The Illinois Department of Natural Resources (IDNR) released proposed rules for hydraulic fracturing in Illinois (Proposed Rules) under the Hydraulic Fracturing Act (Act) on November 16, 2013. IDNR will accept comments on the Proposed Rules until January 3, 2014, and plans to hold five public hearings, starting on November 26, 2013 in Chicago, Illinois, and ending on December 19, 2013 in Carbondale, Illinois. Oil and gas operators desiring to expand into Illinois should submit comments and/or participate in the hearings. Many environmental groups, who had supported the Act, have expressed displeasure at several provisions of the Proposed Rules just days after their release, setting up a potential conflict that could delay the Proposed Rules' implementation. This alert provides background on the Act and discusses key issues that will likely be actively debated during the upcoming public hearings and in the expected public comments.
Illinois Adopted Comprehensive Regulatory Scheme For Hydraulic Fracturing
In passing the Act, Illinois created a top-to-bottom regulatory scheme under the control of a single agency, IDNR, to permit and monitor hydraulic fracturing operations. Illinois is one of a handful of states to consider and pass a comprehensive, single set of rules governing hydraulic fracturing operations instead of relying on the existing amalgamation of oil & gas and environmental regulations. As such, the Proposed Rules impose 135 pages of filing, permitting and operational requirements that include detailed planning of all aspects of exploration and operations, baseline and periodic groundwater monitoring, public disclosures of activities and chemicals used in the hydraulic fracturing process and insurance, bonding and other requirements to ensure that any environmental damage that might result from operations can be addressed. In addition to the sweeping operational and technical requirements, the permitting process is subject to public hearings and judicial appeals that could delay permitting and hydraulic fracturing operations and impact business decisions to develop hydraulic fracturing wells in Illinois.
Key Components of the Proposed Rules
The Act was more than a framework piece of legislation and in many ways left little discretion for IDNR in developing the Proposed Rules. For the most part, the Proposed Rules track the Act in establishing a comprehensive scheme for hydraulic fracturing in Illinois. Key components of the Proposed Rules are as follows:
- Applicability - the Act applies to high volume horizontal hydraulic fracturing operations which are defined as all stages of a stimulation treatment of a horizontal well by the pressurized application of more than 80,000 gallons in any single stage or more than 300,000 gallons in total hydraulic fracturing fluid to initiate or propagate fractures in a geologic formation to enhance extraction or production of oil or gas.
The single stage and total gallon requirements ensure broad application of the Proposed Rules to hydraulic fracturing operations.
- Registration - Any company that intends to seek a permit to engage in hydraulic fracturing must register 30 days before applying for a permit. The applicant must disclose any findings of a serious violation or an equivalent finding under federal, Illinois or other state laws or regulations in the development or operation of a hydraulic fracturing site within the past 5-years. The applicant also must show proof of insurance to cover injuries, damages or loss related to pollution in the amount of at least $5M per occurrence. IDNR has 21 days to determine whether the application is acceptable or deficient.
Any registrant must keep its registration current at all times by notifying IDNR of changes to certain information in the application, including any findings of violations it may have in other jurisdictions within 60 days. IDNR can consider an applicant's conduct in other jurisdictions in making its decision to accept an applicant or grant a permit, and conduct in other jurisdictions can impact an applicant's operations in Illinois.
- Permit Application - The application portion of the rules require substantial, detailed plans and submissions that address a number of areas, including: setback plan, directional drilling plan, horizontal underground hydraulic fracturing plan, chemical disclosure report, water-use certification, water source management plan, hydraulic fracturing fluids and flowback plan, well safety site plan, containment plan, casing and cementing plan, traffic management plan, plugging and restoration plan, topsoil preservation plan, fugitive dust control plan, water quality monitoring plan, and a bond or equivalent financial instrument to ensure performance.
The IDNR rules require that detailed information regarding the entire operational cycle of development, operation and closure be provided up-front. Permits must be submitted for each well; a combined permit cannot be submitted for multiple wells at a single site.
- Notice, Public Hearing, Approval and Appeal - IDNR has 60 days to approve a permit, subject to conditions it finds necessary, or reject it. In the interim, IEPA, the Office of the Fire Marshall, Illinois State Water Survey and Illinois Geological Survey also have the opportunity to weigh in on the permit decision. Similar to other permitting regimes in Illinois, the applicant is required to provide public notice, in this case, to landowners and other holders of oil and gas leases within 1,500 feet of the proposed well site, municipalities and county boards, as well as the general public. The public comment period begins 7 days after IDNR's receipt of the application and lasts for 30 calendar days. Any person having an interest that may be adversely affected may request a hearing within that public comment period, and IDNR must hold a hearing unless it determines that the request lacks an adequate factual statement for IDNR to find that the person may be adversely affected or that the request is frivolous. Public hearings are to be conducted under the Illinois Administrative Procedure Act. IDNR's decision to grant a permit must be based on several criteria set forth in Section 245.300. IDNR's decision to issue or deny a permit is subject to judicial review.
Given the public controversy surrounding hydraulic fracturing there is substantial concern that any permit could face challenges through public hearings and ultimately judicial appeals. While the intent of the Proposed Rules is for the hearing process to be completed within the 60 day IDNR review period, there are provisions for extensions. Thus, the time to take a permit through application, public hearing, approval and appeal must be considered in planning operations.
Technical and Environmental Requirements - IDNR's Proposed Rules establish numerous technical requirements for siting and operation of hydraulic fracturing wells. Such requirements run the gamut covering setbacks, development of access roads, well drilling, storage and disposal of drilling waste, surface, intermediate and production casing, integrity testing, blowout prevention equipment, well plugging and restoration. Several of the rules relating to environmental issues are discussed below:
- Air emissions - The Proposed Rules do not establish emission limits. Instead, permittees are responsible for minimizing emissions associated with hydraulic fracturing and storage operations by taking efforts to minimize releases as soon as practicable. The Proposed Rules enumerate certain technical solutions and/or recovery for energy use as the preferred options. If the permittee establishes that it is technically infeasible or economically unreasonable to minimize emissions using the delineated methods in the Proposed Rules, then flaring is mandated unless the permittee seeks and obtains a waiver.
- Water - Several sections of the proposed rules relate to water usage and pollution prevention. The permittee is required to identify water sources and present a water use management plan that identifies anticipated volumes of water used and methods to minimize withdrawals and, if surface waters are used, impacts to aquatic life. As discussed in more detail in the next section, the Proposed Rules establish a water quality monitoring regime to measure potential impacts to groundwater from hydraulic fracturing operations. Consistent with the Act, the Proposed Rules ban the discharge of hydraulic fracturing fluid, produced water, BTEX, diesel, or petroleum distillates to surface and subsurface water in that is suitable for drinking water for human consumption, domestic livestock, irrigation, industrial, municipal and recreational purposes. Any releases of hydraulic fracturing fluids, additives, flowback or produced water must be immediately remediated and reported if in excess of one barrel to IDNR, or in excess of five barrels, pursuant to the requirements of the Illinois Oil and Gas Act.
- Storage and disposal - There are substantial requirements relating to fracturing fluid and flowback storage. Flowback must be stored in closed, watertight and corrosion-resistant tanks, unless it is necessary to store temporarily in a reserve pit. Tanks must have 150% secondary containment. Any fluids stored in reserve pits must be transferred to above-ground storage within seven days of completion. Flowback must be tested for volatile, semi-volatile, inorganic chemicals, metals and naturally occurring radioactive materials and results provided to IDNR and IEPA, as well as the waste transportation and disposal operators. Flowback must be either recycled or disposed of by injection into a Class II injection disposal well.
One of the issues raised by environmental groups over the Proposed Rules is the perceived change from the Act to allow storage of flowback in reserve pits until seven days after completion of the hydraulic fracturing operations, as opposed to seven days after it is first stored. The language in the Act is at best ambiguous and this will be a point of contention during the hearings and comment period. Alternatively, there are technical requirements in the Proposed Rules that exceed the requirements established by the Act, such as the 150% secondary containment requirement as compared to the language in the Act that requires at least 110%.
- Water Quality Monitoring and Complaints - The Proposed Rules require water quality monitoring, which is increasingly being adopted in other jurisdictions across the country. The Proposed Rules require baseline monitoring of groundwater for pH, total dissolved solids, total dissolved methane, dissolved propane, dissolved ethane, alkalinity, specific conductance, chloride, sulfate, metals, BTEX and naturally occurring radioactive materials. Follow-up monitoring must occur 6 months, 18 months and 30 months after the hydraulic fracturing operations have been completed. The Proposed Rules establish a water pollution complaint and investigation process and a rebuttable presumption that an operator is liable for pollution or diminution of water sources within 1,500 feet of a well site.
Monitoring can be protective because the findings are integral to defenses to the rebuttable presumptions of pollution or diminution. A permittee can rebut the presumption of liability for pollution or diminution only by demonstrating that the water source is not within 1,500 feet of the well site or by using its monitoring data to demonstrate that the pollution was present before hydraulic fracturing or occurred more than 30 months after the hydraulic fracturing is completed.
- Chemical Disclosure - Not surprisingly given the multi-stakeholder legislative process and the national trend, Illinois has adopted comprehensive public disclosure requirements for the chemical makeup of hydraulic fracturing fluids. Disclosure is part of the application, and the permittee must update and maintain its disclosures no less than 21 days before performing the first stimulation treatment of hydraulic fracturing operations. The disclosure must identify the base fluid to be used, all additives that are used and all chemicals and associated CAS numbers to be used in the hydraulic fracturing. Knowing or reckless use of diesel in hydraulic fracturing operations is prohibited. IDNR will post the master lists of chemicals it receives from permittees on its website. Trade secret protection is available and the published lists will be redacted if such protection is demonstrated.
Environmental groups expressed concerns about the access to trade secret information under the Proposed Rules because only IDNR has unredacted chemical lists, and in health care situations IDNR would have to be contacted during their business hours to provide information that could be critical to treatment.
Actions to Consider
It appears that the Proposed Rules will be contested, despite the relatively short comment period, given the immediate negative reaction by environmental groups that had previously supported the Act. Moreover, there are groups who continue to call for a moratorium of hydraulic fracturing operations until the safety and environmental impacts can be further studied. Oil and gas companies or investors interested in entering the Illinois shale market should consider filing comments during the comment period or attending a public hearing to make sure their views on the Proposed Rules are included in the record.
The public comment period ends on January 3, 2014.