Overview and Background

The 2012 legislative session of the North Carolina General Assembly concluded with legalization of hydraulic fracturing and horizontal drilling for exploration and development of shale gas in North Carolina. Over the past year, North Carolina legislators, policy makers, scientists, independent experts, local governments, state environmental and commerce agencies, and a variety of other stakeholders have studied and debated the potential for shale gas development in North Carolina and potential enabling legislation for hydraulic fracturing and horizontal drilling. This process concluded on July 2, 2012, when the General Assembly voted to override a gubernatorial veto of the enabling legislation, Senate Bill 820 also known as the Clean Energy and Economic Security Act (the “Act”).

This process began in June 2011, when the General Assembly directed the North Carolina Department of Environment and Natural Resources (“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.”[1] Further, the 2011 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.

These agencies completed the comprehensive study and published the report, North Carolina Oil and Gas Study under Session Law 2011-276, on April 30, 2012. Most notably, the report concluded that “After reviewing other studies and experiences in oil and gas-producing states, DENR has concluded that information available to date suggests that production of natural gas by means of hydraulic fracturing can be done safely as long as the right protections are in place. Production of natural gas by means of hydraulic fracturing can only be done safely in North Carolina if the state adopts adequate safeguards in the form of regulatory standards specifically adapted to conditions in the state and invests sufficient resources in compliance and enforcement.”[2] In light of the DENR report, legislators introduced the Act, when the 2012 legislative session convened in May to legalize hydraulic fracturing and horizontal drilling.