The state of fracking

Fracking is not new to California - it has been used in oil fields for decades - but it has recently become a hot political and legal issue with increasing news reports about alleged environmental damage associated with fracking in the eastern U.S. and as new oil developments suitable for fracking are discovered in the Golden State.

Fracking - also known as hydraulic fracturing - is the practice of injecting water, sand and other, often proprietary, chemicals into wells to loosen oil deposits. Fracking is commonly used in relatively impermeable rock formations where older drilling methods are less effective. Oil companies believe its use would allow resources in the recently discovered Monterey Shale formation in California to be economically extracted. The Monterey Shale spans approximately 1,750 square miles and is estimated to contain 15.4 billion barrels of oil. By comparison, the Bakken Shale - driving the boom in North Dakota - is estimated to contain only 7.4 billion barrels of oil.

According to the California Chamber of Commerce, tax revenue from oil and gas development could grow from $4.5 billion to $24.6 billion if drilling in the Monterey Shale proceeds. Opponents of fracking, however, have raised concerns, including that fracking uses toxic chemicals, generates polluted waste water, threatens air quality, wastes scarce water resources and threatens natural areas. A 2013 Public Policy Institute poll found that 61 percent of likely voters want stricter regulation of fracking and 53 percent oppose any expansion of fracking in California.

With a public conflicted about fracking and increasing pressure to pursue oil resources, the last 12 months has been marked by legislative action, local moratoriums, regional regulation and enforcement actions, new scrutiny of off-shore activity, and litigation all related to the future of fracking in California.

Legislation

In 2013 nearly a dozen bills were introduced in the state Legislature to regulate or ban fracking. The only bill to pass - Senate Bill 4 - requires the California Department of Oil, Gas and Geothermal Resources (DOGGR) to implement "interim" regulations for fracking and to issue final regulations by 2015. The interim regulations, effective as of Jan. 1, 2014, require that companies certify the integrity of a well prior to fracking, provide at least 72-hour advance notice of fracking to DOGRR, provide notice to neighboring properties at least 30 days prior to fracking, and disclose all fracking chemicals used within 60 days of fracking. SB 4 also requires DOGGR to prepare a statewide environmental impact report, pursuant the California Environmental Quality Act (CEQA), to analyze the potential impacts of fracking by July 2015 and commission an independent scientific study of fracking.

Pressure to further regulate or ban fracking is likely to continue. Indeed, at its state convention in March, the California Democratic Party adopted a resolution calling for "an immediate moratorium on fracking, acidizing and other forms of oil/gas well stimulation."

Local Bans on Fracking

Local jurisdictions have forged ahead with bans on fracking. In 2013, Santa Cruz County adopted a temporary moratorium on fracking while exploring a permanent ban. In February, the Los Angeles City Council approved a measure to prohibit fracking via changes to the local zoning code. This was followed by a short-term moratorium on fracking adopted by Carson City in March, which threatened the development of nearly 200 wells.

Regional Regulation and Enforcement

Opponents have raised concern about air emissions and water quality damage associated with fracking operations. In 2013, the South Coast Air Quality Management District adopted the first rule by an air district to directly address fracking. The regulation requires notification and reporting by oil drillers and suppliers of fracking chemicals, including notification by companies to before fracking, reporting on the chemicals used within 60 days of fracking and reporting on combustion equipment and fugitive dust emissions. After two years of data collection, the air district will determine whether the reporting requirements should be extended and whether new requirements are necessary.

In contrast, staff at the San Joaquin Valley Air Pollution Control District, with jurisdiction over many existing Central Valley fracking operations, determined that its existing regulations address fracking and warned that "separate and duplicative reporting regulations by multiple government agencies are not warranted."

The first regulatory enforcement action associated with potential impact to water quality due to fracking occurred in 2013. The Central Valley Regional Water Quality Control Board fined an oil drilling company $60,000, the statutory maximum, for 12 days of an alleged discharge of fracking wastewater. The enforcement arose in response to a video taken by a Kern County farmer showing the discharge of the wastewater into an unlined pit. Regulators raised concern that similar discharges may have occurred at other drilling operations and expressed an intent to scrutinize fracking operations and revise regulations to more specifically address oil field discharges.

Regulation of Off-Shore Fracking

Although new off-shore oil platforms have been banned in California since a Santa Barbara spill in 1969, drilling at pre-existing platforms continues. According to recent reports, federal regulators have approved off-shore fracking at multiple locations in the last two decades. Oversight of off-shore drilling is shared among a number of agencies, including the federal Bureau of Safety and Environmental Enforcement, the Environmental Protection Agency and the California Coastal Commission

In January, the EPA reissued its National Pollutant Discharge Elimination System General Permit for Offshore Oil and Gas Exploration pursuant to the federal Clean Water Act. In response to the California Coastal Commission's concerns, the general permit includes new fracking requirements, specifying that drilling companies must maintain an inventory of fracking chemicals and report the chemical formulation of any discharged fracking fluids.

The California Coastal Commission is also scrutinizing potential fracking in state waters. Earlier this year, the commission reported that it was actively evaluating its authority to regulate fracking at existing off-shore facilities constructed prior to the California Coastal Act, exploring an agreement with DOGGR addressing fracking regulation, and planning to participate in the scientific study mandated by SB 4. The commission is also taking steps under the federal Coastal Zone Management Act to request further regulation of fracking at existing operations in federal waters.

Litigation

A number of legal actions have sought to restrict or stop fracking in California. In particular, these suits have argued that state and federal agencies have violated requirements to evaluate the environmental impact of fracking prior to selling mineral rights or issuing permits for drilling.

In a suit against the Bureau of Land Management, environmental groups argued that the bureau violated the National Environmental Policy Act (NEPA) by failing to consider the environmental impact of fracking before auctioning mineral rights to federal land located over the Monterey Shale. In an April 2013 decision, the district court agreed that the bureau had failed to adequately evaluate fracking. In response, the bureau published a notice of intent to prepare an environmental impact statement analyzing the potential impacts of fracking on 284,000 acres of land within the jurisdiction of its Hollister Field Office.

In October 2012, environmental groups filed a complaint against DOGGR, claiming that the agency has a "pattern and practice of failure to comply with [the California Environmental Quality Act]" by issuing permits for wells that involve fracking. The Alameda County Superior Court dismissed the suit in January, finding that the complaint was moot and unripe due to the passage of SB 4. The court specifically cited to statutory language stating that DOGGR "shall allow" fracking prior to the development of final regulations in early 2015, provided that the requirements specified in the statute and interim regulations are met. As a result, the court held that the "plain text of [SB-4] suggest that if the owner or operator meets [the statutory] conditions, then the DOGG must issue a permit" allowing fracking.

Anticipated Developments

It appears certain that the regulation of fracking, and litigation related to fracking, will increase in the coming year. Fracking opponents are pushing for more regulation and for statewide and local moratoriums. Additional litigation is likely in connection with federal and state environmental reviews of fracking under NEPA and CEQA. Meanwhile, new regulation means that companies conducting fracking face increasing compliance requirements and additional scrutiny, which may result in more enforcement actions. If momentum for local bans on fracking increases, litigation challenging local authority to preempt statewide regulation of fracking, or seeking damages for the impact on private contracts for drilling, is likely. Finally, the increased use of fracking, combined with more readily accessible information on where it is used and what chemicals are involved, may result in litigation seeking damages for alleged impacts to human health, groundwater supplies or property.