Pending California Legislature Bill Aims to Increase Regulations on Hydraulic Fracturing


May 29, 2013, the California Senate passed the first bill attempting to regulate hydraulic fracturing, or fracking, in this state. Senate Bill 4, headed by Sen. Fran Pavley (D-Agoura Hills), has since been sent to the Assembly for review. Fracking is the pumping of water, sand and chemicals at high pressures into wells to fracture the surrounding rock, resulting in the release of petroleum and gas. Currently, the Division of Oil, Gas, and Geothermal Resources in the Department of Conservation does not directly regulate fracking in the manner proposed by the new bill. Michael J. Mishak, “Oil Extraction Method Widely Used in California with Little Oversight,” Los Angeles Times, March 14, 2012.

In 2011 alone, members of the Western States Petroleum Association (WSPA) fracked 628 oil wells. John Cox, “Oil Companies Agree to Post Fracking Data,” The Bakersfield Californian, May 15, 2012. WSPA members produce about 80 percent of the oil and natural gas in California. Id. For years, oil companies could not economically exploit and recover the deep oil reserves of the Monterey Shale, which stretch over an area of 1,750 square miles from Southern to Central California. Now, however, new fracking technology allows companies to  develop these resources in this oil-rich region. The Monterey Shale contains roughly two-thirds of the United States’ total estimated shale oil reserves. Norimitsu Onishi, “Vast Oil Reserve May Now Be Within Reach, and Battle Heats Up,” The New York Times, February 3, 2013. The U.S. government estimates that the Monterey Shale holds 15.4 billion barrels of recoverable oil. Josie Garthwaite, “California’s Black Gold,” National Geographic, May 28, 2013. This massive volume of untapped resources may be the precursor to the next oil boom in California.

Gov. Jerry Brown wants California to continue being a top oil-producing U.S. state. Michael J. Mishak, “Gov. Jerry Brown Says He’s Studying ‘Fracking’ in California,” Los Angeles Times, March 23, 2012. He described a possible increase in oil production as a “fabulous economic opportunity,” but acknowledged more research needed to be done on fracking’s environmental impact. Norimitsu Onishi, “Fracking Tests Ties Between California ‘Oil and Ag’ Interests,” The New York Times, June 1, 2013. While Gov. Brown has at least initially supported an increase in oil production in California, environmental groups have pushed legislators and state agencies to further regulate fracking in the state, leading to several lawsuits being filed. “Environmental Groups Sue California Regulator Over Fracking,” Reuters, October 16, 2012. In a recent University of Southern California and Los Angeles Times poll, more than 70 percent of voters favored an outright ban or heavy regulations on injecting chemicals into the subsurface to explore for oil. Evan Halper, “Californians Uneasy About Fracking’s Safety, Lack of Oversight,” Los Angeles Times, June 7, 2013.

Pending Bills in the California Legislature

Beginning in late 2012 and continuing into 2013, state lawmakers have attempted to pass several bills increasing the regulation of fracking. Assembly Bill 649 would have prohibited fracking until the completion of a report on its environmental impact. The bill is being held under submission in committee. Other bills, such as Assembly Bills 7, 288 and 982 and Senate Bill 395, have either failed to pass the Legislature or have been moved to the inactive file.

Senate Bill 4 (SB-4), however, is currently being reviewed and amended in the Assembly after passing the Senate in late May 2013. The bill completely overhauls California’s regulatory practices on fracking, and it greatly increases the amount of governmental oversight over companies looking to drill in places like the Monterey Shale. Initially written as only regulating “hydraulic fracturing,” the bill now encompasses a wider array of oil drilling procedures called “well stimulation treatments.” As a result, the bill covers several different aspects of exploration, not just the fracking process.

SB-4 further requires the Secretary of the Natural Resources Agency to begin an independent scientific study on well stimulation treatments by 2015. Importantly, the bill no longer places a moratorium on fracking until the study is complete. The bill also compels well operators to apply for a permit from the State Oil and Gas Supervisor before conducting well stimulation treatments. These permits are only good for one year, after which a new application for a permit is required. Additionally, all wells are subject to spot check inspections from the Division of Oil, Gas, and Geothermal Resources. Following the bill guidelines, the division must also adopt new rules and regulations specific to well stimulation treatments, including rules governing the construction of wells.

Further increasing the transparency of the drilling process, well operators under the pending bill must provide notice to specified tenants and property owners at least 30 days before beginning well stimulation treatments. Within 60 days of completing the drilling, well operators must also post information online accessible to the public about the well stimulation fluid. The chemical suppliers claiming trade secret protection over the chemical composition of additives used in well stimulation treatments must still disclose the additives to the Division of Oil, Gas, and Geothermal Resources. In return, the division will not disclose this protected information to the public.

Impact on the Fracking Industry

Moving from little direct regulation of the fracking process to an entirely new permitting process will make it more difficult and more expensive for oil companies to recover valuable natural resources. The change in the language of the bill from “hydraulic fracturing” to “well stimulation treatments” also includes regulation of additional aspects of the drilling and exploration process. Under the terms of SB-4 acid-based oil extraction, an alternative method for extracting oil from the Monterey Shale, already regulated by the Division of Oil, Gas, and Geothermal Resources, is being “re-regulated.”

It remains unclear just how difficult it will be for oil companies to obtain fracking permits under the pending legislation. Major limitations on fracking in California may not come until the release of the commissioned scientific study, assuming the study finds negatives associated with fracking. A recent Duke University study found that residential wells close to fracking sites contained higher levels of methane than other wells. Tim Wheeler, “Drinking Water Contamination Found Near ‘Fracked’ Gas Wells,” The Baltimore Sun, June 24, 2013. On the other hand, a similar MIT study concluded that fracking “poses minimal risk to the shallow groundwater zones that may exist in the upper portion of the wellbore.” MIT Energy Initiative, “The Future of Natural Gas,” June 6, 2011. The only evidence of contamination found in the MIT study resulted mainly from poorly maintained well completion practices, which could be fixed with relative ease. Id. Additionally, from an economic perspective, fracking from shale gas wells in the United States generated about $36 billion in 2011, along with countless number of jobs in the industry. Kevin A. Hassett & Aparna Mathur, “Benefits of Hydraulic Fracturing,” American Enterprise Institute, April 4, 2013.

Furthermore, Gov. Brown’s support for increasing California’s oil production bodes well for the future of fracking. The new regulations, if passed, are unlikely to deter oil companies from trying to tap the potential within the Monterey Shale. Because of the possibility of the next great oil boom in California, it is unlikely that any of the pending bills in the Legislature will stop fracking altogether, but it looks like regulation of the industry will greatly increase in the near future.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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