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Three energy lawyers share their insight into legislation that will require operators to reveal most chemicals used in fracing.
Texas has long been at the forefront of oil and gas production in the United States, and it recently developed another distinction as an industry leader: The state became the first in the nation to approve legislation that mandates the public disclosure of chemicals used in hydraulic fracturing. Gov. Rick Perry signed the bill, which had been approved in the state House and Senate, in June.
The final details of the law have yet to be worked out as the Texas Railroad Commission (TRC), the regulatory agency that has jurisdiction over the state’s oil and gas business, will engage in a lengthy bill-writing and review process that could run until summer 2012.
Meanwhile, energy law practices in Texas are educating clients who use hydraulic fracturing about the impending enactment of the law. Operators are learning about disclosure requirements, including what information can legally be declared proprietary information or a trade secret.
Participating in a question-and-answer forum are Rick Burleson, managing partner, Burleson LLP; Barclay Nicholson, partner, Fullbright & Jaworski LLP; and C. Brannon Robertson, partner, King & Spalding LLP. Here, in excerpts from quotes provided to Hart Energy, they give their interpretations of the law and discuss how operators will be affected and what they will need to do to conform to the new Texas statute.
Hart Energy: Under the law, exactly what information would a company be required to disclose about drilling fluids? Would all gas wells be subjected to the disclosure law?
Burleson: Well operators will have to complete a form on the “hydraulic fracturing chemical registry Internet website of the Ground Water Protection Council and the Interstate Oil and Gas Compact Commission” that includes: the total volume of water used in the hydraulic fracturing treatment; and each chemical ingredient that is provided by a service company or chemical supplier, or by the operator if the operator provides its own chemical ingredients.
The well operators will also need to provide the Railroad Commission of Texas with a list, which will eventually be made public, that includes all chemical ingredients not listed on the above mentioned form that were intentionally included and used for the purpose of creating a hydraulic fracturing treatment.
Any service company that performs the hydraulic fracturing treatment, or the suppliers of an additive used in the hydraulic fracturing treatment of a well, must provide the operator with the information necessary to comply with their respective duties. This information must be submitted to the commission, on a form provided by the commission, with the first well completion report for the well.
The bill’s application does not make a distinction between oil or gas wells. This means it applies to an oil or gas well where a hydraulic fracturing treatment is to be performed and where the well’s initial drilling permit was issued on or after the date the initial rules adopted by the Railroad Commission of Texas take effect.
Nicholson: The law imposes different disclosure requirements for varying categories of chemicals. For fracturing chemicals that are subject to the Occupational Safety and Health Administration’s requirements for Material Safety Data Sheets (MSDS), the well operator must disclose those chemicals to the Railroad Commission and post a list of the chemicals on the website hosted by the Interstate Oil and Gas Commission, which is currently found at FracFocus.org. Pursuant to existing OSHA regulations, an MSDS must be made available to any employees who might handle potentially harmful substances during work duties. The law makes public information about OSHA-regulated chemicals that was already available to well-operator employees.
If a chemical is not required to be disclosed on an MSDS, but was intentionally included in the fracturing fluid to assist with the process, the chemical must be disclosed to the Railroad Commission and noted on FracFocus.org or another publicly accessible website. Chemical constituents that were not purposely added, but occur only incidentally in the fracturing fluid, are not required to be disclosed.
Robertson: First, the operator will have to disclose the amount of water it used in the fracing job. Second, the operator will have to disclose certain information about the chemicals that they added to the water as part of the fracing job. The way in which the disclosure is made varies, depending on whether the chemical is considered hazardous under OSHA -- the federal law governing workplace safety. But on its face, the new law seems to require the disclosure of all chemicals used in the fracing fluid. The only exceptions would be if the chemical was not purposely added to the fracing treatment, or is there unintentionally, or the operator is not aware that it is present. I'm not sure how someone can disclose something that they don't know about.
Importantly though, and the statute is a little fuzzy on this point, an operator does not appear to have to disclose in which particular fracing "ingredient" the chemical is found, nor does it have to disclose the amount of the chemical used. Thus, operators and service providers will be able to protect their "secret sauce" to some extent. In other words, grandma will have to say whether she uses garlic in her favorite recipe, but she won't have to say how much.
Hart Energy: The law, of course, would allow a company’s trade-secret privilege to be challenged. Who would legally be able to challenge any proprietary claims, and is it possible that the law could bring a string of lawsuits?
Burleson: The bill allows the following to challenge the trade-secret privilege: the owner of the land where the well is drilled; a landowner who owns property adjacent to the drill-site tract; or a state department or agency with jurisdiction over a matter to which the claimed trade secret is relevant. Claims must be made within two years of the date the well completion report is filed.
There is one caveat to the trade-secret privilege: The chemicals must be disclosed to a health professional or emergency responder who needs the information. The specifics of this disclosure are not known yet as the Railroad Commission must come up with a process to provide the information.
However, a form of this type of disclosure is already in place via the Material Data Safety Sheet.
The potential for lawsuits does exist. However, the bill requires the commission to create a process by which to handle all challenges to trade secrets. Generally, where an administrative remedy has been created, administrative relief must be exhausted before legal remedies can be pursued. By providing an opportunity for administrative relief first, the bill will likely minimize the number of frivolous lawsuits related to trade secret challenges.
Nicholson: The law allows well operators to claim trade secret protection for certain fracturing chemicals or compositions. If granted, a fracturing fluid with trade secret status would be exempt from the disclosure obligations described above, subject to existing information disclosure laws promulgated by the Public Information Act.
Only certain parties will have standing to challenge the trade secret status of a fracturing chemical or composition: landowners where the well is located, landowners of adjacent property, and state agencies with jurisdiction. Regardless of these trade secret protections, the law also requires that chemical information be disclosed to any health professional or emergency responder who needs the information for medical treatment.
Notably, the law does not mandate disclosure of the actual quantities of the chemicals used or the techniques utilized by well operators to implement the fracturing process. Rather, it only requires disclosure of specific chemical identifying information, such as names and physical characteristics. While lawsuits may be filed, the safeguards may minimize the number of such suits.
I don't see an explosion of lawsuits coming about because of the new disclosure law. Suits may come about for other reasons, but I don't think the law will cause new suits to be filed. Plaintiffs' lawyers already know what is in these fracing fluids, more or less. And the trade-secret protection won't keep the information from being discovered in litigation. So, I don't think that lack of knowledge is why suits aren't being filed. I think suits aren't being filed because there is no scientific evidence that fracing fluids injected thousands of feet below the water table are communicating with and contaminating groundwater -- absent a casing breach. In other words, it's the facts that are getting in the way of lawsuits, not operators hiding information.
Hart Energy: What kind of immediate effect would the law have on operators and investors? Do you see anything that would encourage, or scare away, either of these interests?
Burleson: This bill does not apply to any current wells. Until the Railroad Commission develops the processes to which operators and suppliers should adhere, the only immediate effect would be the need to create a sense of urgency to make sure regulatory compliance employees and drilling engineers have some synergy in order to be ready for when the commission adopts its rules.
In terms of disclosure, there will be no immediate impact for many companies. A large number of energy companies -- small ones as well as some of the industry’s largest -- are already using a website called www.FracFocus.org to voluntarily disclose information such as ingredients, purpose, concentration and suppliers of chemicals.
Given the willingness of majors and independents alike to voluntarily disclose the types of chemical information this bill requires, it is highly unlikely the legislation will scare operators or investors. The risk is the disclosure of trade secrets; but this risk is almost totally alleviated by the bill’s language allowing an operator or supplier to invoke the trade secret privilege.
Nicholson: The Railroad Commission has until July 1, 2012, to adopt regulations affecting the disclosure of MSDS chemicals, and until July 1, 2013, to adopt regulations relating to the non-MSDS ingredients and the trade secret exemption process.
However, the Texas Railroad Commission intends to move this process along very quickly, perhaps making these regulations effective even sooner.
Robertson: It seems that filing out more paperwork will be the main effect of the new law, but we'll see.
Hart Energy: Do you have any predictions about the long-term effects of the law for operators, investors and Texas residents in general?
Burleson: Anything that reinforces the value and safety of hydraulic fracturing – and enhances public understanding of the process – is good for all stakeholders in both the near and the long term.
Too much of the debate over hydraulic fracturing has been defined by misinformation.
The truth is, fracturing is safe, and history and research more than confirms that argument: The process has been used for more than 60 years on more than 1 million wells, and there has not been a single proven case in which it has affected groundwater; the Massachusetts Institute of Technology recently released a comprehensive report that acknowledged concerns that fractures can “penetrate shallow freshwater zones and contaminate them with fracturing fluid,” but added that “there is no evidence that this is occurring"; and a report from the United Kingdom’s Energy and Climate Committee in 2011 stated that “hydraulic fracturing does not pose a direct risk to water aquifers.”
Nicholson: Many in industry strongly favored this legislation, arguing that it was a needed first step in turning the tide of public opinion and that it creates a forum in which companies can share the chemical makeup of their fracturing fluids. Doing so will bring better understanding to the process.
Given the long history of oil and gas operations in Texas and the longstanding use of hydraulic fracturing, it is unlikely at this point in time that the law would impact the practice in such a way that would discourage continued drilling. However, the law will place further requirements on companies.
Robertson: I think this disclosure issue has largely been a tempest in a teapot. Hopefully, the new law will help reassure people of what I believe to be the reality: Fracing is a safe practice and, absent a serious failure in the well-bore, it does not affect people's groundwater or drinking water.