Horizontal wells drilled into the Marcellus Shale formation typically require as much as five million gallons of water or more for use in hydraulic fracturing. This is a consequence of both the low permeability of the Marcellus Shale and the substantial lateral reach of such wells. In many cases, this requires construction of an impoundment in nearby creeks or streams, to create a pond for use either with a single installation or to service multiple pad sites.
It should come as no surprise that there are several potential regulatory programs attendant to the construction and use of such impoundments. One of the primary legal requirements is found in Section 404 of the federal Clean Water Act, which requires issuance of a so-called “fill” permit before any material is placed into a waterbody that falls within the regulatory definition of “waters of the United States.” Based on protracted litigation resulting in the U.S. Supreme Court in recent years analyzing and re-analyzing the scope of the Clean Water Act’s reach, almost any channel with flowing water – even one that flows only in response to precipitation – may be determined to fall within this definition and subjected to the full range of Clean Water Act protections on that basis. This is true even if the “stream” in question is wholly confined on private property and the landowner intends to use the pond for other purposes after the well has been completed. However, in many cases the regulatory status of a specific waterbody (particularly isolated wetlands) is vague; as Supreme Court Justice Samuel Alito put it in his concurring opinion in Sackett v. EPA (March 21, 2012), “[T]he reach of the Clean Water Act is notoriously unclear.”
Apparently driven by its efforts to get more heavily involved in regulating the shale gas industry generally, EPA recently has undertaken joint investigations with other federal and state agencies to identify and determine the Clean Water Act compliance status of features that appear to be impounding structures located in waters of the U.S. Based on informal reports, these investigations begin in the air (via helicopter fly-overs of various areas where the Marcellus and Utica shale formations are found and being produced), followed by on-the-ground inspections of lakes and ponds, and formal requests for information directed to well permittees and property owners.
Although the U.S. Army Corps of Engineers has jurisdiction to issue fill permits under Section 404, it has agreed to an arrangement under which all enforcement authority is ceded to EPA once that agency has initiated an investigation of a potentially unpermitted impoundment. Should EPA detect such a violation, the company that constructed the pond may expect to receive a cease-and-desist order and/or a compliance order from that agency. In EPA’s view, such an order signifies that the recipient is potentially liable for civil penalties as high as $37,500 per day for each day that such an impoundment has been in existence and continues to exist, as well as $37,500 per day for each day that the recipient fails to honor the requirements of any such order (making the total potential exposure $75,000 per day). The U.S. Supreme Court decided on March 21, 2012, in the case of Sackett v. EPA, that the recipient of a compliance order may bring a jurisdictional challenge to such an order directly in federal district court. That is, someone who receives such an order may challenge whether the waterbody at issue is a “water of the U.S.” and thus subject to the Clean Water Act. However, at present it is unclear whether a person who seeks to challenge the terms and conditions of such an order has any right to judicial relief unless and until EPA pursues the matter as an enforcement action on its own schedule (while potential penalties mount).
In addition to the federal permitting requirements, in many cases there are overlapping state regulatory requirements that apply to freshwater impoundments. For example, in West Virginia an impoundment that is 25 feet in height and can impound 15 acre-feet of water, or is six feet high and can impound 50 acre-feet of water, qualifies as a “dam” under the state Dam Control Act and requires separate approval pursuant to the regulations issued under that statute. In addition, like several other states in the region, West Virginia’s new Natural Gas Horizontal Well Control Act imposes a number of new requirements with respect to impoundments of a certain size (in West Virginia, generally those with a capacity of 210,000 gallons or more). These provisions include a new certificate of approval program and annual registration fees. Amongst other elements, an application for such a certificate of approval must include detailed plans for construction, erosion and sediment control, maintenance, monitoring and emergency response actions, most of which must be prepared or overseen by a registered professional engineer. Though there are exemptions under some of these state laws for farm ponds and the like, it is important to be aware that those provisions have no effect on EPA’s jurisdiction under the federal Clean Water Act and therefore they may be of relatively little practical benefit to a shale gas well driller.
The need for a very large, centralized supply of water, if it is to be addressed by the construction of impoundments, is but one of many aspects of shale gas operations that warrants careful advance planning. Moreover, it would be wise for well operators to assess the regulatory status of all such existing structures under the various permitting programs. Though “after-the-fact” Clean Water Act § 404 permits and other approvals can usually be obtained, there is much to be said for being proactive in addressing those situations. Careful planning with respect to those negotiations (including the best method of approaching the regulatory agency, and how to address historical violations) is likewise very important in achieving the most successful outcome.