HYDRAULIC FRACTURING LAW 101

2015 Land Use Education Program Legal Seminar Charlottesville, Virginia

May 29, 2015

M. Ann Neil CosbySands Anderson, PC

1111 East Main StreetRichmond, Virginia 23219

804.783.7225ancosby@sandsanderson.

com

It depends on who you ask….

What is Fracking?

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Well stimulation technique used in Virginia since the 1950s.• Uses pressurized liquids and/or gases such

as nitrogen to stimulate or fracture rock formations to release the gas or oil.

• Sand is often pumped in with the fluids to help prop the fractures open.

What the Frack does that Mean?

The Fracking Process

Hydraulic fracturing is often combined with horizontal drilling.

The Fracking Process

Typical Casing Design

Since the 1950s, fracking has been used in approximately 2,100 wells in Southwest Virginia.

Exploratory wells were drilled in the eastern part of Virginia during the 20th century

• All of these wells were plugged because not commercially viable.

There are currently no gas or oil wells producing outside of Southwest Virginia.

Fracking in Virginia

With new technology comes new opportunities:• The Marcellus Shale is a sedimentary rock

formation that is located beneath some of the mountains and valleys of western Virginia.• Hot in Pennsylvania and West Virginia• In Virginia, the Department of Mines, Minerals and

Energy ("DMME") believes much of the natural gas once present may have escaped.

• The Taylorsville Basin is located beneath the counties of King George, Westmoreland, Caroline, Essex, and King and Queen.

Fracking in Virginia

Virginia’s Energy Resources

Marcellus Shale

Southwest VA Coalfield

Coles Hill Uranium Deposit

Mesozoic Basins

OCS Lease Sale 220

TAYLORSVILLE BASIN

Virginia Wind Energy Area

It is believed that natural gas companies have already secured leases on approximately 84,000 acres of land in the counties where the Taylorsville Basin is located and upon which drilling operations may occur.

See Cathy Dyson, Fracking company officials to visit K.G. Free-Lance Star (Fredericksburg, Va.), April 11, 2014, http://news.fredericksburg.com/newsdesk/2014/04/11/fracking-company-officials-to-visit-k-g/.

Fracking in Virginia

Truck traffic, visual impacts, road destruction, noise, reduced property values, ecological impacts, impacts on the quantity and quality of aquatic resources due to the extraction of water from aquifers and the subsequent injection of chemical-laced water back into the ground, impacts on the Chesapeake Bay and its tributaries, blowouts and explosions, earthquakes, subterranean instability, effects on climate change, the zombie apocalypse . . . and the list goes on.

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Land Use Concerns

Hydraulically fracked wells in Virginia typically require 0-300,000 gallons of water.

• Increasingly, operators are utilizing nitrogen-based foam to frack wells.

By contrast, fracked wells in the Marcellus Shale can use 4-5 million gallons of water.

- DMME

FRACKING IN VIRGINIA

So who regulates Hydraulic Fracturing in Virginia?

FRACKING IN VIRGINIA

In Virginia, all operators must comply with:• The Virginia Gas and Oil Act of 1990• Virginia Gas and Oil Regulations• Virginia Gas and Oil Board Regulations• State Water Control Law• Virginia Pollution Discharge Elimination System

Regulations• Additional requirements for the Tidewater Region

State Law Requirements

Before Drilling operations may occur in Virginia, a permit be obtained from DMME

• Va. Code § 45.1-181

Applications must contain operations plans that detail necessary construction, erosion and sediment control, drilling and stimulation plans, etc.

• Va. Code § 45.1-182.1

Operator must post bond with application, payable to DMME• Insuring that the Operator shall faithfully perform all of the state

requirements and of the operations plan. • The amount of bond shall be no less than $200 nor more than

$1,000 per acre.

State Permitting Requirements

Applicants must inform localities and publish notices in at least one newspaper of general circulation which is published in the locality where the well is proposed.

PERMIT APPLICATION NOTICE REQUIREMENTS

No drilling in the Chesapeake Bay or its tributaries.

No drilling to the greater distance of:• Bay Resource Protection Areas• 500 feet from the shoreline of the waters of the

Bay or any of its tributaries.

ADDITIONAL REQUIREMENTS FOR DRILLING IN TIDEWATER REGION

THANK GOODNESS…

Where drilling is not otherwise prohibited in the Tidewater Area• Environmental Impact Assessment (EIA)

must be submitted to DMME with application.• EIA is reviewed by DEQ• And all other appropriate state agencies

ADDITIONAL REQUIREMENTS FOR DRILLING IN TIDEWATER REGION

The EIA must include:• The probabilities and consequences of accidental

discharge of oil and gas on:• Wildlife• Air and water quality• Land and water resources

• Recommendations for minimizing any adverse economic, fiscal, or environmental impacts

• An examination of the secondary environmental effects of induced economic development due to the drilling and production

ADDITIONAL REQUIREMENTS FOR DRILLING IN TIDEWATER REGION

DMME must consider DEQ’s findings before a permit can be issued.

• It is not required to incorporate any particular finding(s) in a permit or reject permit per EIA findings.

ADDITIONAL REQUIREMENTS FOR DRILLING IN TIDEWATER REGION

But what about local laws??

Can localities adopt additional restrictions or ban fracking

altogether?

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Regulation of Fracking

Local authority is limited to those areas expressly granted by the General Assembly, or those necessarily or fairly implied from the express grant of power, and those that are essential and indispensable.

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The Dillon Rule

Any locality may, by ordinance, classify the territory under its jurisdiction or any substantial portion thereof into districts of such number, shape and size as it may deem best suited to carry out the purposes of this article, and in each district it may regulate, restrict, permit, prohibit, and determine the following:

1. The use of land, buildings, structures and other premises for agricultural, business, industrial, residential, flood plain and other specific uses; . . .

4. The excavation or mining of soil or other natural resources.

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Va. Code Ann. § 15.2-2280 Zoning Ordinances Generally

Resource Conservation Management, Inc. v. Board of Supervisors of Prince William County• Issue: Could County ban debris landfills?• Answer: YES

• “The governing body of a locality is expressly authorized to prohibit a specific use of land.“

• “While the language [of the Virginia Code] does not specify a landfill as one of the uses that may be prohibited, such specificity is not necessary even under the Dillon Rule of strict construction."

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Judicial Interpretation of Code of Va. §15.2-2280

Local authority may be preempted where the General Assembly has expressly preempted the field, or where preemption as shown through legislative intent.

• While localities may have the authority to regulate or restrict fracking under its zoning powers, it cannot do so if such powers are preempted by state laws regulating in the same area.

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Preemption

• State Regulations adopted "to ensure the safe and efficient

development and production of gas and oil resources located in

the Commonwealth."

Code of Virginia § 45.1-361.27(A).

• To protect the public safety and general welfare.

Code of Virginia § 45.1-361.27(A)(8).

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Is the Field Preempted?

“No county, city, or town or other political subdivision of the Commonwealth shall impose any condition, or require any other local license, permit, fee or bond which varies from or is in addition to the requirements of this chapter. However, no provision of this chapter shall be construed to limit or supersede the jurisdiction and requirements of . . . Local land use ordinances . . .”

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BUT…Va. Code Ann. § 45.1-361.5

Even where not preempted…

…local zoning ordinances may still be invalid if they conflict with state law. • See Code of Virginia § 1-248:

"[a]ny ordinance, resolution, by law, rule, regulation, or order of any governing body or any corporation, board, or number of persons shall not be inconsistent with the Constitution and laws of the United States or of the Commonwealth."

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BUT…Inconsistency

Virginia Supreme Court addressing Solid Waste Management Act where overlaps with local zoning:

• the VWMA displayed a legislative intent to permit active local involvement in the field of waste management regulation.

Key: VMWA provided that no permit for the disposal of solid waste could be issued by the Director

• With notification from the local governing body confirming that the location was consistent with all local land use ordinances.

• No such requirement in Gas and Oil Act.

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Resource Management

Virginia Supreme Court struck down Amelia County's prohibition on the land application of biosolids.

• Found the County's ordinance was inconsistent with state law.

• The County could not "forbid what the legislature has expressly licensed, authorized, or required."

• Permits were express authorizations from the state to land apply biosolids on the farms identified in the permits.

While the Biosolids Use Regulations contemplated that local governments would have some involvement in the field of biosolids use regulation, this did not mean that localities could ban the land use entirely.

See Blanton, 261 Va. at 64, 540 S.E.2d at 874.35

Blanton v. Amelia Co.

OPINION: The holder of a permit issued under the Gas and Oil Act for a natural gas well was still required to obtain a special use permit for operation of a well located in an agricultural zoning district in Montgomery County. • Citing Resource Conservation, the AG determined: "the

Virginia Gas and Oil Act does not exempt the permit holder from a requirement under a local zoning ordinance to obtain a special use permit for operation of the well in the location specified in the state permit.“

1993, Attorney General Stephen D. Rosenthal

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1993 AG Opinion

OPINION: Local governing body can adopt zoning provisions that restrict the location and siting of oil and gas wells that are reasonable and consistent with the Gas and Oil Act and the Commonwealth Energy Policy, but it cannot ban such activities outright.

• Citing Blanton, local governments cannot "'forbid what the legislature has expressly licensed, authorized or required," and that a ban would violate the Dillon Rule because “no statute expressly empowers a locality to adopt a ban on oil and gas exploration or drilling.”

The Attorney General concluded, “a locality’s delegated power is limited to the ability to adopt reasonable siting regulations” for gas and oil development activities.

2013 Va. AG Lexis 4; 2013 Op. Atty. Gen. Va. 4 (January 11, 2013). Attorney General Kenneth T. Cuccinelli

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2013 AG Opinion

OPINION: The General Assembly intended for localities to retain their authority to prohibit fracking through duly enacted zoning ordinances. • Other types of local control over fracking that do not relate

to zoning, such as license or fee requirements, are entirely preempted by the Act.

• To the extent that the 2013 Opinion conflicts with this conclusion, it is overruled.

• Locality has the authority to regulate fracking under zoning powers but cannot be inconsistent with state law or unmeasurable in scope.

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2015 AG Opinion

Code of Virginia § 1-248: "[a]ny ordinance, resolution, by law, rule, regulation, or order of any governing body…shall not be inconsistent with the Constitution and laws of the United States or of the Commonwealth."

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Statutory Guidance?

Whenever the regulations made under authority of this [zoning] article require a greater width or size of yards, courts or other open spaces, require a lower height of building or less number of stories, require a greater percentage of lot to be left unoccupied or impose other higher standards than are required in any other statute or local ordinance or regulation, the provisions of the regulations made under authority of this article shall govern…"

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But See Va. Code §15.2-2315

Complete prohibitions on Fracking remain subject to legal challenge:

• Whether they are upheld may depend on whether Virginia Supreme Court would be guided by Resource Conservation or Blanton.

• Court would likely be guided by express statutory language.

• What about special exception permits that may be denied?

• Question: Is whether valid zoning restrictions adopted under Va. Code § 45.1-361.5 would still be found inconsistent with state law.

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So What can Localities Do?

Additional regulations on Fracking may still be subject to legal challenge:

• Siting and locational requirements likely ok. • Setbacks, limitations on noise, traffic restrictions, hours of operation,

landscaping requirements

• More stringent requirements, bonds, may be challenged if not narrowly drawn.

• Other environmental measures to protect water quality, i.e, liner requirements for wastewater pits may be problematic, particularly where EIA addressed and DMME failed to include.

• Question: Is whether valid zoning restrictions adopted under Va. Code § 45.1-361.5 would still be found inconsistent with state law.

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So What can Localities Do?

In the fall of 2013, DMME initiated a regulatory action to review its requirements for drilling.

• Chemical disclosure requirements• Review of selected industry best practices• Review to determine if additional requirements are

necessary for different regions of the Commonwealth

Current Regulatory Updates

Recommendations:

• Disclosure of ingredients should be required.• Operators should be required to use FracFocus.• Virginia should maintain a separate registry.• Operators should provide a list of anticipated ingredients

before fracking takes place.• Operators should submit all information related to fracking

to DMME and DMME should determine what information should be protected as a trade secret.

• The radius for groundwater sampling should be extended to ¼ mile.

PANEL’S RECOMMENDATIONS

• One monitoring test should be required within 6-12 months after well completion, with additional enforcement if limits are exceeded.

• Pressure testing of production casing should be required.

• Pits should be fenced.• Emergency Response Plans should be submitted as

part of permit application.• Local government certification of conformance with

local zoning ordinance requirements should be required.

• Provisions to ensure DEQ recommendations from review of EIA included in DMME permits

PANEL’S RECOMMENDATIONS, CONT.

Visit the Regulatory Town Hall website for more information.

www.townhall.virginia.gov

FINAL STAGE

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