Vol. 6, No. 15

Topics discussed in this week’s Report include:

  • Federal agencies moved to dismiss NEPA challenge to use of offshore hydraulic fracturing.
  • Government, NGOs moved for summary judgment in Big Cypress hydraulic fracturing challenge.
  • Pennsylvania town’s wastewater disposal ban ruled unconstitutional.
  • Court dismissed Oklahoma earthquake litigation.
  • New trial ordered for hydraulic fracturing tort case.
  • China surpassed Canada as largest customer of U.S. crude oil.

Federal

Federal agencies move to dismiss NEPA challenge to use of offshore hydraulic fracturing. The Bureau of Ocean Energy Management (BOEM) and Bureau of Safety and Environmental Enforcement (BSEE) moved to dismiss a suit brought under the National Environmental Policy Act (NEPA) by environmental groups challenging an Environmental Assessment (EA) and Finding of No Significant Impact for hydraulic fracturing off of the Southern California coast. According to BOEM and BSEE, the EA is programmatic in nature, is not a final agency action, and was not relied upon to issue any permit or authorization for hydraulic fracturing. They argued that a challenge would not be ripe until the agencies approved an application for offshore hydraulic fracturing, which has not yet happened. The environmental groups filed suit in November, demanding that BOEM and BSEE issue an Environmental Impact Statement and alleging that hydraulic fracturing flowback could harm marine life, including some 25 threatened or endangered species. The case was consolidated with similar lawsuits filed by the California Coastal Commission and a tribal group, alleging that allowing offshore hydraulic fracturing violated NEPA and the Coastal Zone Management Act.

Government, NGOs move for summary judgment in Big Cypress hydraulic fracturing challenge. The National Park Service (NPS) and U.S. Fish & Wildlife Service (FWS) moved to dismiss a suit by environmental groups challenging an EA authorizing oil and gas exploration by Burnett Oil Co. in Florida’s Big Cypress National Preserve. The suit asserts that NPS failed to adequately review the potential environmental impacts and was required to undertake formal Endangered Species Act consultation with FWS. NPS, joined by intervenor Burnett, argued that the environmental groups lack standing, as the groups failed to identify any member with standing, and that their claims are not ripe as additional authorizations would be required before Burnett can begin work. Although Burnett is only seeking authorization to perform seismic studies, the plaintiff groups argue that the studies will eventually lead to hydraulic fracturing in Big Cypress. The groups filed cross-motions for summary judgment, claiming that NPS failed to impose an appropriate buffer zone to account for panther movements, ignored direct and indirect impacts to endangered and threatened species, and disregarded a study on the impacts of helicopter noise on wildlife. The district court previously denied the environmental groups’ motion for a preliminary injunction relying on similar arguments.

States

Pennsylvania town’s wastewater disposal ban ruled unconstitutional. A U.S. district court judge partially struck down Grant Township, Pennsylvania’s ban on corporations disposing of hydraulic fracturing wastewater, holding that it violated the constitutional rights of oil and gas companies. Grant Township’s ordinance prohibited both hydraulic fracturing and wastewater disposal within its jurisdiction and declared that corporations are not “persons” that have rights under federal or state law, including the right to challenge the charter in court. The ordinance was one of many passed throughout the country purporting to deny corporations federal and state constitutional rights in the name of local self-government. Pennsylvania General Energy (PGE) challenged the ban in court with the Pennsylvania Independent Oil and Gas Association (PIOGA) intervening on PGE’s behalf, prompting Grant Township to assert counterclaims that PGE and PIOGA were violating the town’s right to self-government. The court granted PGE summary judgment on three of its six claims — including that the ordinance irrationally discriminated against corporations under the Fourteenth Amendment and that the prohibition on challenging the ordinance in court violated PGE’s First Amendment rights — and dismissed Grant Township’s counter-claims as PGE and PIOG are not state actors. It rejected PGE’s claim that the ordinance interfered with its property rights, ruling that having an Environmental Protection Agency permit to construct and operate a disposal well did not create a property right.

Litigation

Court dismisses Oklahoma earthquake litigation. Invoking the primary jurisdiction doctrine, a U.S. district court dismissed a suit by the Sierra Club against four oil and gas companies alleging that the companies are responsible for earthquakes in Oklahoma. The court ruled that the Oklahoma Corporation Commission, which regulates underground injection wells for wastewater disposal under the Safe Drinking Water Act, has superior technical expertise to respond to allegations of seismic activity and has already taken actions to reduce disposal volumes at several disposal wells. The court wanted to avoid issuing injunctive relief that could conflict with Oklahoma Corporation Commission orders. The Sierra Club argued that the Resource Conservation and Recovery Act authorized the court to order reductions in the amount of wastewater disposed of in the injection wells. It claimed that the Oklahoma Corporation Commission’s failure to adequately regulate underground injection wells created an imminent and substantial endangerment and that a moratorium on wastewater disposal is required. An attorney for the Sierra Club criticized the decision, saying that the Oklahoma Corporation Commission only procured voluntary measures from companies to reduce wastewater injection, not any binding orders that could conflict with relief from the court.

New trial ordered for hydraulic fracturing tort case. A U.S. District Court judge vacated a jury’s US$4.2 million damage award against Cabot Oil & Gas, citing the plaintiffs’ lack of evidence and improper behavior by the plaintiffs’ lawyer during the March 2016 trial. Forty-four Dimock, Pennsylvania residents alleged that hydraulic fracturing had contaminated their drinking water wells. The company settled with all but two families, which subsequently took their claims for private nuisance and negligence to trial, where the jury found for the plaintiffs. The court vacated the verdict, ruling that the plaintiffs’ lawyer repeatedly and prejudicially referenced claims outside of the evidence and evidence that was excluded prior to trial as well as lamented to the jury that the plaintiffs were being improperly pressured to settle their case. The court’s opinion noted that there were approximately 40 sidebars during the 10-day jury trial to address inappropriate conduct by plaintiffs’ counsel. The court also held that the plaintiffs’ two expert witnesses could only testify that it was possible that methane in the plaintiffs’ groundwater came from Cabot’s gas wells, not that the gas wells were the actual cause. Given the other evidence in the case, including evidence of methane in the plaintiffs’ drinking water wells prior to Cabot drilling its gas wells, the court ruled that the plaintiffs never adequately established causation. The court urged the parties to discuss settlement prior to any re-trial of the case. Plaintiffs reportedly are considering an appeal.

Business

China surpasses Canada as largest customer of U.S. crude oil. The U.S. Census Bureau reported that China imported 8.08 million barrels of light crude from the United States in February, accounting for more than a quarter of all U.S. crude exports. U.S. crude exports, which now top one million barrels per day, are making up for production cuts by OPEC nations. The price of West Texas Intermediate crude was more than $1 lower than Dubai crude, a lower-quality grade. The price difference may allow the United States to lower its crude inventories, currently the highest since 1982. The United States has exported 239 million barrels of crude oil since a long-standing export ban was lifted in December 2015. Canada, which has purchased over half of the United States’ crude oil exports, imported 6.84 million barrels, down 20 percent from the prior month.