As the pace of natural gas and oil drilling in unconventional plays increases, the industry continues to be faced with a broad suite of environmentally-related legal concerns. These include multiple regulatory initiatives both at the Federal and State levels (including EPA’s and DOE’s ongoing studies) and federal legislation (including the Breathe and Frac Acts). As companies plan future strategies in this complex, dynamic legal environment, there are several key trends emerging that are likely to influence where and how companies operate. Understanding these trends can help companies optimize resource allocation and potentially gain crucial competitive advantages.
- Municipal Ordinances – As this blog has discussed before, in recent months local municipalities have engaged in various efforts to block or ban drilling. Thus far, these efforts have largely been unsuccessful (e.g., see here). Nonetheless, environmentalists will undoubtedly continue their coordinated effort [PDF] to encourage municipalities to enact bans, as demonstrated most recently in Dryden, New York. While nuances will exist depending on individual state law, these bans—and legal challenges to them—carry similar themes. Specifically, challenges to municipal bans typically pit the scope of the municipality's authority to regulate various aspects of a drilling process (from drilling locations to the activity itself) against the scope of the state’s statutory and common law authority over the oil and gas sector. Because of the similarities, irrespective of the specific state law, companies should be paying close attention (and coordinating) as these bans are enacted, and the legal challenges resolved.
- Disclosure – The call for more robust disclosure of fracking chemicals continues to grow louder. One of the central messages in the DOE’s recent first report on fracking is that current disclosure laws, regulations, and voluntary initiatives do not provide sufficient information. Sierra Club has filed a petition under TSCA, asking EPA to require more disclosure. And individual states continue to draft disclosure legislation and regulations. The inherent tension for regulators and industry lies between the need to protect trade secrets in a high stakes competitive environment, and the need for transparency. With such intense scrutiny from the environmental community and regulators, companies can expect more rather than less pressure to disclose the chemicals used in frack jobs. To prepare, companies should be carefully inventorying, and assessing the need for, the chemicals used in all aspects of their drilling operations. Given the sensitivities involved with this information, proper precautions should be taken to preserve applicable confidentiality and privilege protections.
- Air Emissions/Aggregation – Industry can expect continued regulatory and litigation focus on air emissions from natural gas operations, and on the topic of aggregation in particular. The trend for industry regarding attempts by environmental groups to force aggregation has been generally positive to this point. However, as Dawn Reeves of InsideEPA reported on September 8, a number of lawsuits and court decisions on this issue are currently in progress, including a declaratory judgment filed in July by an environmental group in a Pennsylvania [PDF] federal court seeking to invalidate a drilling company’s operations for the failure to obtain the necessary permits. These permits would only be required if the company were required to aggregate sources. On this issue, EPA in its recently proposed NSPS regulations for the oil and gas sector reiterated that whether aggregation is required should be determined on a case-by-case basis, consistent with the Agency’s guidance, which is arguably more restrictive than under the previous administration. Although EPA's permits thus far under Obama have been favorable to industry, companies can expect continued litigation pressure from environmental groups on this issue, as these types of appeals and lawsuits can be effective means of slowing operations and enhancing regulatory uncertainty. For this reason, companies should closely monitor the arguments made, and the outcomes of, these ongoing lawsuits.