Governor Brown Signs SB 4 Regulating Hydraulic Fracturing Well Stimulation Treatments

by Sheppard Mullin Richter & Hampton LLP

Hydraulic fracturing continues to increase, but regulations have lagged behind the practice. Hydraulic fracturing (sometimes called well stimulation treatment) is used as means to extract and explore underground oil and gas. SB 4 is an attempt by California legislature to regulate and oversee the practice of hydraulic fracturing, or “fracking,” and other well stimulation treatments. SB 4 imposes requirements on oil and gas well operators and suppliers, and involves multiple regulatory state and district agencies such as the Department of Toxic Control Substances (“DTSC”), the State Air Resources Board, and the State Water Resources Control Board, the Division of Oil, Gas, and Geothermal Resources (the “Division”), and the Natural Resources Agency.

SB 4 comes after increased public concerns over the lack of information surrounding the health, occupational, and environmental health hazards of fracking and other well stimulation treatment technologies. Thus, the purpose of SB 4 is to allow “transparency and accountability to the public regarding well stimulation treatments…and the handling, processing, and disposal of well stimulation and related wastes.” (SB 4, Section 1).

Setting the Foundation for Regulating Well Stimulation Treatments

SB 4 first requires scientific studies to be conducted and rules and regulations to be created and adopted. On or before January 1, 2015, the Natural Resources Agency must conduct and complete an independent scientific study on all aspects and effects of well stimulation treatments on health and safety. Section 3160(a). Groundwater monitoring model criteria as well as monitoring programs will be created. Water Code section 10783. On or before January 1, 2015, the Division, in consultation with various agencies including the DTSC and the Department of Resources Recycling and Recovery, must adopt rules and regulations specific to well stimulation treatments. Section 3160(b)(1)(A).[1] The rules and regulations will require full disclosure of the composition and disposition of the well stimulation fluids, including a detailed list of the well stimulation fluid’s chemical composition.

Permit Requirement

SB 4 requires well operators to apply for a valid permit before performing or repeating any well stimulation treatments. Section 3160(d)(1). The permit must include, among other items, a complete list of “every chemical constituent of the well stimulation fluids anticipated to be used in the treatment” and a groundwater monitoring plan. Section 3160(d)(1)(D). Incomplete permit applications will be rejected. Section 3160(d)(3)(A). The well stimulation treatment permit will expire one year from the date it is issued. Section 3160(d)(4).

Public Accessibility

The Division is responsible for developing a public website no later than January 1, 2016. The website will be used as a platform for well operators to report information on the well stimulation treatments. Section 3160(g)(2)(A). In the alternative, the Division may choose to allow operators to report well stimulation information on an alternative website; however, that information must be made available to the public. Section 3160(g)(2)(B). After a permit has been issued, the Division has 5 days to post the permit on an internet website for public access. Section 3160(d)(5). The well operator will be required to provide a copy of the approved permit to tenants and property owners within 30 days before beginning a well stimulation treatment. Section 3160(d)(6)(A) & (C).

Within 60 days of completion of the well stimulation treatment, the operator must post detailed information of the well stimulation fluid, including its chemical composition, onto a public website. 3160(g)(1). Where a supplier—an entity performing a well stimulation treatment or supplying an additive for use in the treatment—asserts that the composition is a trade secret, the supplier must first inform the Division of its position, and then disclose the information to the Division. Section 3160(j)(4)(A) & (B). The supplier must then substantiate the trade secret claim. Section 3160(j)(5). The State Oil and Gas Supervisor must make publicly available a comprehensive report on well stimulation in the exploration and production of oil and gas resources. Section 3215(c).

Reporting Requirements to the District Deputy

Within 60 days of completing the well stimulation treatment or drilling, the operator must file with the district deputy, true copies of the log, core record, history of work performed, and chemical logs, tests and surveys. Section 3215(a) .

Civil Penalty

Violations can result in a civil penalty up to $25,000 per violation. Section 3236.5.

Funding for Regulating Well Stimulation Treatments

Money obtained from well operators through annual charges, collections or levies will be used to cover costs associated with well stimulation treatments such as scientific studies testing, monitoring, and sampling, as well as costs incurred by the State Water Resources Control Board and the regional water quality control boards. Section 3401(b)(1) & (2).

Engaging in Well Stimulation Treatment Before Rules and Regulations are Finalized

In the event that an operator wishes to engage in well stimulation treatment before the Division has finalized the rules and regulations, the Division shall grant the entity permission, assuming multiple conditions are met. Section 3161. The owner or operator of a well must establish compliance with Section 3160 et seq. and provide a well history. Additionally, the Division must conduct an environmental impact report ensure that all well stimulation treatment activities conform to Article 3 of the Public Resources Code through a permitting process. Section 3161.

[1] All uses of the term “Section” refer to the Public Resources Code unless otherwise stated.

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