Thursday, June 27, 2013

May 3 & June 7, 2013 MEC (Fracking) notes

May 3, 2013  and June 7, 2013 Mining & Energy (Fracking) Commission notes
Chair, James Womack (Lee County Commissioner)
This is the full Commission meeting with reports from all committees and Study Groups.  Since the committees are writing rules over multiple sessions, I have combined their reports delivered at the May 3 and June 7 Commission meetings.
1.  Water and Waste Management Committee; Chair, Dr. Vikram Rao.  Latest NC House version of S76 removes injection wells from the bill.  This committee does not want injection wells in NC coastal plain.  Rao said there is only one suitable area in Brunswick County [around nuclear reactors?], but Lee County is too far to transport.  Rao said not necessary to write a rule concerning injection of waste.  Wants to encourage recycling/reuse of produced and flowback water in fracking process.  End of process? Treat residuals [How?]. 
2.  Oil and Gas Administration Committee; Chair, Charles Holbrook.  Kleinfelder, Inc., an NC company involved in Utica and Marcellus shale engineering operations, said “compressor stations” have high decibel noise impact (costly to mitigate), and the gathering complex itself can be 65 acres.  Gathering lines are extensive; 300 miles of pipe in PA and OH.  Note: Marcellus shale gas pricing down from $8 to $3 per unit volume.  PA now requiring background groundwater test prior to drilling. Committee finalized well-construction rules, getting input from both DENR Stakeholders and Environmental Defense Fund; rules forwarded to the Rules Committee. Wellhead standards are next, as are setbacks, aspects of which are being considered by both Compulsory Pooling and Local Government study groups. Womack said the committees should “use” industry expertise.  Vik Rao said the Environmental Defense Fund should be consulted, for balance.  Holbrook said that horizontal drilling just began in 2005...this is an evolving technology.  Womack said DENR staff should migrate to Oil and Gas Admin Committee from other Committees, since Oil and Gas has largest workload.
3.  Environmental Standards Committee; chair, George Howard.  The rule for non-use of diesel fuel, Prohibited Chemicals and Constituents was forwarded to the Rules Committee. The Baseline and Subsequent Testing Requirements for testing of all groundwater wells within 5,000-ft of wellhead within 12-months prior to drilling, and two more times subsequent to drilling, has been forwarded to the Rules Committee.  In discussion about the Baseline rules, Howard pointed out that NC would require the most thorough well water testing, at a cost of $72,000 (estimating 42 water wells) within the 5,000-ft. buffer, if the most extensive testing regimen (including USGS recommendations) was completed at baseline.  Womack says there are “no” water contamination incidents from actual well-stimulation (fracking) fluids, but there are accidents on the surface and human error resulting in incidental contamination.  Covington said baseline testing could relieve fear in community. Womack says “full” baseline testing costs too much and should consider a 12-24 months acceptable time frame, so tests already completed can be “grandfathered” in.  Vik Rao disagreed, and said baseline timeframe should be no earlier than 12 months prior to drilling. Amy Pickle said it is unlikely that the water sampling tests USGS conducted in 2012-13 (the State contributed $35,000) were in complete alignment with the requirements of the final S820 legislation.
Regarding subsequent tests after drilling, the question is whether ALL water wells need to be retested, or just some, and whether ALL the same chemicals need to be tested, or a subset that would indicate problems (the canary-in-the-mine list). Vik Rao said NC will be the only state to require subsequent tests, but if choose a subset of chemicals, would need to select testing parameters that would not produce a false negative. Rao is investigating specifics.  He mentioned that EPA rules require ZERO methane release by 2015, and says the little operator likely to come to NC will have to comply, and we need to help.  Howard supports a stepped-down approach to subsequent testing; Pickle did also. 
Holbrook asked if “industry” gets to review the rules, to get their feedback.  Womack says the Stakeholders Committee has industry representatives, and Lee County just joined the American Counties for Energy Independence (ACEI) which has industry representation [Googled: organized August 2012 in TX with three principal officers, no other info on web].  Pickle, as Rules Committee Chair, said her committee needs to see the whole “suite” of rules first before fiscal notes can be created [NOTE: H94 was amended 6/26 to REMOVE need for fiscal notes for these specific rules].  She cautioned against soliciting input from a single sector [industry] because it results in “unbalanced” input.  [Pearls] Womack said the “industry” is at a “disadvantage” in the Stakeholder process, which could be seen as “imbalanced” by environmental interests. Holbrook said industry must comply with rules and the economic impact on operations may add 10% to 15% more to the costs of doing business in NC...need to create an environment where industry can operate.
Air Quality concerns brought by public comment.  Div. of Air Quality can do more, and is installing an ambient air quality monitoring station in Lee County, downwind of the proposed drilling area.  This will be part of the network of 60 stations across the state that continuously measure 89 compounds.  This station will be downstream of the Wake County station and upstream of the existing Montgomery County station.
No discussion on Chemical Disclosure and Trade Secrets that had been referred to Rules Committee.  Womack is drafting his own version.  See items 4 and 9 below.
4.  Rules Committee; Chair, Amy Pickle. She established a transmittal sheet for submission of all draft rules.
Chemical Disclosure and Trade Secrets rule as submitted needed substantial formatting and legal constructions to be acceptable for NC Administrative Code, and needed an abstract of main points, per Amy Pickle.  George Howard, Environmental Standards Committee Chair, told Pickle not to “re-litigate” some of the controversial issues in that rule.  Womack said, “no rush” since he is writing a “new” draft rule, after discussions with the industry.  There was a headline in a Raleigh News & Observer newspaper article (May 3) that indicated a particular company [Halliburton] halted this rule, which he said was incorrect: MEC must be open to new input, which will result in “fuller disclosure.”  Howard characterized the N&O headline as “blow-back” and misrepresented Womack.  Jane Lewis-Raymond asked if the first rule was sent to the Rules Committee prematurely. Womack said new WV rules were just released about “green” options for fracking fluids, so that is why his decision [as Chair, apparently] to rewrite the entire rule.  Charlotte Mitchell, as a member of the Environmental Standards Committee, questioned Womack’s process since the Committee vote was to approve the draft rule and move it forward to the Rules Committee.  This “substitute rule” was a unilateral decision by Womack.  Womack said the first draft “didn’t represent anyone’s interest and our authority to implement,” therefore he wanted to consult industry.  He said Trade Secret provisions are a problem in every state.  He anticipates his rule will be shorter, excises Trade Secrets and makes “full disclosure” the requirement, but with caveats for Trade Secrets [is this doublespeak?].  He is also concerned with how the State of NC will “manage” those trade secrets.  Womack said rule does not need to require “volume concentrations” of each chemical, just name the actual chemical.  He said does not want to spin wheels, so his version will be discussed by the full MEC, not the Environmental Standards Committee.  Womack said he attended a meeting of American Counties for Energy Independence in Houston recently and they are building relationships between local governments (138 counties) and the industry.  The ACEI is ready to “help” NC with rules and best practices, and that is why the Trade Secrets provisions to be revised.  Pickle reviewed her work on the technical language and legal constructions in this first rule.  She said the public “views” Chemical Disclosure and Trade Secrets as a critical metric, but with another version coming from Womack, she referred the existing draft rule back to the full MEC for its June 28 meeting so there can be conversation about a different approach to this rule. 
Review of  Water Acquisition and Management Rules for Oil and Gas Operators has been completed.  Staff making final technical corrections. Ready for full MEC discussion at June 28 meeting.  
Review of Prohibited Chemicals and Constituents rule has been completed and returned to MEC.  MEC voted “to accept” this rule.
NOTE on rule-making and statutory authority:  Womack said to write rules within constraints of statutes, but the MEC will create am omnibus energy bill to address needed statutory changes (examples, Trade Secrets, or the 5,000-ft. “presumptive” liability clause).  Amy Pickle said changes in statutory authority need to be made prior to the October 2014 MEC deadline for rules.  Womack said it would happen in the 2014 Legislative short session; MEC members working on rules should earmark “additional” statutory authority needed for rules they are writing.
5.  Local Government Regulation Study Group; Chair, Charles Taylor.  Invited Registrar of Deeds to discuss split estates.  Does local government have jurisdictional authority on oil and gas lines, property lines and emergency response?  Don Kosvascitz, Lee County GIS, and Land Records researched split estates.  Initially they had identified 35 split parcels, but the number has grown to 155.  Tom Morgan, from the Secretary of State’s office of Register of Deeds, suggests the only way an owner can to be sure about their mineral rights is to search the property deeds. 
6.  Compulsory Pooling Study Group; Chair, Ray Covington, vice chair Charlotte Mitchell. 
Approved several recommendations with the objective to recommend a legislative framework to “equalize” bargaining between owner and operator, and if that does not occur, then consider compulsory pooling.  However, the Study Group, reached different conclusions based on if the operator is dealing with a “leased” interest, or “non-leased” interest.  The Study Group feels that a “leased” interest can be compelled into a drilling unit [signing a lease indicates a willingness to drill].  Unleased interests are different and the group is reticent to compel those owners.  The operator should be required to document that it made a “fair and reasonable” offer before any compulsory pooling order can be issued.  There should be no entry onto pooled land unless the operator reaches an agreement with the surface owner.  The “pooled”owner must share in the costs of of production, either through (a) paying a share of the cost of drilling; (b) surrender of working interest with MEC setting terms; (c) paying an assessed Risk-penalty which means all costs are carried up-front by the operator until the well is producing, then a percentage penalty is applied to that person’s share of the drilling costs.  The Study Group has not decided on what that penalty might be, and the MEC might have a range (e.g. from 100% to 200%) it can set.  Another recommendation is to “dissolve the pooling order” after one year, if NO activity.  Also, require operators to indemnify surface owners from third-party damage claims.  Another recommendation is to “notice” surface owners prior to entry of operator, and several reporting requirements that allow auditing of records and royalties paid to the owners. 
Womack said in PA, Chesapeake Energy Corp. is alleged to have abrogated on rights to landowners and there is a pending lawsuit because of bills Chesapeake presented to landowners to recover post-production costs.  He said he has asked for more scope on pending S76 legislation so MEC can  study creation of a “restitution fund because of fraud.” That should be another item for the Compulsory Pooling Study Group.  Ken Taylor said there is a $4 million bond required in Alabama to fund restitution, so could use bond funds for this.  Ken said if two operators are side-by-side, could compel one into a pool.  Holbook doesn’t like a non-leased holdout from thwarting the majority who want to drill.  
7. Funding Levels and Funding Sources Study Group; Chair, Jane Lewis-Raymond.   Lewis-Raymond said expects to have recommendations by end of June.  Discussion about impact fees being based on level of activity rather than “price” of gas.  Vik Rao said should be dealing with “costs” of impacts, such as roads and local environment, and doesn’t matter if it is wet or dry gas. What would be proxies for activity?  Horizontal well length and stages, volume of transportation...stuff that would be in the actual permit.  Womack said include wellpad orientation.  What about dry holes [expect them].  S76 was considering cost-recovery through the severance tax, but a later version removed it.  Study Group should consider all approaches, per Womack.  Lewis-Raymond said she was looking at offsetting costs to State government to administer this program.  Study Group is reviewing bonding section and separate needs for site reclamation, orphans, abandonment. 
Factoid:  Holbrook says 6,000 cubic feet of gas equals 1 barrel of oil in energy output.
8.  Coordinated Permitting.  New Study Group, headed by Ken Taylor, State Geologist, is composed of members of numerous divisions in DENR, such as Air Quality, Water Resources, Water Quality, Land Resources, that all have permitting responsibilities that will be involved in siting and operations of a hydraulic fracturing operation.  DENR already has established coordinated permits for other industries.  In PA, for example, the review of the consolidated permit may take 6 business days, and all state agencies look at the same full application.  Questions about electronic submittal, or paper.
9.  Trade Secret Study Group.  Headed by Jim Womack, he said MEC’s first draft rule would have “issues” with the Legislature that needed more investigation. Study group members will involve the School of Government and have a more limited scope, including establishing two-year confidentiality, especially during exploration, prior to anything being available through public records.  Womack said this is intellectual property, and is competition sensitive.  Will have to have exceptions for public records, and consider how NC rules address confidential status, will need to change Statutory language.
10.  Presentation by Lee County GIS on split estates.  Don Kosvascitz showed the extent of split estates (where mineral rights/owners are severed by deed from the surface owners).  Lee County has 8,600 acres that are split estates, but only 5,500 of those acres are listed for ad valorum taxes in the tax assessors office.  Many people do not know if they own their mineral rights, since it requires extensive deed research to find if the rights were severed, and was it all or some specific mineral rights, and to what portion of the property does it pertain.  He said one man, J. Daniel Butler, owns 2,600 acres of mineral rights in Lee County.  Witmar Company has leased 5,945 acres of the 6,800 acres already leased in Lee County, and most are 20-year leases.  He used the geographic information system (GIS) to show how various setbacks and buffers will restrict well-head placement.  He also showed the rivers, streams, floodplains in the area, as well as the water supply wells that would require a minimum 100-ft. setbacks.  Womack was impressed, and wants to use GIS when MEC considers location of drilling units.
11.  Air Quality Presentation, new Site in Lee County.  Mike Abrazinskas, Director, Div. Air Quality, said new ambient air quality monitoring station will be set up in Lee County (Blackston Rd., southwest of Sanford) to establish the baseline emissions for one-year.  It will be part of the network of 60 existing stations across NC, and will be between the Wake Co station and one in Montgomery Co.  There are 89 toxic compounds that are lab-tested every six days...the same day for all sites.  There is continuous monitoring of ozone, fine particles, nitrogen dioxide, sulfur dioxide.  Methane, however, is not on the list.  Vik Rao said Lee County site should also test for methane and ethane.  The sites also monitor meteorological data. This one-year monitoring/testing will establish the baseline for future oil and gas operations.  Amy Pickle asked about the level of sensitivity, and site-specific impacts that the ambient monitoring might not catch.  How can we know there is a violation?  Some parameters could be in the permit, but Pickle said that pre-drilling activities are not under a permit, and how would Div. of Air Quality handle those impacts?  Abrazinskas said the Division “could” model.
12.  Public Comments.
Teresa Vick (Blue Ridge Environmental Defense):  Since industry wants changes in chemical disclosure, why didn’t they speak at the MEC meetings during public comment?  It implies, on part of the public, that the industry has exercised undue influence already.  Also mentioned Lee County outreach to land owners through mail contact and thanked Amy Pickle for mentioning human health concerns and those costs in the rule discussion. 
Hope Taylor, Clean Water NC: Noted that DENR’s Stakeholders group is very diverse, and uses a consensus process...very important. Said more public hearings are needed to give people time to read and comment. 
Martha Girolami (retired chemical engineer): Based on Lee County’s GIS overview, setbacks will be daunting, and fewer wellpads will be a better solution.  Wants Air Quality data early, through the drilling activity, and test for hydrochloric acid and carbon monoxide.
Charles Bragard (Chatham): wants some evening meetings, monitoring and DENR staff funding, and some guarantees when an operator goes out of business, abandoning their agreements.  Also, if companies say “full-disclosure” what does that mean.
Libby Hutchby (Wake Co): Common good vs. gambling.
James Robinson (Rural Advancement Foundation): On Stakeholders group, said there are 3 industry members and work is done thru consensus, need more health and environmental members to balance.
 Diana Hales, retired

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