With North Carolina’s Shale Gas Study Nearly Complete, Legislation to Legalize Hydraulic Fracturing is Expected to Move Forward in 2012

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Overview and Background

North Carolina is not traditionally thought of as an oil and gas state. However, recent geological research regarding shale gas deposits and the potential authorization of shale gas extraction technologies in North Carolina could change that. Legislation enacted last year set in motion a process that could result in the legalization of horizontal drilling and hydraulic fracturing – game-changing technologies that have turned shale deposits in other parts of the country into top resource plays. The North Carolina Department of Environment and Natural Resources (“DENR”) has preliminarily concluded that hydraulic fracturing and horizontal drilling could properly be authorized if an adequate regulatory program is established and implemented. As a result of DENR’s comprehensive study, enabling legislation is expected to go forward in the 2012 legislative session that begins in May.

Final Shale Gas Study Report Due by May 1

In June 2011, the North Carolina General Assembly enacted Session Law 2011-276 after substantial debate and opposition from certain citizen groups. The law directed DENR, the Department of Commerce, and the Department of Justice to “study the issue of oil and gas exploration in the State and the use of directional and horizontal drilling and hydraulic fracturing for that purpose.” Further, the law directed DENR and the other agencies to evaluate the potential shale resource in North Carolina and methods of natural gas extraction, and to conduct an analysis of potential economic impacts, environmental impacts, social impacts, consumer protection issues, infrastructure issues, as well as potential oversight and administrative issues related to shale gas development in North Carolina.

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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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