On November 15, 2013, the California Department of Conservation, Division of Oil, Gas & Geothermal Resources (DOGGR) issued two key documents relating to hydraulic fracturing and other well-stimulation treatments: (1) proposed regulations to implement recently enacted Senate Bill 4 (SB 4) and establish a permit program for well-stimulation treatments; and (2) a notice of preparation (NOP) that initiates review of well-stimulation treatments under the California Environmental Quality Act (CEQA).
Latham & Watkins partners Paul Singarella and Joel Mack addressed these new developments in their recent Client Alert, "California Agency Releases Draft Rules for Fracking, Begins to Implement Recent State Legislation." In this Q&A interview, they discuss the key implications for oil and gas companies, related recent developments and how California’s actions fit into the national regulatory trend.
What implications will the environmental impact report initiated by the November 2013 NOP have for the oil and gas industry?
Singarella: The NOP signals that DOGGR has decided to analyze hydraulic fracturing in California from a comprehensive perspective. Certainly the legislation has mandated such a review; but the NOP indicates DOGGR understands this is a mandate, and intends to move forward expeditiously. DOGGR is committed to producing an environmental impact report regarding well stimulation in California by the summer of 2015.
By the same token, the NOP from DOGGR should not be misinterpreted as an agency determination that individual permits to conduct hydraulic fracturing or other well stimulation in the state of California need coverage from an environmental impact report. It is completely consistent for DOGGR to, at a later date, assert that the permitting program mandated by the statute calls for ministerial as opposed to discretionary action on DOGGR’s part. Importantly, the interim program rolled out by DOGGR in December 2013, which applies to well-stimulation activity in 2014 plainly is ministerial in nature.
What do oil and gas companies with California operations need to know about the newly proposed fracking rules?
Singarella: They need to know that, number one, the regulation and the statute, are not limited to only well stimulation by hydraulic fracturing. Rather, this statutory and regulatory scheme is broader in its scope and applies to all well-stimulation activity in the state of California, whether that activity is conducted in the Monterey Shale Play or in some other geological formation within the state of California.
Oil and gas companies should not assume that industry notions of what is conventional versus what is unconventional necessarily will line up with this particular regulatory scheme. In other words, this regulatory regime creates terms of art that may not apply exclusively to unconventional oil and gas techniques. Industry can seek clarity and reasonable sideboards on the scope of the program, as the proposed rules are subject to the rulemaking process in 2014.
Mack: If you are using any of the stimulation techniques identified in the regulations, you'll be subject to the regulations.
Until this regulatory process is completed, these well-stimulation techniques will be permitted in the state of California, so energy companies can continue to operate and get permits from the DOGGR, but they need to monitor this process very closely so that their exploration and production plans take into account this regulatory process and its potential outcomes. As of January 1, 2014 covered well-stimulation activity can proceed after DOGGR confirmation that the operator has provided the self-certification information required by the statute and the interim rules issued by DOGGR in December 2013.
What are the next steps in the implementation of Senate Bill 4?
Singarella: On December 11, 2013, DOGGR took the next important step, which was to issue regulations for the interim 2014 program. This action occurred under the emergency authority provided by SB 4, to cover well stimulation and hydraulic fracturing in the period from January 1, 2014 until when the November 15, 2013 draft regulations become final. DOGGR will also be initiating a variety of other regulatory activities in the coming months, such as exploring group permitting which may alleviate permitting burdens under the final program.
Mack: Companies already are filing with DOGGR using the Interim Well Stimulation Treatment Notice form published by DOGGR late last year. DOGGR is making these filings available on its web site, providing an emerging picture as to the level of well-stimulation activity, where it is happening, and what chemicals are being used in these stimulations. Many companies were voluntarily providing similar information on the FracFocus.org website. But now that such reporting has become a DOGGR regulatory requirement, the online availability of this information should provide further information to interested members of the public. This developing content and information may also prove useful in preparing a robust environmental impact report.
How does this new statute and regulatory program fit together with what other states are doing about hydraulic fracturing?
Mack: What California is doing is consistent in many respects with what certain other states have done, particularly Pennsylvania, Illinois and Colorado — all of which have recently adopted comprehensive programs to regulate various well-stimulation techniques and have focused on disclosure and technology management to address any potential risks from unconventional development. However, many states continue to struggle with striking an appropriate regulatory balance, as demonstrated by the Pennsylvania Supreme Court recently striking down the bipartisan Pennsylvania legislation on state constitutional grounds.
We'll see what the CEQA process brings us in terms of how it might be conditioned, but what California is doing is consistent at least with a number of other states that have continued to allow this process to move forward. It is important to note that this is part of a national trend of increased regulation rather than shutting things down.
Singarella: The California approach is consistent with a trend toward more information being made available and more transparency, and a transition from a prior period when hydraulic fracturing and well stimulation generally were not subject to specific statutory requirements. Rather, these activities were regulated under broad oil and gas authorities, where more was left up to the operators. In California, as in most other states, that transition is occurring without any long-term statutory suspension of the activity. So far, it seems that DOGGR is seeking a balance between health and safety and environmental protection, on the one hand, and the importance of oil and gas in a major producing state like California, on the other. But 2014 and 2015 will be watershed years in an evolving California program, and as to where California lands relative to the other oil and gas producing states.