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Hydraulic Fracturing in California: Oil Boom on the Horizon; Groups Seek Statewide Injunction Pending Review; State Considering Regulation

November 19, 2012

California has not been a battleground state in the debate over hydraulic fracturing. But that is changing, as California oil producers gear up to significantly expand production in the Monterey and Santos shales, estimated to contain 64 percent of the known undeveloped but technically recoverable shale oil resources in the contiguous United States—four times as much as North Dakota’s booming Bakken shale.[1] These plays will be developed using hydraulic fracturing.

Concerned over these developments, environmental groups have recently filed suit, accusing the California Department of Conservation, Division of Oil, Gas, and Geothermal Resources (“DOGGR”) of failing to comply with the California Environmental Quality Act (“CEQA”) when approving permits for wells developed with hydraulic fracturing. The groups seek a statewide permitting injunction pending a complete CEQA evaluation of the process’s impacts and potential for mitigation.

Meanwhile, California regulators are beginning to confront many of the same issues related to hydraulic fracturing that have been hotly contested elsewhere in the country over the last several years, including arguments over fluid chemical disclosure, water resource and water quality degradation, well standards and oversight, and calls for bans and further studies.

The CEQA Lawsuit

On October 16, 2012, the Center for Biological Diversity, Earthworks, Environmental Working Group, and the Sierra Club, represented by Earthjustice, filed a Complaint for Declaratory and Injunctive Relief (available at this link) alleging that hydraulic fracturing entails certain inherent environmental risks, and that DOGGR – responsible for oil and gas oversight and permitting in California – has abused the CEQA environmental review process by permitting oil and gas operations without first examining those risks.

Alleged Risks

The Complaint alleges that hydraulic fracturing fluids may contain toxic chemicals; that domestic and agricultural water supplies may be threatened by release of these chemicals through underground migration, well leaks, and surface spills; that increased water use associated with hydraulic fracturing may threaten California’s drought-stricken water users; that air emissions during well development and completion threaten to further degrade California’s air quality; and that underground injections may increase California’s already high earthquake risk.[2]

Alleged Failure to Review

The core of the lawsuit is DOGGR’s alleged failure to adequately review the potential risks of hydraulic fracturing under CEQA. In sum, the plaintiffs allege that DOGGR has never prepared a CEQA Environmental Impact Report (“EIR”) to examine the potential impacts of hydraulic fracturing. An EIR is analogous to an Environmental Impact Statement (EIS) prepared under the National Environmental Policy Act.

According to the plaintiffs, DOGGR regularly approves oil and gas development proposals under the CEQA categorical exemptions (equivalent to NEPA categorical exclusions) for “minor alterations to land” or “existing facilities,”[3] or by way of Negative or Mitigated Negative Declarations (equivalent to a NEPA Finding of No Significant Impact (FONSI) or mitigated FONSI) that never evaluate the potential risks of hydraulic fracturing.[4] The lawsuit also cites to DOGGR’s failure (to date) to revise or develop regulations specifically to address contemporary concerns over hydraulic fracturing.[5]

Relief Sought

Plaintiffs seek the court’s judgment “as to the illegality of the pattern and practice of DOGGR in failing to comply with CEQA in the permitting of oil and gas wells in the state of California,” and an injunction against DOGGR prohibiting “the approval of any further permits for oil and gas wells where hydraulic fracturing may occur within the state of California unless and until [DOGGR] complies with the requirements of CEQA by considering, evaluating, and mitigating the environmental and public health impacts associated with hydraulic fracturing.”[6]

If successful, the suit could delay exploration and development of California’s shale plays for several years, while the state undertakes a programmatic environmental review of its existing oil and gas regulatory program, or of proposed additional regulations on hydraulic fracturing.

The Larger Context – Hydraulic Fracturing and Oil Production in California

The recent CEQA lawsuit reflects the growing opposition to hydraulic fracturing in California, which is gathering steam several years after similar efforts first began to make major headway in the mid-Atlantic region. The timing is not a coincidence: California is following in the footsteps of successful efforts to develop natural gas reserves in the Marcellus shale in New York and Pennsylvania, and tight oil reserves in the Bakken shale in North Dakota, which has quietly but completely transformed that state’s economy over the last few years.

Unlike New York and Pennsylvania, however, where oil and gas development had been largely dormant for decades prior to the ongoing shale boom, California is no stranger to petroleum production. As in Texas and other major oil producing states, hydraulic fracturing has been employed by Californian oil developers since the process was first introduced in the early 20th century, and the oil industry has a strong political presence in the state. The fight over hydraulic fracturing in California, therefore, will pit highly sophisticated public interest groups against highly sophisticated industry interests. In terms of heat and noise, the battle has the potential to equal and even exceed the last several years’ fights on the East Coast.

California’s Regulatory Review

Within this larger context, it is useful to understand the current state of California’s own efforts to regulate hydraulic fracturing. According to the State Oil & Gas Supervisor (and DOGGR head) Tim Kustic, while California does regulate oil and gas development – purportedly under stricter standards than most states when it comes to well construction and monitoring – there simply has not been much concern in the state over hydraulic fracturing until now. Consequently, California has no regulations on the books specifically addressing hydraulic fracturing, and DOGGR has not tracked the use of hydraulic fracturing in California in any comprehensive way.[7]

Other states have responded to public concern over hydraulic fracturing in a fairly regular pattern – legislation is often proposed and stalled, and ultimately the relevant questions are addressed through new regulations, with varying degrees of delay on new drilling while environmental reviews are conducted. Information disclosure regulations – covering fracturing fluid chemicals, water source and use volumes, and well integrity information – have been especially common, both at the state level and federally on public lands.[8] Some states have also tightened requirements for storage, handling, and disposal of contaminated flowback and produced water.[9] Regulation of industry air emissions has moved forward at the federal level.[10] In the meantime, opposition litigants and advocates do anything they can to ban, or at least delay, deployment of hydraulic fracturing technologies.

California is now following a very similar pattern. To date, three bills have been proposed to regulate hydraulic fracturing in California. AB 591 (available at this link), introduced in February 2011, would have required fluid chemical, water source and use, and other disclosures. However, the initial version of the bill did not protect trade secrets, and the amended version of the bill, a compromise to address industry concerns, remains stalled.[11] SB 1054 (available at this link) contained neighbor notification provisions and other information-forcing requirements, but was voted down. AB 972 (available at this link), which would have outright banned the practice, died in committee.

Instead, however, DOGGR is contemplating its own regulatory overhaul. Between May and July 2012, DOGGR hosted seven meetings throughout southern California, with the express purpose of gathering public input to assist the agency in its considerations over “the development of regulations governing hydraulic fracturing.”[12] At a meeting in late September, Tim Kustic outlined the details of the proposed regulations, including public notification, updated well construction guidelines and well integrity testing requirements, fluid chemical disclosure and management requirements, and disposal reporting.[13] A first draft is expected by the end of the year.

Conclusion

While DOGGR moves forward with regulations, the CEQA lawsuit will move through the courts. Californians interested in how the issues could play out would do well to examine the history of the battle in New York state. There, the state’s legislature passed a one-year moratorium, vetoed by then-Governor Paterson in favor of an executive order against further permitting until the New York State Department of Environmental Conservation completed a statewide Supplemental Generic Environmental Impact Statement on its program to permit oil and gas development using hydraulic fracturing. A fight ensued over the timing of the review process, and it has been delayed repeatedly. This September, the state announced again that it would be delaying a final decision while it studied the issues.[14] Meanwhile, opponents have moved from town to town, pressing for local bans that have, to date, been upheld.[15] Other states, of course, have followed different paths, depending on the unique circumstances and legal landscape in each state. The battle in California will no doubt have its own unique surprises; and will merit close attention in the coming years.

For more information about hydraulic fracturing, please contact any member of Marten Law’s Energy practice group.

[1] See U.S. Energy Information Administration, Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays (July 8, 2011).

[2] Complaint ¶¶ 23-27. While the Complaint collects and presents familiar claims regarding the risks of hydraulic fracturing, the Complaint largely does not discuss, in a national or California-specific way, the larger trends in the regulation and oversight of hydraulic fracturing. For example, the Complaint discloses but does not discuss recent national trends toward fluid chemical disclosure; and does not discuss increasingly stringent state regulatory requirements designed to reduce release risks; the relatively small amount of water used by the oil and gas industry as compared to other industries, or trends toward fracwater recycling to further reduce water use; recent nationwide regulations expected to greatly reduce completion-stage air emissions; or the major caveats stated in current research regarding the lack of a clear connection between human activity and risk of major seismic activity. For a critical industry take on the lawsuit’s environmental claims, see D. Quast, California Lawsuit Filled with False Fracturing Claims, Energy In Depth (sponsored by the Independent Petroleum Association of America) (Oct. 19, 2012). The plaintiffs might respond that whatever the ultimate determination on any one of these points, their suit is not focused so much on the risks themselves, but the DOGGR’s alleged failure to comprehensively evaluate those risks under mandatory CEQA environmental review processes.

[3] Complaint ¶ 34.

[4] Complaint ¶ 35.

[5] Complaint ¶ 39.

[6] Complaint, Prayer for Relief.

[7] S. Stock et al., California Will Regulate Fracking After All, NBC Bay Area (Oct. 18, 2012).

[8] See See Hydraulic Fracturing: Legislative and Regulatory Trends, Marten Law Environmental News (Oct. 4, 2011)

[9] Id.

[10] See EPA to Regulate Air Emissions from Hydraulic Fracturing as Industry Comes Under Scrutiny, Marten Law Environmental News (May 29, 2012).

[11] M. Mishak, California fracking bill would protect industry ‘trade secrets,’ L.A. Times (Apr. 18, 2012).

[12] DOGGR meeting announcement.

[13] K. Eric Adair, Details Begin to Emerge About California’s Proposed Fracking Regulations, JD Supra (Sept. 19, 2012)

[14] F. Klopott, New York Delays Fracking Decision to Review Effect on Health, Bloomberg (Sep. 21, 2012)

[15] See Local Bans on Hydraulic Fracturing Upheld in New York State, Struck Down in West Virginia, Marten Law Environmental News (Apr. 10, 2012). The Dryden case is currently before the New York Appellate Division (the intermediate court of appeals). See J. Campbell, N.Y. towns, cities look to get involved in hydrofracking home rule case, Rochester Democrat and Chronicle (Oct. 30, 2012)

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