TAKE 5: Board member looks at fracking issues

Jun. 01, 2014 @ 05:00 AM

Today, in the second of two parts of an extended Take 5, we talk with Sanford native and Lee County property owner Ray Covington, who’s a member of the N.C. Mining and Energy Commission (MEC), about issues related to hydraulic fracturing in North Carolina. Covington lives in Guilford County with his wife and daughters.

In its report, the Compulsory Pooling Study Group wrote, “In the interest of protecting the correlative rights of landowners and minimizing waste, the Study Group recommends that compulsory pooling be allowed where 90 percent of the owners of the surface acreage of a drilling unit have voluntarily leased or consented to developing their oil and gas rights.” What does that mean, and how do you think that recommendation satisfies the concerns property owners have about forced pooling?

Since 1945, North Carolina statutes have allowed anyone with gas development rights to ask the state to use its power to combine those oil and gas rights with the rights on adjoining lands into a single production pool and to begin producing the oil and gas underneath both lands. However, North Carolina has had no specific rules to govern that process or to describe how landowners should be treated. The Compulsory Pooling Study Group was tasked with developing recommendations on rules to guide that process.

This recommendation is one of the many that we made. (The study group’s full report is available at http://portal.ncdenr.org/web/mining-and-energy-commission/compulsory-pooling-agendas.) It addresses the threshold question of how many of the owners of oil and gas rights in a particular area of land (usually about one square mile, or 640 acres) have to agree to begin production before one of them can ask the state to pool all the landowners in the area that would be needed to develop a well economically.

To develop natural gas in shale formations like Lee County’s, multiple wells are drilled from a single site and the well bores then extend horizontally underground for often a mile or more. The gas or oil then is drained from the entire area. When owners of oil and gas rights in the identified area disagree about whether or not to proceed, it’s difficult to balance the rights of those who want to develop their oil and gas resources with those who do not.

The most difficult question that the study group faced was this question about how to balance the interests and rights of those who might want to develop their land and those who do not. In the end, after a lot of testimony from landowners and others, and a lot of research and examination of maps showing how land ownership was distributed in the shale basin, we decided that a rule that established a requirement that the owners of ninety percent of the acreage of oil and gas rights in a proposed area had to be on board before the state should consider a request to pool all the landowners in the proposed drilling pool. In most areas, that rule would mean that a significant majority of all the neighbors would have to agree to begin production and, we believed, in all areas at least a majority of the neighbors would have to agree.

This 90-percent threshold would be the highest in the nation. However, even having this high threshold would be reasonable only if the state also adopts the other recommendations that we made to protect landowners who are pooled. These other recommendations included prohibiting any development on the surface land above land compelled into a pool, requiring gas operators to obtain surface use agreements from any landowner in the pool whose surface is disturbed, requiring operators to indemnify all landowners in the pool, and establishing strong standards for reporting production and royalty information to oil and gas rights owners. I am going to be working hard over the next year to make sure that these landowner protections are adopted.

Fracking opponents say that experience in states such as Pennsylvania shows that the practice can lead to contaminated drinking water wells and other threats to water supplies. Fracking supporters say data doesn’t support this claim. What does your look at the data reveal?

Risks to water have to be taken very seriously and are an issue we have paid a lot of attention to on the Mining and Energy Commission. There are more than 500,000 active natural gas wells in the United States. Accidents are a risk with all industrial activity, and we need to make sure that we have rules, an inspection system, and enforcement mechanisms in place to minimize the risks of contamination.

The research on problems in Pennsylvania with methane contamination of water wells and other contamination of water sources have been linked primarily to two issues: (1) poor wellhead design and construction and (2) improper disposal of wastewater.

Poor wellhead design and poor construction techniques in some instances have allowed methane to escape the well bore and contaminate nearby drinking water wells. The more current rules proposed by the MEC will be the most up-to-date in the country and require more rigorous designs that those used in the wells than those that have been identified as possibly contaminating drinking water in Pennsylvania. The MEC endorsed these rules unanimously. You can review these and all of our proposed rules at http://portal.ncdenr.org/web/mining-and-energy-commission/draft-rules. Quality of construction also is an issue, however, and having a well-funded inspection program will be essential to ensuring good design is followed by good construction.

The other place where contamination of water has been an issue is improper disposal of water and waste. The proposed MEC rules require either capture of all water produced in the drilling operation and either complete reuse of all wastewater onsite, treatment of water onsite, or disposal at a state-licensed waste treatment facility. Any solid waste must be taken by a landfill licensed to handle similar waste. Any temporary open pits used for temporary storage of waste must be professionally engineered and are required to have the capacity to withstand significant rain events (at least two feet of “freeboard” from the waste to the top of the pit).

While there has been a lot of discussion about fracking’s potential impact on water quality, what about air quality? What is the MEC doing to address concerns about air quality?

In 2012, EPA issued the first rules under the Clean Air Act regulating natural gas wells. The 2012 rules require that by next year (2015) operators must capture volatile organic compounds that are produced during well drilling and production operations. EPA expects these rules will reduce the release of volatile organic chemicals (VOCs) in the tens of thousands of new hydraulically fractured wells being drilled each year in the United States by 95 percent compared to older wells. These rules also were updated last year to increase controls on storage tanks likely to have the highest emissions of volatile organic compounds.

Because North Carolina is not an established oil and gas producing state, operators in North Carolina may be exempt from these new rules. If that is the case, then the MEC will need to look at adopting state rules to address these concerns.

Both EPA and the states have been working to better understand other air pollution impacts of the drilling process. EPA and states like Colorado with existing drilling operations have been actively monitoring air quality at drilling sites to better understand the air quality impacts and what additional steps need to taken.

We do not have any active drilling in North Carolina to monitor, but the MEC is working with DENR’s Division of Air Quality to develop models of the air quality impacts that natural gas production may have in North Carolina and what we should do to control them. In our work so far, we have identified three likely sources of air emissions from natural gas production that we need to look at further: diesel engines at the well site during drilling operations, pits temporarily holding waste prior to disposal, and emissions from the well bore itself. With the existing EPA rules controlling volatile organic chemicals from the well itself now in place, the greatest contamination is likely to be the concentration of diesel engines at the well site.

And what about disposal of the waste generated by fracking operations? What’s the MEC’s view of how waste disposal will be accomplished?

SNbS

There are multiple types of waste that have to be addressed. Our rules will require that all liquid wastes have to be treated and recycled on site. State law prohibits any separate injection of liquid waste for disposal purposes. Any solid waste, such as drill borings, will be required to be transported to an appropriately lined landfill.

Once hydraulic fracturing begins, what say will cities and counties have in regards to local fracking operations — if any?

Under Senate Bill 786, which was ratified last Thursday, oil and gas operations are required to be treated on the same basis as other industrial operations. Cities and counties are not allowed to specifically ban oil and gas operations or fracking activities in particular. They also would not be allowed to pass rules that would place any restrictions that would apply only to oil and gas operations. However, any rules generally applicable to industrial operations such as zoning or land-use restrictions, traffic laws, or other local ordinances would be enforceable against oil and gas operations just like they would against any other industry.

In a letter to the MEC, the policy director of the NC Conservation Network wrote that the rate of drilling of new gas wells continues to drop, and that few wells around the country produce enough gas to cover their own costs. Will drilling for natural gas really eventually pay off for places like Lee County? Is it economically viable?

Energy is influenced by global, national, state, and local market forces and are difficult to predict. Whether production of natural gas and oil in Lee County will prove economically viable will depend upon a number of factors. What is happening to energy prices globally and what are the relative costs of natural gas, solar, wind, coal and other energy sources? How productive do wells in other parts of the United States where there is existing infrastructure and operations continue to be? What is the actual mix of gas, oil, and condensates beneath Lee County’s soil? Will gas operators offer Lee County residents a sufficient price and the protections for our land, water, and air that we think we need to agree to allow our oil and gas rights to be developed?

A lot of that we don’t control. What we can control is how ready we are when and if it happens, and that’s why we’ve been working so hard through the Mining and Energy Commission to make sure that we have a regulatory structure that is in place to govern oil and gas operations effectively and that will adequately protect and preserve our environment and land, water, and air resources.