conducting operations at the well, excavates and grades a site at which the well will be constructed and, if there is not an existing road, an access road that leads to the well site. Together, the access road and well site are approximately nine acres, although the size of the site varies considerably depending on how many wells will be drilled on the site (Johnson 2010, 10). The operator next drills a well, using a rotary drilling bit to cut down through the rock, as well as drilling fluids and drilling muds to cool the drill bit as it cuts through rock. The drilling process produces wastes in the form of used drilling fluids and muds as well as drill cuttings—rocks and other debris that come out of the well. These can contain low levels of naturally occurring radioactive materials (NORM) (Ohio Environmental Protection Agency 2012). These wastes are stored on-site—typically in earthen pits dug into the surface of the site. Some of the wastes are buried on-site or mixed with soil on-site in a process called “landfarming.” Other drilling wastes are exported off-site to state-regulated landfills designed to accept oil and gas wastes.
During and after the drilling of the well, the operator places pipes called “casing” into the wellbore, as introduced above. The operator cements the casing into the well and installs several layers of casing, each with a smaller diameter. The widest “conductor” casing prevents the wellbore from caving in. The next widest “intermediate” casing helps provide extra wellbore stability, particularly for deep wells, and the narrower “surface” casing provides an extra layer of casing in the part of the well that runs through underground water (if underground water is encountered during drilling), ensuring that oil and gas flowing through the well does not leak into this water. The narrowest “production” casing runs from the surface all the way down to the formation from which oil and gas is produced; the oil and gas flows up the production casing to the top of the well—the wellhead or “Christmas tree” that controls the flow of oil and gas out of the well.
Following the drilling and casing of the well, the operator perforates the portion of the well casing that sits within the formation that will be fractured. Alternatively, some wells are “open hole” wells that are not cased in the portion of the wellbore that runs through the formation that will be fractured. For the slickwater fracturing technique, the company then pumps water, chemicals, and proppant at high pressure down the well. The water/chemical fracturing fluid flows out of the perforations in the casing or out of the open hole and into the rock formation, cracking the formation or expanding existing fractures in the formation and helping to release oil, gas, or both. After the fracturing treatment, some of the fracturing water flows back out of the well as “flowback,” which also contains NORM, similar to drill cuttings and mud, in addition to fracturing chemicals. This flowback is stored at the surface of the well and reused at another site or disposed of. Most disposal of flowback occurs in underground injection control wells: operators drill a well deep into rock, and the well is designed expressly for storing large quantities of liquid wastes (Groundwater Protection Council and ALL Consulting 2009, 68). After the flowback process, the oil and gas operator “flares” (burns off) any initial gas that comes out of the well to clean out the well, a Christmas tree is installed on the wellhead, and oil, gas, or both flow out of the well. Depending on the type of formation into which the well was drilled, wells also produce brine (also called “produced water”) over time, which is naturally occurring fluid from the formation. Brine is spread on roads to control dust and ice or disposed of in an underground injection control well. In the western United States, oil and gas operators also may dispose of brine by treating it to reduce the amount of grease in the water and then discharging it into surface water after obtaining a discharge permit (40 Code of Federal Regulations sections 435.32 435.50, 435.52).
The complex, highly technical process of drilling oil and gas wells and applying the “slickwater” fracturing process has both benefits and costs and presents varying degrees of risk, as discussed in the following part.
The Benefits and Risks of Unconventional Oil and Gas Development
A large literature explores the benefits and risks of the drilling and fracturing process. Numerous sources praise the economic benefits of drilling and fracturing for shale gas and oil, and the ability of natural gas to replace high-carbon coal. For example, a study by Massachusetts Institute of Technology resources notes the “very important role” of natural gas in “all sectors of the economy,” particularly the US manufacturing sector; the availability of abundant and cheap natural gas; and the ability of natural gas to provide a relatively inexpensive substitute for higher-carbon coal (Moniz et al. 2011, 4, 8). Resources for the Future (RFF), a nonpartisan think tank, conducted a cost-benefit analysis of US shale gas, noting on the benefits side of the ledger a total increase of consumer surplus of approximately $4.26 billion between January 2007 and January 2014 (Mason 2015, 4). It also noted a total increase in producer surplus of $9.60 billion over this same time period (Mason 2015, 5). Another RFF report estimates that the availability of inexpensive natural gas, which results in substituting natural gas for higher-carbon fuels used in electricity generation, could reduce US electricity sector carbon dioxide emissions by 6.6 percent by 2035 (Krupnick et al. 2012, 12–13). Several reports also emphasize the importance of natural gas as a backup to intermittent renewable energy sources (Krupnick et al. 2012, 5; Moniz et al. 2011, 10), although intermittency problems can also be solved in part by diversifying and expanding the geographic reach of renewable resources (Mills & Wiser 2010).
On the negative side of the ledger, numerous sources note the problem of natural gas crowding out lower-carbon renewables rather than acting as a bridge to renewables. For example, the RFF estimate that the availability of cheap gas will cause a 6.6 percent reduction in US electricity sector CO2 includes an estimate that renewable generation will decrease 5 percent below the amount of renewable generation expected under a more expensive natural gas scenario (Krupnick et al. 2012, 9). The International Energy Agency, too, expresses concerns that the natural gas glut could reduce governmental commitments to renewable energy (International Energy Agency 2012, 80). Further, there is a heated debate over the quantity of methane, a powerful greenhouse gas, and carbon dioxide emitted from unconventional natural gas and oil production, transport, and burning. Some researchers argue that the emissions estimates produced to date are too low (Alvarez et al. 2012, 9438), and some believe that on a life-cycle basis—from the wellhead to the use of natural gas—unconventional gas emits more methane than coal (Howarth et al. 2011). Others argue that the greenhouse gas footprint of shale gas is lower than estimates such as Howarth et al.’s because the studies with higher emissions numbers fail to account for “the higher efficiency of shale gas in power generation” as compared to coal-fired power plants (Weng et al. 2011, 8197). Those who argue that the carbon footprint of natural gas is lower than reported also estimate that although upstream (fuel production) greenhouse gas emissions are higher for natural gas than coal, overall downstream and upstream gas emissions are higher for coal (Skone 2012, 38). Further, they suggest that high emissions estimates are based on releases of gas during tests of newly producing wells and initial production (venting of methane) rather than fugitive emissions of methane that occur over time with production, and that high emissions estimates incorrectly assume that operators release rather than burn off or capture gas that escapes from the wellhead (Cathles et al. 2011). Additionally, some scholars have relied on industry data on methane releases to estimate that emissions of methane from unconventional wellheads are lower than previously reported (Allen et al. 2013, 17772–17773), but this research might show emissions from wells where industry actors use the “best practices” for methane capture, and these wells might not be representative of typical methane capture practices (Howarth 2014, 51–52).
Beyond debates about the level of greenhouse gas emissions from unconventional natural gas development, a growing literature attempts to identify other environmental and social risks of fractured oil and gas wells. Regarding the impacts of development on communities, scholars at Duke University note that local governments receive large amounts of revenue allocations from oil and gas development, including from collection of state taxes, some of which are allocated to local governments, and from collection of local property taxes that go to certain local governments, such as counties. Of the total value of all oil and gas produced in a given state, local governments received approximately 1 to 10 percent of this value, with schools receiving the largest percentage of the funds (Raimi & Newell 2014, 2). However, these researchers also observe that in some states, certain cities and towns “have faced fiscal challenges” and “may require additional revenue during heavy periods of oil and gas development to manage infrastructure demands associated with population growth” (Raimi & Newell 2014, 38). Other revenues flow into states when unconventional oil and gas development expands because workers demand housing and other basic goods. For example, a study conducted when unconventional gas development was just beginning to grow within Pennsylvania found “positive impacts” for businesses as a result of increased unconventional gas development, including “increased sales, new customers, and higher employment,” and this study concluded that “tourism destination businesses” had not been negatively impacted by the development (Penn State Cooperative Extension 2011, 2–3).
Other scholars, however, advise caution in reaching broad conclusions that workers entering an area will produce substantial economic growth in that area, noting that much of the money earned by transient workers is sent home rather than spent in the community, local communities can experience environmental damage and displacement of their traditional way of life, and boom-bust cycles can cause communities to invest in infrastructure to support growing development and then be stuck with that expensive infrastructure when industry exits (Barth 2013, 89–90). Further, some of the economic studies may overestimate benefits by making unrealistic assumptions about the “pace or scale of drilling” that is likely to occur, the locations where expenditures are made, and indirect expenditures generated by development, such as deliveries of materials (Christopherson & Rightor 2011, 5–8). Communities experiencing growth in oil and gas development also have to greatly expand expenditures on police and other services as well road repairs (if they have not entered into agreements with the oil and gas industry in which the industry agrees to pay for road repairs) and prices for basic goods rise for local residents (Christopherson & Rightor 2011, 12–14).
A large literature also explores the environmental impacts of oil and gas development. These impacts include, for example, spills of hydraulic fracturing fluids, flowback, produced water, and diesel from equipment at well sites (Rozell & Reaven 2012; Wiseman 2013, 766–768, 799–801). The Environmental Protection Agency has investigated spills of fracturing chemicals as well as drilling and fracturing wastes. It identified 151 fracturing chemical spills from January 2006 through April 2012 and concluded that of the 125 fracturing chemical spills for which volumes were identified, a total of approximately 184,000 gallons (697,000 liters) spilled (EPA 2015, 5-45). Flowback and produced water spills identified by EPA during this time period totaled approximately 2 million gallons (7.6 million liters) (EPA 2015, 7-33). Further, well sites can erode and send sediment and pollutants into nearby surface waters (Wiseman 2013, 795–796). There have also been concerns about conventional and toxic air pollution around well sites, although the extent of the pollution requires further study (Macey et al. 2014). Wells that are improperly cased also can cause drilling or fracturing fluids to be released into underground sources of drinking water (EPA 2015, 6-13–6-25; Llewellyn et al. 2015). And produced water disposed of in underground injection control wells has caused earthquakes in several states, leading to lawsuits and regulatory updates in some states (Frohlich 2012, 13937; Keranen 2013, 702; Ohio Department of Natural Resources 2012, 17; Petersen et al. 2016). It appears that an injection well with oil and gas wastes caused the “largest instrumentally recorded” earthquake in Oklahoma, which measured Mw 5.7 (“moment magnitudes from Global Centroid Moment Tensor Catalog”) (Keranen 2013, 699).
This is just a small sampling of the growing literature exploring both the benefits and risks of the relatively new technique of slickwater fracturing combined with horizontal drilling, and the large number of new oil and gas wells that have been drilled in the United States as a result of this technique. On balance, it appears that both the benefits and risks are substantial, and any legal framework designed to enhance benefits and prevent and mitigate risks—and also to compensate for damage caused by risks that materialize—is likely to require complex thought.
The Legal Framework for Fracturing Risks
This article uses the United States as an example of a legal framework that has attempted to address many of the benefits and risks described above. In exploring and analyzing this framework, it describes laws that apply directly to hydraulic fracturing as well as laws that address oil and gas development more generally. These latter laws are important because fracturing has enabled the development of thousands of new wells, and this growth in the number of wells has expanded and amplified certain risks that have long been associated with traditional drilling (Wiseman 2014).
The federal government and states—citing the broad-based benefits of fracturing—have generally allowed fracturing to move forward at a rapid pace. As of 2016, only three states (New York, Maryland, and Vermont) had banned or temporarily banned fracturing or fracturing that uses large volumes of water, and Vermont’s ban is relatively inconsequential because the state does not have economic quantities of oil and gas resources. Local governments have powerful land use–based regulatory authority within the United States. These governments have been more mixed in their reactions to the fracturing boom and the large number of new oil and gas wells that have been drilled due to fracturing having enabled more production. Many have heavily regulated or banned the practice, whereas others have welcomed it. The tendency of most states has been to attempt to preempt (supersede) local regulation, leaving local governments with limited or no control over oil and gas development. However, whether the state’s attempted preemption is permissible under the state constitution and other laws, and whether the state has in fact preempted all local regulation through its legislation, is ultimately determined by a court if parties challenge the preemption. As discussed in more detail below, courts in two states have held that local governments retain land use regulatory authority over oil and gas development, and local governments continue to regulate oil and gas development in other states where the preemption issue has not yet been decided.
As part of the general trend of allowing fast-paced development, the United States did not develop an ex ante, precautionary framework for regulating the risks. Rather, laws have developed in a reactive manner, and states and the federal government have typically “patched on” new requirements to existing rules rather than writing new, comprehensive laws. Certain state and federal regulations have changed as risks have been identified, and citizens have filed lawsuits to request injunctive relief, damages, or more regulation in reaction to certain incidents such as spills, alleged groundwater pollution, and air pollution. Although the legal framework to address the specific risks posed by slickwater fracturing and by the large number of new wells being developed as a result of fracturing has been reactive, there was already a large body of oil and gas law in place within the United States, including public law statutes and regulations and common law doctrine established by courts over time. These laws have allowed for basic regulation of the risks of oil and gas development while regulatory officials, legislatures and local government bodies, and courts have raced to catch up with the new risks. This part discusses this long-standing law and the new laws that have developed in response to the recent growth of oil and gas extraction in the United States.
Local, State, and Regional Statutes and Regulations
The United States has a long history of oil and gas development and thus also has a long history of laws that address this development. These laws consist of two basic parts: (1) state statutes, state constitutions, and court cases that define property rights in oil and gas within the fifty states; and (2) local, state, regional (interstate), and federal regulations and statutes that address the environmental and social impacts of oil and gas development.
In the United States, each government within each of the fifty states is responsible for defining individuals’ property rights, including property rights in liquid and solid minerals. In a system that differs from other countries, private individuals own minerals in the United States. An individual who owns a full “estate” in property owns the surface, the air above the surface, and the minerals beneath the surface. The property owner may then “sever” (separate) the underlying mineral estate and transfer it to another individual. Indeed, many mineral estates in the United States have been severed from the overlying surface estate and are owned by a different private property owner than the owner of the surface. When the mineral estate has been severed from the surface estate, the common law of property in nearly all US states provides that the mineral estate is dominant over the surface estate. A person who owns minerals—including an oil and gas company that owns minerals as a result of a lease from the mineral owner—may use the surface as is reasonably necessary to acquire the minerals. The mineral owner or lessee need not pay the surface owner any damages for impacts caused to the surface by mineral extraction activities unless the lessor of the minerals manages to negotiate for damages within the lease or state law modifies this common law doctrine. Indeed, one Texas case holds that the mineral owner may use up most of the surface owner’s water if the water is needed as part of the oil and gas extraction process, and the mineral owner need not pay the surface owner for the water taken (Sun Oil Co. v. Whitaker 1972). Some states, through legislation, give surface owners more protection. For example, Oklahoma’s Surface Damage Act requires oil and gas operators, before drilling, to attempt to negotiate in good faith with the surface owner regarding damages that the operator will pay to the owner (52 Oklahoma Statutes Annotated § 318.3). If the negotiation does not result in an agreement, the parties can request a court to appoint an appraiser to set the proper amount for damages (52 Oklahoma Statutes Annotated § 318.5). If agreement still cannot be reached, the parties may request a jury trial (52 Oklahoma Statutes Annotated § 318.5). Thus, in states like Oklahoma, where a statute modifies the common law, surface owners who do not own the severed mineral estate still have some power to influence where and how drilling and fracturing occurs and the damages paid for any impacts to the surface. But when the surface owner does not also own the minerals, and thus is not a party to lease negotiations, the surface owner does not have much control over the impacts of well development unless a state statute provides for damages or other measures to address surface impacts.
Existing local, state, and federal statutes and regulations also play an important role in addressing the environmental and social impacts of drilling and fracturing. Many of these regulations, which were already in place prior to the boom in slickwater fracturing, provided a protective regulatory baseline that has controlled certain impacts even where regulations have not been updated to address the relatively new hydraulic fracturing boom. The fifty states in the United States have certain regulatory powers under the US Constitution, which the states use to regulate a variety of activities, including oil and gas development. This authority, called the “police power,” includes the power to regulate for health, safety, and welfare, such as establishing zoning districts in which certain types of land uses are and are not allowed in order to avoid incompatible land uses. All states have delegated certain of these powers to local governments, such as towns, townships, cities, boroughs, and counties. Local governments have long used these powers to regulate a variety of land uses, including oil and gas. For example, in 1935, the city of Houston, Texas, adopted an ordinance that divided the city into four “drilling districts,” which were each approximately sixteen acres in size, and allowed operators to drill only one well in each of the districts, and only after obtaining a permit from the city (Tysco Oil Company v. Railroad Commission of Texas 1935, 197). As a result of existing, local laws, when the slickwater fracturing boom occurred in the United States in the 2000s, oil and gas development was somewhat constrained by local laws in terms of where drilling could occur and thus the impacts that the development was likely to have on nearby populations and resources.
In the wake of the fracturing boom in the United States, states have increasingly preempted local control. For example, in 2015, Texas and Oklahoma both adopted statutes preempting local governments from regulating most aspects of oil and gas development and fracturing (Texas House Bill 40 2015; Oklahoma Senate Bill 809 2015). Texas allowed local governments that had regulated drilling and fracturing for at least five years while allowing “oil and gas operations … to continue during that period” to keep their regulations in place. It also allowed all local governments to require that operators provide notice before drilling, to govern “fire and emergency response, traffic, lights, or noise,” and to issue “reasonable setback requirements,” provided these local regulations are “commercially reasonable” and meet other state requirements (Texas House Bill 40 2015). The state preempted all remaining local regulation. Oklahoma similarly preempted all local control over oil and gas development but allowed local governments to regulate “road use, traffic, noise, and odors incidental to oil and gas operations” and to “establish reasonable setbacks and fencing requirements for oil and gas well site locations” (Oklahoma Senate Bill 809 2015).
In other states, courts have interpreted existing state preemption statutes to mean that local governments may not regulate many aspects of oil and gas regulation and fracturing (State ex rel. Morrison v. Beck Energy Corp. 2015, 277; Energy Management Corp. v. City of Shreveport 2006, 478–479; Colorado Oil & Gas Association v. Lafayette 2014, 12; Colorado Oil and Gas Association v. Longmont 2014, 16). However, in New York and Pennsylvania, the states’ highest courts have interpreted the states’ statutes and constitutions, respectively, to mean that local governments retain land use authority over the regulation of oil and gas development, including fracturing (Wallach v. Town of Dryden 2014, 746; Robinson Township v. Commonwealth of Pennsylvania 2013, 696).
In states where local governments retain some regulatory authority over oil and gas development, or have regulated for a sufficiently long time that they are “grandfathered in” and allowed to continue regulating (as is the case in Texas), some local governments have promulgated new ordinances to address the impacts of drilling and fracturing. For example, the cities of Arlington and Fort Worth, Texas, have extensive ordinances requiring the well operators to purchase environmental liability insurance (or self-insure for environmental liability), limit the decibel level of noise near well sites, obtain a permit from the city before drilling, hire security guards to stay on-site during drilling and fracturing, and meet a variety of other requirements (Arlington, Texas, Ordinance Number 07-074, sections 5.01, 6.01, 7.01; Fort Worth, Texas, Ordinance Number 18449-02-2009, sections 15-34, 15-41, 15-42). Santa Fe County, New Mexico, enacted an even more detailed ordinance, which requires, inter alia, extensive environmental studies and infrastructure availability studies prior to drilling and maps areas of the county that are not conducive to oil and gas development due to the presence of cultural, environmental, agricultural, or other resources (Santa Fe County, New Mexico, Ordinance No. 2008-19).
In addition to local laws, states have long played the primary role in regulating oil and gas development, and many long-standing state laws continue to address the impacts of oil and gas wells. Before an oil and gas operator may drill a well, the operator must obtain a permit from the state. The state therefore determines the location and timing of well drilling (a factor that is also sometimes influenced by local laws), and states apply numerous additional regulations to each well that is drilled and fractured. Some of the most important regulations include: (1) taxation of the oil and gas produced from the well, which generates funds that are sometimes used to address environmental damages; (2) requirements that operators post a monetary bond or similar surety prior to drilling in the event that operators do not properly plug (fill in the well) when it is abandoned; (3) minimum distances that must be maintained between well sites or wells and nearby resources; (4) limits on the amount and timing of water withdrawals to obtain water used in the oil and gas operation; (5) requirements for “casing” the well (lining the well with steel pipes, which are cemented into the ground and help to prevent pollutants from seeping into underground water sources or seeping out of the well and upward into surface waters); (6) minimum construction and operational requirements for surface impoundments at the well sites that hold oil and gas wastes; (7) restrictions on how oil and gas wastes are disposed of; and (8) informational requirements, such as the disclosure of fracturing fluids used in wells and requirements for testing baseline environmental conditions before drilling and fracturing begins.
With respect to taxation, one of the most common forms of state taxes that has long applied to oil and gas wells is the “severance tax,” which is a tax per unit of oil and gas produced. Although severance taxes typically go into states’ general funds to cover general expenses, many are at least partially distributed for environmental conservation purposes (Pless 2012). Some states have put in place new taxes or fees in response to the recent uptick in oil and gas activity as a result of hydraulic fracturing. For example, after experiencing a fracturing boom, Pennsylvania created a new tax-like instrument called an unconventional gas well fee. It set a statewide, standard amount for the fee and allowed local governments to choose whether to impose the fee on new wells drilled within their jurisdictions. Money from the fee goes to the state, which keeps some of the money for state purposes but redistributes the remainder of the money to local governments to use for environmental conservation, road construction and repair, affordable housing, and other causes that are associated with the impacts of the natural gas development boom in Pennsylvania (58 Purdon’s Pennsylvania Statutes and Consolidated States section 23012(a)–(b)).
Bonding requirements—another financial instrument used by states to address the impacts of oil and gas development—vary substantially across states. Some bonding requirements apply only to well plugging, whereas other states require separate bonds to be posted for damages caused to the surface. For bonds that apply to surface damages, if the operator does not properly restore the well site surface after drilling is complete or the well is abandoned, the state can use the money to conduct the restoration (2 Colorado Code of Regulations section 404-1:703). A limited number of states also require that oil and gas operators maintain insurance, although only a few states require insurance to cover environmental liability (Dana and Wiseman 2014, 1586).
Beyond requiring bonds to be posted in the event that a well is improperly abandoned or a site is inadequately restored after drilling and fracturing, states also attempt to minimize the impacts of drilling on nearby resources by requiring a minimum “setback” between the well, the waste tanks associated with the well, or the well site and nearby resources, such as homes and surface water supplies. The required setback distances vary substantially (Richardson et al. 2013, 3–4). Further, some states, such as Texas, only require setbacks of wells from homes, leaving other setback requirements to local governments (Texas Local Government Code Annotated section 253.005(c)).
Some states have updated their setback requirements for wells that are hydraulically fractured. For example, in Pennsylvania, unconventional (fractured) wells now must be 500 feet from buildings and water wells unless a waiver is obtained, and these wells must 300 feet from larger streams and 100 feet from smaller streams (58 Purdon’s Pennsylvania Statutes and Consolidated States section 3215(a)–(b) 2016). Ohio also changed its statutes to require special setbacks of wells in urbanized areas; these wells must be placed more than 150 feet from occupied dwellings unless the owner of the dwelling provides written consent for a well that is closer to the dwelling (Ohio Revised Code Annotated section 1509.021 2016). Further, West Virginia updated its setbacks to require wells to be more than 250 feet from existing water wells and springs; the state also requires the center of a well pad (the site on which the well and associated infrastructure such as pits and tanks are located) to be more than 650 feet from occupied dwellings and large livestock buildings. Additionally, well pads in West Virginia must be more than 100 feet from streams, lakes, ponds or reservoirs, and wetlands; 300 feet from naturally reproducing trout streams; and 1,000 feet from public water supplies. Colorado, in turn, updated its regulations to require buffer zones between public water supplies and well sites, with drilling generally prohibited within the first buffer zone, and drilling allowed but with restrictions in farther out buffer zones (2 Colorado Code of Regulations section 404-1:317B 2016).
Prior to drilling a well, operators also must obtain water in order to create drilling “mud,” which cools and helps to control the drill bit as it cuts through rock underground. Since the fracturing boom, water is also needed to supply the several millions of gallons of water needed to conduct a slickwater fracturing operation on each well. States have long regulated water withdrawals, and existing water laws therefore have controlled certain water withdrawals for fracturing. Generally speaking, in the eastern half of the United States, an oil and gas operator wishing to withdraw water from a well must own “riparian” land that abuts surface waters or overlies groundwater, obtain permission from a riparian landowner to withdraw water, or purchase water from a riparian owner if this is permitted. The operator typically also must obtain a water withdrawal permit from the state (Weston 2012, 2A-8). In the western half of the United States, which generally follows a “prior appropriation” regime, many waters already have been fully claimed by various water users. In these cases, an oil and gas operator must obtain a water right from an existing water user or purchase water from the existing user, and the state must approve the transfer of the right or of the water to the new user. Typically, industrial uses of water are considered a “lesser” use than are agricultural and domestic uses of water, and states sometimes limit water or rights transfers to these lesser uses (Beck 2012, 521).
Some states have updated their water law regulations to require further administrative review of permits issued for hydraulic fracturing. For example, in Pennsylvania, operators wishing to withdraw water for hydraulic fracturing must show that the withdrawal will “not adversely affect the quantity or quality of water available to other users of the same water sources” (58 Purdon’s Pennsylvania Statutes and Consolidated Statutes section 3211(m)). Groups of states that have formed “compacts” to address water quality and quantity issues in rivers that run through several states also have applied regulations to hydraulic fracturing companies. For example, companies that propose to withdraw water within the watershed of the Susquehanna River in the northeastern United States must first obtain a permit from the regional Susquehanna River Basin Commission. The approval granted by the commission “specifies the maximum daily quantity of consumptive water use”; imposes metering requirements on the entity that will withdraw water; and requires fracturing companies to “submit a report documenting the water types and quantities used in each hydrofrac ‘event,’” among other requirements (Susquehanna River Basin Commission 2016). In some states, fracturing companies have avoided having to withdraw fresh water by directly reusing flowback and brine from other wells, or by recycling the flowback and brine—minimally treating it and then using it in another well for fracturing.
Once the operator has posted a bond, located a site the required minimum distance from certain resources, and obtained the necessary permits to withdraw water and drill a well, the operator is ready to begin drilling. A key component of drilling and completing a well—thus making it ready for construction—is lining the well with casing. State well casing requirements consist of several key components. First, states typically regulate the required strength of the steel pipe that is used to line the well (Arkansas Oil and Gas Commission, Rule B-19(d) 2016). Some states require that if steel pipes that have been used in another well are reused, the operator must first test the pipes to ensure that they remain strong (North Dakota Administrative Code 43-02-03-21, 2016). States also typically require that a certain method of cementing be used to secure the pipes in the ground (Louisiana Administrative Code title 43:XIX, section 109, 2016), and they require that certain types of casing extend a minimum distance below the lowest potable or potentially potable water. Casing depth requirements vary substantially among states, however, ranging from 30 feet to 120 feet below the deepest groundwater (Richardson et al. 2013, 6). Some states have updated casing requirements to require more testing of casing to ensure that the casing can withstand the pressures placed on it by hydraulic fracturing, among other new casing requirements (16 Texas Administrative Code section 3.13, 2016).
In addition to regulating how wells must be lined in order to prevent oil, gas, fracturing fluids, and other substances from leaking out of the well, states have long regulated the construction and maintenance of the surface impoundments that are often used to store oil and gas wastes at well sites before the wastes are disposed of. States typically require that the pits be lined with an impermeable clay or plastic liner (Louisiana Administrative Code title 43:XIX, section 307), that a minimum amount of free space (“freeboard”) be maintained at the top of the pit so that pits do not overflow during a precipitation event (Oklahoma Administrative Code 165:10-7-16, 2016), and that pits be emptied, dried, and filled in within a certain amount of time after the completion of drilling and fracturing (16 Texas Administrative Code section 3.8(d)(3), 2016). Further, certain states, like Pennsylvania, have updated their requirements for pit construction and maintenance as well as requirements for maintaining secondary containment underneath tanks that store oil and gas wastes (58 Purdon’s Pennsylvania Statutes and Consolidated States section 3218.2(d)).
As introduced above, after oil and gas wastes are stored on-site, oil and gas operators dispose of these wastes on-site by mixing certain solid wastes into the soil or burying them, sending them off-site to a state-regulated landfill for oil and gas wastes, spreading certain liquid wastes on roads, or injecting liquid wastes into a disposal well called an underground injection control well. States regulate the disposal of these wastes—even most hazardous ones—because of an exemption of oil and gas wastes from the hazardous waste portion of the federal act that governs the generation, handling transport, and disposal of wastes (Environmental Protection Agency 1988, 25456). However, when wastes are disposed of in underground injection control wells, this practice is regulated by the federal Safe Drinking Water Act, which requires an assurance from the owner and operator of the well that the well will not “endanger” underground sources of drinking water (42 US Code section 300h). In the case of injection wells for oil and gas wastes, this “endangerment” could occur if produced water and flowback, which contain NORM, among other contaminants, leaked into aquifers. In most states the federal Environmental Protection Agency has delegated Safe Drinking Water Act permitting responsibilities to state environmental agencies (Environmental Protection Agency 2016). States issue permits with casing requirements and other mandates designed to prevent wells from leaking. Some states have updated their underground injection control well regulations to address concerns about earthquakes induced by oil and gas waste disposal wells. For example, Ohio prohibits the drilling of disposal wells into certain underground rock formations, requires well operators to use a continuous pressure monitoring system, and requires the installation of automatic shut-offs that close the well if certain pressures are exceeded, among other incidents (Ohio Department of Natural Resources undated).
Beyond substantive regulation of activity at the well site and disposal of wastes from the well, states also require that well operators submit certain data to the state or post the data publicly. This provides the public, regulatory officials, emergency response staff, and medical personnel with information that allows them to better understand potential risks at the site and whether pollution has occurred as a result of drilling or fracturing. Even prior to the fracturing boom, several states required oil and gas companies to test the quality of groundwater at and near the well site prior to drilling (Richardson et al. 2013, 5). States like Colorado have added baseline testing requirements in the wake of the boom, with Colorado providing that a maximum of four water sources within a half mile of the well should be tested prior to drilling (2 Colorado Code of Regulations section 404-1:609, 2016). Many states also require that the chemicals used in fracturing be disclosed to the public or to a state agency, although most allow the fracturing company to claim trade secret status for certain chemicals and thus to avoid disclosing information about those chemicals (Hall 2013).
Federal Statutes and Regulations
The numerous state and local laws that apply to certain aspects of drilling and fracturing create a patchwork of regulations that apply to many, but not all, risks of well development (Wiseman 2014). Federal laws help to fill in some of the gaps that exist within this patchwork. Although hydraulic fracturing with the exception of fracturing with diesel fuel is exempted from the Safe Drinking Water Act due to 2005 federal legislation—and companies conducting hydraulic fracturing therefore need not demonstrate that they will avoid endangering groundwater sources prior to fracturing—other federal laws apply to certain stages of the oil and gas development process (42 US Code section 300h (d)(1)). For example, oil and gas operators that will impact federally listed endangered or threatened species when they excavate well sites, withdraw water for fracturing, or drill the well must first obtain a permit from the federal Fish and Wildlife Service (Robbins 2013). Further, using its authority under the Clean Air Act, the Environmental Protection Agency has issued two new rules, which, together, would limit air pollutant emissions of volatile organic compounds and methane from newly fractured and refractured oil and gas wells (79 Federal Register 79018, 79026, 2014; 81 Federal Register 35824, 2016). Oil and gas operators also may not discharge certain wastes into surface waters under the Clean Water Act, or they must have a Clean Water Act permit before discharging these wastes (40 Code of Federal Regulations sections 435.32 435.50, 435.52). And if these operators pollute well sites with substances other than oil and gas, they may be liable for the costs of clean-up and site remediation under the Comprehensive Environmental Response, Compensation, and Liability Act (42 US Code section 9607).
Just as federal law addresses certain risks of drilling and fracturing that are not in all cases covered by state laws, private parties have also used courts in order to fill in certain gaps in the regulatory system and to obtain damages and injunctions relating to certain drilling and fracturing activity (Goldman 2013). Many lawsuits have been unsuccessful or have resulted in settlements, but several high-profile suits have resulted in large awards of damages. In a case in Dimock, Pennsylvania, involving contamination allegedly caused by drilling and fracturing, most plaintiffs settled, but two families refused to settle and pursued their case through a jury trial in federal district court. The jury found that the oil and gas company had caused a private nuisance through its drilling and well completion activity and awarded a several million-dollar verdict (Ely v. Cabot Oil and Gas Corp. 2016). In Texas, a jury awarded nearly $3 million to a family that alleged personal injury and property damages caused by air pollutants and other substances at a site with a hydraulically fractured well (Parr v. Aruba Petroleum 2015). As discussed above, private parties and certain government entities also have used courts to challenge state preemption of local regulation, local fracturing bans, and other public laws (Hilson 2016).
The combination of local, state, regional, and federal public law with private litigation has, to some extent, potentially effectively addressed many of the risks of oil and gas development, including fracturing, although further baseline and post-fracturing studies of risk and actual impacts will be necessary to validate this effectiveness. This legal framework is by no means a complete, organized, or thorough approach to the risks of fracturing and associated development, and some risks appear to be unaddressed or inadequately addressed. For example, there have been few efforts to address the landscape-level effects of drilling and fracturing that arise when thousands of new well sites are drilled within a region (Johnson 2010; Slonecker et al. 2012). Similarly, studies needed to develop an adequate understanding of the public health effects of fracturing have lagged, and some risks remain incompletely identified or unknown. Therefore, much remains to be done both in terms of improving our understanding of the impacts of drilling and fracturing and, based on this understanding, improving the legal framework to better comport with known risks. In the meantime, a cobbled-together legal framework continues to evolve within the United States.
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