Conning the IADC Newsletters:State and Federal Statutory and Regulatory Treatment of Hydraulic Fracturing

Abstract

Legal Writing Contest. International Association of Defense Counsel Committee members prepare newsletters on a monthly basis that contain a wide range of practical and helpful material. This section of the Defense Counsel Journal is dedicated to highlighting interesting topics covered in recent newsletters so that other readers can benefit from committee specific articles The following articles originally appeared as a four-part series in the September-December 2012 Environmental and Energy Law Committee Newsletters. Introduction to Hydraulic Fracturing Natural Gas Exploration (September 2012) A. What is Hydraulic Fracturing? HYDRAULIC FRACTURING was first used more than 100 years ago in 1903, but the first commercial fracturing treatment was performed in 1949. During the next forty years George Mitchell and other geologists developed use of the hydraulic fracture in North Texas. By 1988, it had been applied more than one million times. Now, fracturing is used not only to stimulate production in old wells, but to jump start the production process in unconventional formations and in unfavorable locations. Operators now fracture about 35,000 wells each year. Improvements in two technologies have made production of oil and gas from shale formations feasible: hydraulic fracturing and horizontal drilling. Hydraulic fracturing is a formation stimulation practice that creates additional permeability in a producing formation, allowing natural gas to flow more readily to a well bore. Hydraulic fracturing involves pumping of fracturing fluid into formation: * At predetermined rate and pressure; * To generate fractures or cracks in target formation; and * Fluid includes proppant to hold cracks open. B. Why Hydraulic Fracturing for Natural Gas is Important? Natural gas provides 220/0 of U.S. energy demands. Natural Gas is affordable at one fourth the cost of oil. Natural Gas production is clean compared to Oil or Coal (or will be if the new EPA air pollution regulations go into effect). Natural Gas is plentiful as unconventional sources have dramatically increased U.S. reserves. It is estimated that the US has more than 1,744 trillion cubic feet (tcf) of technically recoverable Natural Gas, a 120 year supply. (Energy Information Administration -EIA estimate). Shale gas will grow from 16% of U.S. production in 2009 to 47% by 2035. (EIA estimate) Technological improvements have begun to reverse over three decades of declining U.S. crude production. Increases in U.S. crude production through at least 2020, primarily due to new on-shore production, are projected by the EIA. U.S. Natural Gas production is increasing dramatically. In 2009, the U.S. surpassed Russia to become the world's largest natural gas producer. Benefits from hydraulic fracturing in unconventional shale plays include: * Energy security-reduced imports of foreign oil. * A 2009 Barnett Shale Economic Impact Report estimated that the shale play contributed $11 billion to the local economy and supported over 111,000 permanent jobs in the region in 2008. * Revenue to governments. The State of Texas received approximately $275 million in severance revenue in 2009 from Barnet Shale activities. Eagle Ford Shale contributed $25 billion in economic output to the region in 2011 according to a University of Texas at San Antonio's Center for Community and Business Research Study. (1) * Shale development activity paid $3.1 billion in worker salaries and benefits, provided $12.6 billion in gross regional product, added $358 million in state revenue and spurred triple-digit sales tax revenue increases in some local counties. * Leasing of lands also helps struggling farmers, land owners by providing bonus payments and royalties. C. Location of Shale Gas Fields and the Infrastructure of Shale Gas Production I. …