ENVIRONMENTAL AND ENERGY LAW

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I suggest the following simple ten ways to avoid malpractice in litigation:

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February 2014

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N THIS ISSUE

Focusing on the legal issues surrounding hydraulic fracturing, this newsletter, written by committee chair, R. Jo Reser, provides a summary of current legal issues surrounding hydraulic fracturing in South Texas.

Hydraulic Fracturing Generates Legal Issues and Disputes

for Attorneys to Resolve in South Texas

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BOUT THE AUTHOR

Rebecca Jo Reser is an IADC member and shareholder at the San Antonio, Texas law

firm of Davidson, Troilo, Ream & Garza. Ms. Reser has litigated numerous environmental, commercial and tort cases in State and Federal Courts throughout Texas. Ms. Reser also advises utilities, municipalities and other entities regarding air, water and carbon emissions regulations. She can be reached at jreser@dtrglaw.com.

A

BOUT THE

C

OMMITTEE

The Environmental and Energy Law Committee assists all members whose practice relates to environmental and energy areas consisting of regulatory compliance, permitting issues and litigation. The Committee conducts monthly conference calls and publishes newsletters to keep our members abreast of current issues relating to the energy field and environmental practice. The members also present educational seminars, and provide an opportunity to network with fellow practitioners in those fields to enhance practice opportunities across the country and internationally.

Learn more about the Committee at www.iadclaw.org. To contribute a newsletter article, contact: Walter H. Boone

Vice Chair of Publications

Forman Perry Watkins Krutz & Tardy LLP (601) 960-8616

whboone@fpwk.com

The International Association of Defense Counsel serves a distinguished, invitation-only membership of corporate and insurance defense lawyers. The IADC dedicates itself to enhancing the development of skills, professionalism and camaraderie in the

practice of law in order to serve and benefit the civil justice system, the legal profession, society and our members.

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ENVIRONMENTAL AND ENERGY LAW COMMITTEE NEWSLETTER February 2014

w: www.iadclaw.org p: 312.368.1494 f: 312.368.1854 e: mmaisel@iadclaw.org

The good, the bad and the ugly impacts of hydraulic fracturing, also known as “fracking,” in the Eagle Ford shale, one of the hottest oil and gas plays in the nation, have generated numerous legal issues for attorneys to resolve in South Texas.1 The good, prosperity in South Texas from fracking the Eagle Ford shale has kept business attorneys busy creating and advising new businesses servicing the Eagle Ford shale’s needs, property attorneys actively negotiating landowner leases for new well sites, and intellectual property attorneys working developing new technology patents and trademarks.

The bad, hydraulic fracturing directly exposes workers to many chemicals, toxic gas emissions and potential hazards, including the 1,000 chemicals that can make up the fracking fluids.2 Landowners and municipalities are also concerned about the chemicals used during the fracking process, as well as the environmental pollution and contamination to land, groundwater and air

1_{What is Hydraulic Fracturing? 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. See R. Jo Reser, State and Federal Statutory and Regulatory Treatment of Hydraulic Fracturing, 80

DEF. COUNS. J. 90, 91 (Jan. 2013). Simone Sebastian, Is it fracking or fracing? FUEL FIX, December 23, 2011,

http://fuelfix.com/blog/2011/12/23/is-it-fracking-or-fracing/ (last visited November 23, 2013).

2_{According to EPA’s coordinator of hydraulic}

fracturing research, Jeanne Briskin, 1,000 chemicals have already been identified as those commonly used in the drilling process. Alan Krupnick, Academic

Conference in Cleveland Addresses Unanswered Fracking Questions, Alan Krupnick’s interview of Jeanne Briskin, IDEASTREAM, June 19, 2013,

http://www.ideastream.org/news/feature/54351.

which may be caused by hydraulic fracturing.34

The primary environmental impacts associated with hydraulic fracturing result from the use of toxic chemicals during the fracking process and the subsequent release of additional toxic chemicals and radioactive materials during well production.5 Fracking fluid flowback, the fluid pumped out of the well and separated from oil and gas, not only contains the chemical additives used in the drilling process but also contains heavy metals, radioactive materials, volatile organic compounds (VOCs) and hazardous air pollutants (HAPs) such as benzene, toluene, ethylbenzene and xylene (BTEX).6_Workers

are also exposed to silica during the initial drilling of wells and toxic gas emissions.7

For these reasons, tort lawyers see the Eagle Ford shale territory as an immature mass tort site, while other attorneys attempt to draft leases and municipal ordinances to protect their clients from environmental problems which may result from hydraulic fracturing. Trade secret protections in Texas’ Disclosure of Composition of Hydraulic Fracturing Fluids legislation prevent the disclosure of many chemicals in the fracking fluid.8

3_Id.

4_{An average well requiring 3 million gallons of water}

requires the injection of 15,000 to 60,000 gallons of chemical additives into the well. Due to the large amount of chemical additives required, there is a risk of releasing to surface and ground water through on-site spills or leaks and a risk of releasing through chemical transportation accidents. Environmental

Impacts Associated with Hydraulic Fracturing, The

Network for Public Health Law, (October 1, 2011),

https://www.networkforphl.org/_asset/w74j2w/Frackin g_Environmental_Impacts.pdf, (last visited 20 November, 2013).

5_Id. 6_Id.

7_{Krupnick at 2.}

8_{TEX. NAT.RES. CODE ANN. Sec. 91.851 (2011),} see Reser at 102-106.

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Although no complete list of the cocktail of chemicals used in this fracking process exists, information obtained from environmental clean-up sites demonstrates that known toxins are routinely being used, including hydrochloric acid, diesel fuel (which contains benzene, toluene, and xylene) as well as formaldehyde, polyacrylimides, arsenic, and chromates.9

Between April 2011, when the Texas oil and gas industry began disclosing the mix of water and chemicals it uses for hydraulic fracturing, and early December 2012, companies used terms such as “proprietary,” “secret” or “confidential” 10,120 times while reporting data on 12,410 instances of hydraulic fracturing in Texas.10 In the Eagle Ford Shale, the trade secret exemption was used 2,297 times in 3,100 fracturing events.11 The only people that can challenge trade secret entitlement are the landowner on whose property the relevant well is located, or the adjacent landowner, or a department or agency of the state with jurisdiction over a matter to which the claimed trade secret is relevant.12 This challenge to trade secret entitlement must be made not later than the second anniversary date the relevant well completion report is filed with the commission.13

The ugly, congestion on torn up roads causing skyrocketing trucking fatalities feed personal

9_{"Q+A: Environmental fears over U.S. shale gas}

drilling," REUTERS, Dec. 23, 2009.

10_{Jennifer Hiller,}_{Exact mix of fracking fluids remain a}

mystery-What's being put in ground stays buried,

EXPRESS NEWS, February 2, 2013.

11_Id.

12_{TEX. NAT. RES. CODE ANN. Sec. 91.851 (2011).} 13_Id._{This law was heavily supported by a group of} twelve gas producers, seeking to appease the public outcry for disclosure, while keeping their chemical formulas secret. Ben Casselman, ‘Fracking’

Disclosure to Rise, WALL ST. J., June 19, 2011, see

Reser at 105.

injury attorneys catastrophic injury cases. New litigation abounds in the Eagle Ford’s many County and District courts for attorneys dealing with condemnation of land for new oil and gas pipelines and electric transmission lines, water disputes, corporate disputes, employment, family, tort cases and criminal law matters.14

Exemptions in Federal Environmental Regulation of Hydraulic Fracturing

When Congress considered whether to regulate more closely the handling of wastes from oil and gas drilling in the 1980s, it had the Environmental Protection Agency research the matter. E.P.A. researchers concluded that some of the drillers’ waste was hazardous and should be tightly controlled.15 The final report handed to lawmakers in 1987 eliminated these EPA recommendations concerning oil and gas waste.16

Hydraulic fracturing was subsequently exempted from federal environmental law regulation under the Safe Drinking Water Act; the Resource Conservation and Recovery Act; the Emergency Planning and Community Right-To-Know Act; the Clean Water Act; the Clean Air Act; the Comprehensive Environmental Response, Compensation, and Liability Act (Superfund); and the National

14_{Navigant has been identifying all cases relating to}

unconventional oil and gas (hydraulic fracturing) cases filed in U.S. federal and State courts since Q2 2011. Navigant, Unconventional Oil and Gas Litigation

Trends Report,

http://www.navigant.com/~/media/WWW/Site/Insights /Energy/NavigantUnconventionalOilGasStudy_Oct13. ashx.

15_{Ian Urbina, Pressure Limits Efforts to Police} Drilling for Gas, N.Y. Times, Mar. 3, 2011,

http://www.nytimes.com/2011/03/04/us/04gas.html?_ r=1&ref=drillingdown.

16_Id._{Shortly after the study was released, the New} York Times reported that the agency had been strongly influenced by industry and political pressure.

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Environmental Policy Act.17 Many of the exemptions for the above listed statutes stem from or were strengthened by the Energy Policy Act of 2005.18

Natural gas drilling companies have been given major exemptions from 7 of the 15 sweeping federal environmental laws that regulate most other heavy industries and which were written to protect air and drinking water from radioactive and hazardous chemicals.19 When coal mine operators want to inject toxic wastewater into the ground, they must get permission from the federal authorities.20 However, when natural gas companies want to inject chemical-laced water and sand into the ground during hydrofracking, they do not have to follow the same rules.21 The Environmental Protection Agency’s current study "to assess the potential impacts of hydraulic fracturing on drinking water resources, if any, and to identify the driving factors that may affect the severity and frequency of such impacts" authorized in 2010 and originally due in 2014, has been delayed to 2016 and its scope is being narrowed.22

17_{Brady, William J.}_{"Hydraulic Fracturing Regulation}

in the United States: The Laissez-Faire Approach of the Federal Government and Varying State

Regulations", http://www.law.du.edu/documents/faculty-highlights/Intersol-2012-HydroFracking.pdf, (last visited 20 November 2013). 18_Id. 19_Id 20_Id. 21_Id.

22_{Id. see also Sharon Guynup, "The Fracking Industry} Buys Congress," ENS, Feb. 16, 2012. (last visited 20

November 2012

http://ens- newswire.com/2012/02/16/the-fracking-industry-buys-congress/ , Olivia Pulsinelli, “Texas politicians get

gusher of contributions from fracking industry,” HOUSTON BUSINESS JOURNAL, November 25, 2013.

Hydraulic fracturing in the Eagle Ford Shale is currently regulated piecemeal by the Texas Railroad Commission (oil and gas production), Texas Commission on Environmental Quality (air emissions), state law, municipal ordinances and EPA. Environmental and administrative law attorneys represent their Eagle Ford clients before these agencies obtaining permits, reporting appropriate information, and resolving disputes.

Hydraulic Fracturing in the Courts

With a lack of federal regulation, landowners and others are resorting to the Courts to protect their property interests and persons from the dangers of hydraulic fracturing or to recover for damages incurred due to hydraulic fracturing operations.23 As a relatively new technology, hydraulic fracturing has come before courts in only a limited number of cases, thus courts have played a narrow role to date in resolving the serious problems caused by hydraulic fracturing.24 The grounds for these claims are usually based in trespass or nuisance, and involve questions of property rights. Texas courts have been reluctant to allow for recovery under trespass, and nuisance claims are likely insufficient to adequately address the impacts of hydraulic fracturing.25

Trespass

In 2008 the Texas Supreme Court ruled on whether hydraulic fracturing operators may

23_{Joshua P. Dennis, The Emergence of Natural Gas} and the need for Cooperative Federalism to Address a big “fracking” Problem, SAN DIEGO JOURNAL OF

CLIMATE & ENERGY LAW, 254, 264,( 2012-2013).

24_{Hannah Wiseman,}_{Untested Waters: The Rise of}

Hydraulic Fracturing in Oil and Gas Production and the Need to Revisit Regulation, 20 FORDHAM ENVL.

L. Rev. 115, 147 (2009).

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be held liable for trespass for induced fractures that traveled into a neighboring subsurface property.26 In Coastal Oil, the court was faced with determining “whether subsurface hydraulic fracturing of a natural gas well that extends into another's property is a trespass for which the value of gas drained as a result may be recovered as damages.”27 The court held that the rule of capture bars recovery of such damages.28 In a concurring opinion, one justice wrote directly that “a claim for ‘trespassby-frac’ is non-existent in either drainage or nondrainage cases.”29 While the courts have historically been hesitant to impose injunctions on companies that pollute under the belief that the issue is more adequately dealt with at an industry level by elected officials, the Texas Supreme Court (as of this writing) is reviewing a decision by the Ninth Court of Appeals in Beaumont (Beaumont court) that, if upheld, could heavily impact the injection well and oil and gas industries.30 The case of FPL

Farming v. Environmental Processing Systems involves a dispute between a rice

farmer (FPL) and an injection well operator (EPS) over the leaching of injected fluids into the subsurface of FPL's property.31

In 2011, the Texas Supreme Court first considered this case and issued a landmark opinion holding that possession of an injection well permit does not insulate the

26_{Coastal Oil & Gas Corp. v. Garza Energy Trust, 268}

S.W.3d 1, 4 (Tex. 2008), Dennis at 264.

27_Id. 28_Id. 29_Id.

30_Id.,_{FPL Farming Ltd. V. Envtl. Processing Sys.,}

L.C., 383 S.W.3d 274 (Tex. App.--Beaumont 2012,

pet. filed), see Charles Nixon, The Continuing Saga of

FPL Farming V. Environmental Processing Systems: Will the Texas Supreme Court set new rules of liability for underground trespass, 8 TEX. J. OIL GAS &

ENERGY L. 428, 2012-2013.

31_Id.

operator against trespass or other tort liability.32 The court remanded the case to the Beaumont court to consider the merits of

FPL's trespass claim.33 Faced with this mandate, the Beaumont court addressed the trespass issue that results from subsurface fluid migration. Applying traditional common law principles, the court held that wastewater migration can be an actionable trespass. This was the first time a Texas court has reached such a conclusion.34

The implications of the decision could be large. Although the case is about a Class I waste injection well, the Beaumont court's analysis may also be applied to other subsurface trespass claims, including claims resulting from migration of saltwater from Class II injection wells commonly used by the oil and gas industry, or even claims from hydraulic fracturing.35 Many are watching the court to find out if this application of trespass will be affirmed, and if it is affirmed, whether limits are applied to available remedies.36 Even without limits, though a plaintiff may ultimately fail to prove a trespass would occur, such an order would create a costly interruption of operations, and provide a plaintiff with critical leverage in negotiating a favorable settlement prior to the court reaching a conclusion.

32_{FPL Farming Ltd. V. Envtl. Processing Sys., L.C.,}

351 S.W.3d 306 (Tex. 2011).

33_{Id. at 315.}

34_{See David E. Pierce, Trespass Issues in a Shale Play,}

Rocky Mt. Min. L. Inst. (Paper 7, 2010).

35_{Although the precise holding is based on ownership}

rights in groundwater, the court's general analysis of subsurface trespass suggests it believes fracking is still vulnerable to trespass claims, even after Coastal. See Brief of Amicus Curiae Texas Oil & Gas Assoc. in Support of Petition for Review, (No. 12-0905), 2013 WL 145861, at *1 (Tex. Jan. 7, 2013), see Nixon at 429.

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Private Nuisance Remedies

Nuisance is defined as a “nontrespassory invasion of another's interest in the private use and enjoyment of land.”37 According to section 822 of the Restatement (second) of Torts, “one is subject to liability for private nuisance if, but only if, his conduct is a legal cause of an invasion of another's interest in the private use and enjoyment of land, and the invasion is. . . intentional and unreasonable . . .”38 When hydraulic fracturing operations result in the contamination or shortage of drinking water, nuisance claims seem like a good option for recovery by landowners. However, due to the difficulty in identifying contaminants or other effects presents problems with causation in nuisance suits.39 Additionally, nuisance claims can only be made after a landowner's property has been affected by hydraulic fracturing, impacts that may linger indefinitely. Therefore nuisance suits will likely be insufficient to prevent unwelcome hydraulic fracturing operations from entering a community, or to adequately regulate the practice to prevent future harmful effects.40

Although landowners have a property interest in natural gas lying under their property, the rule of capture allow oil and gas companies to “capture” that gas by drilling and inducing fractures from neighboring properties.41 The rule of capture also makes it difficult to recover for trespass from fractures entering subsurface property. Damages resulting from the trespass are difficult to prove, and once the gas migrates away from the property, so does the landowner's property interest in the

37_{Thomsen v. Greve, 550 N.W.2d 49, 54 (Neb. Ct.} App. 1996), Dennis at 265

38_Id.

39_{Wiseman at 157.} 40_{Dennis at 265.}

41_{U.S. Steel Corp. v. Hoge, 468 A.2d 1380, 1383 (Pa.} 1983), Dennis at 265 - 266.

natural gas. Nuisance claims against hydraulic fracturing operations may allow a landowner to recover for harm caused by the operation, but it will likely not be enough to halt the operation or force proper oversight over the practice because oil and gas companies will likely only be forced to pay for damages.42

Navigant’s Analysis of U.S. Court Filings involving Hydraulic Fracturing

Since the second quarter of 2011, Navigant, a consulting company, has been attempting to identify all cases filed in U.S. federal and state courts related to unconventional oil and gas related (hydraulic fracturing) cases.43

Navigant found that since that time the largest numbers of unconventional oil and gas cases have been filed in Texas.44 During the second half of 2011 and the first half of 2012, 45 percent of all unconventional oil and gas cases were filed in Texas.45 In the second half of 2012 and first half of 2013, Texas remained the most significant venue for unconventional oil and gas cases.46

Throughout the United States, land and lease rights cases filings increased to overtake royalty disputes as the predominant type of unconventional oil and gas case filed during the fourth quarter of 2012, and continued to sustain a higher level of activity through June

42_{See generally}_{Boomer v. Atlantic Cement Co., 257} N.E.2d 870, 873 (N.Y. 1970) (denying a permanent injunction to halt a cement making operation because of the large disparity in economic consequences of the nuisance and of the injunction). Dennis at 266.

43_{Navigant, Unconventional Oil and Gas Litigation} Trends Report, October 2013 Update,

http://www.navigant.com/~/media/WWW/Site/Insights /Energy/NavigantUnconventionalOilGasStudy_Oct13. ashx (last visited November 20, 2013).

44_Id. 45_Id. 46_Id.

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2013.47 These cases include disputes arising from the termination of oil and mineral rights, land and lease ownership issues, access to land where plaintiffs hold a valid lease, and injunctions to stop drilling on land.48

For the twelve months ending June 2013, land and lease rights accounted for 30 percent of cases.49 In addition to the strong growth in land and lease rights cases, other kinds of breach of contract cases grew significantly from the second half of 2011 through the first half of 2013.50 These other breach of contract cases include non-royalty contract disputes, as well as allegations related to poor quality workmanship, failure to comply with lease terms, and failure to pay for services rendered.51 For the twelve months ended June 2013, these other breach of contract cases generated 25 percent of unconventional oil and gas litigation.52

The relatively small number of water use rights cases currently included in the land and lease rights dataset may become an area of litigation focus in the future, as a greater number of wells are fractured in concentrated areas.53 This will especially be a concern for shale plays in arid geographies such as Texas.

Hydraulic fracturing’s impact on South Texas’ limited water resources

Hydraulic fracturing’s impact on South Texas’ limited water resources present many difficult to resolve legal issues.54 Hydraulic 47_Id. 48_Id. 49_Id. 50_Id. 51_Id. 52_Id. 53_Id.

54_{See A. Oxford,}_{Water Resources-Not Just}

Water-Quality Gains Attention of Opponents to Hydraulic

fracturing involves two main types of fluid streams, slickwater and crosslinked gel. Both are water based, and it is most typical that freshwater is used as the base.55 Shale plays are often located in water-stressed areas.56 A recent report from the Texas Commission on Environmental Quality estimates that, given ongoing drought conditions and a large increase in groundwater withdrawals for oil and gas development, over thirty Texas communities face the unprecedented risk of running out of water entirely by the end of 2013.57 The official Texas state water plan projects the state will need to spend $400 million to provide water for the mining sector, including hydraulic fracturing.58

The Eagle Ford, extending from the Mexican border into East Texas, began to boom in 2011, just as Texas struggled with the worst one-year drought in its history. While conditions have improved, most of the state is still dealing with some level of drought, and many reservoirs and aquifers have not been fully replenished.59

Fracturing, MARTEN LAW ENVIRONMENTAL NEWS, Apr. 22, 2013.

1. 55_{Fracking, SOURCE WATCH,}

www.sourcewatch.org/index.php/Fracking , (last visited

November 25, 2013).

56_{Hydraulic Fracturing & Water Stress: Growing}

Competitive Pressures for Water, CERES.

57_{See S. Goldenberg, A Texan tragedy: ample oil, no} water, THE GUARDIAN, Aug. 11, 2013. For criticism

of the Guardian’s reporting, see D. Blackmon, Shale,

Fracking Are Not the Main Cause of Texas Water Shortages, FORBES, Aug. 21, 2013.

http://www.tceq.texas.gov/assets/public/response/drou ght/drought-map.jpg.

58_{Luke Metzger, Disturbing trends with fracking,}

EXPRESS-NEWS, November 6. 2013.

59_{Garance Burke,}_{Fracking fuels water fights in state's,}

nation's dry spots, ORANGE COUNTY REGISTER,

June 16, 2013.

http://www.ocregister.com/articles/water-513048-oil-drought.html. (last visited 20 November 2013)

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The amount of water needed to hydraulically fracture a well varies greatly, depending on how hard it is to extract oil and gas from each geological formation. In Texas, the average well requires up to 4 to 6 million gallons of water.60 Almost all the water used in hydraulically fracturing is permanently consumed. According to a study by the Texas Oil and Gas Association, little to no recycling occurs in the Eagle Ford Shale.61

In South Texas, where drought has forced farmers to scale back their farming, local water officials said drillers are contributing to a drop in the water table in several areas.62 Energy companies have driven up the price of water and can afford to pay more than farmers. Where farmers recently paid from $9 to $100 for an acre-foot of water in auctions held by cities with excess supplies, energy companies are now paying these cities $1,200 to $2,900 per acre-foot.63 As much as

15,000 acre-feet of water are drawn each year

from the Carrizo-Wilcox Aquifer to hydraulically fracture wells in the southern half of the Eagle Ford Shale, one of the nation's most profitable oil and gas fields.64 “That is equal to about half of the water

recharged annually into the southern portion

of the aquifer, which spans five counties that are home to about 330,000 people.”65

The amount of water needed to hydraulically fracture a well varies greatly, depending on

60_{Kate Galbraith, In Texas, water use for fracking stirs} concerns, TEXAS TRIBUNE, March 13, 2013. 61_{Metzger at 2.}

62_Id. 63_{Burke at 2.}

64_{One acre-foot roughly equates to the amount of}

water used by three typical Texas households in a year.

65_{Quote from Ron Green, a hydrologist with the}

nonprofit Southwest Research Institute in San Antonio, Forrest Wilder, Observer Analysis Finds Fracking

Water Use Underestimated in Eagle Ford Shale,

TEXAS OBSERVER, June 24, 2013.

how hard it is to extract oil and gas from each geological formation. In Texas, the average well requires up to 6 million gallons of water. Unfortunately the Texas Railroad Commission has not required any oil and gas company to record how much water it has used to hydraulically fracture wells for any time period anywhere in Texas’ shale plays.66 A recent San Antonio Express-News investigation found that hydraulic fracturing used more than 14 billion gallons of water in the Eagle Ford in 2012.67 The news article states:

Hydraulic fracturing is competing for water in some of the driest regions of the U.S., including the Eagle Ford Shale in South Texas, according to a research paper released Wednesday by the nonprofit Ceres.

The report said the Eagle Ford had the highest water use of any region in the country — 19.2 billion gallons — in an 18-month period and faces some of the biggest water challenges of any shale field in North America.

South Texas operators used an average of 4.5 million gallons to fracture each well, the report states. It found that 98 percent of the Eagle Ford wells were in areas of medium or high water stress, with 28 percent in areas of high or extreme water stress. A widely cited University of Texas at Austin study, funded by the oil and gas industry, had predicted hydraulic fracturing in the Eagle Ford would use

66_Id.

67_{Jennifer Hiller, Report: Fracking colliding with} other water uses during the drought. SAN ANTONIO

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a maximum of around 35,000 acre-feet of water annually.

The newspaper looked at more than 23,000 Texas wells drilled from 2011 to 2013, including more than 6,100 in the Eagle Ford, and found the oil field already was swallowing around 43,770 acre-feet in 3,522 wells, the approximate annual usage for 153,000 San Antonio households.

Industry is not unaware of these challenges, and entrepreneurial companies have been developing technology to minimize water usage in hydraulic fracturing.68 These technologies include both equipment to process and recycle used frac water (separating chemicals from flowback and produced water for reuse), and development of methods to better utilize brackish (salty) groundwater in the hydraulic fracturing process, minimizing the need for freshwater withdrawals.69 These methods are currently voluntary and the question from a business perspective is whether (or when) such technologies will become cost-effective enough to be put into widespread use.70 It will be important to watch the extent to which regulatory bodies, particularly state oil and gas agencies, impose limitations on freshwater withdrawals or require the use of recycled water over time in view of the shortages already occurring.

Texas enjoys record tax income due to hydraulic fracturing

Oil and gas interests paid about $12 billion in taxes in Texas in fiscal 2012, up from $9.25

68_Oxford.

69_Id. 70_Id.

billion in 2011 and $7.4 billion in 2010.71 That included taxes on property, sales and production, as well as the franchise tax and indirect items such as taxes on motor fuels.72 According to Barry Smitherman, the chairman of the Texas Railroad Commission, Texas could roughly double its oil production, to 3 million barrels per day by 2020.73 The state currently produces about 1.7 million barrels of oil a day.74 From the perspective of the state budget, exploration is an especially lucrative activity that will likely be encouraged. Attorneys of almost every specially will be engaged in resolving hydraulic fracturing’s or fracking’s legal issues in South Texas for the foreseeable future.

71_Estimates_{James LeBas}_{, a fiscal consultant and}

lobbyist for the Texas Oil and Gas Association, Kate Galbraith, Shale boom has major impact on Texas'

budget, TEXAS TRIBUNE, May 10, 2013.

72_Id. 73_Id. 74_Id.

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P

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C

OMMITTEE

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EWSLETTERS

Visit the Committee’s newsletter archive online at www.iadclaw.org to read other articles published by the Committee. Prior articles (published as the Environmental, Energy and Maritime Law Committee prior to August 2012) include:

OCTOBER 2013

Third Circuit Rejects Preemption under CAA, and Opens Door to Common Law Tort Claims Walter H. Boone and Haley A. Fowler

MAY 2013

Wind Power and Nuisance Litigation Part II Jeromy E. Brown

APRIL 2013

Wind Power and Nuisance Litigation Jeromy E. Brown

MARCH 2013

Recent Decisions and Cases M. Warren Butler

JANUARY 2013

Climate Change Regulation and Litigation: A “Lost Decade” of Controversy and Confrontation Richard O. Faulk and John S. Gray

DECEMBER 2012

EPA Regulation of Hydraulic Fracturing By Rebecca Jo Reser

NOVEMBER 2012

State Legislation and Regulation of Hydraulic Fracturing By Rebecca Jo Reser

OCTOBER 2012

State and Federal Legislation and Regulation of Hydraulic Fracturing By Rebecca Jo Reser

SEPTEMBER 2012

Introduction to Hydraulic Fracturing: Natural Gas Exploration By Rebecca Jo Reser