Shale Fracking What Are The Risks?

Transcription

1

2 Shale Fracking What Are The Risks? Austin May 2012 Sedgwick, LLP Julia M. Adams Sedgwick Houston Partner, Insurance Division Leader of Admiralty & Energy Group Co-Leader of Hydraulic Fracturing Task Force Specializes in Admiralty & Energy coverage and litigation

3 Overview of the Issues The Risks State & Federal Legislation Insuring the Risks Claims & Litigation Developments to Watch For in 2012

4 The Risks

5 Surface Environmental Risks Erosion and storm water runoff during well pad construction and drilling Source of water used in fracking process Handling and disposal of flowback fluids Installation and maintenance of gas collection facilities and pipelines Impact on habitat and surface resources from exploration and production Air and noise pollution

6 Well Pad

7 Subsurface Environmental Risks Depth of fracturing activitycoal bed (shallow) v. shale (deep) Depths of water bearing zones and confining layers Vertical and horizontal migration paths for contaminants Behavior of contaminants (degradation, fate and transport) Short term and long term environmental risks

8 Fracking & Ground Water

9 Typical Composition of Fracking Fluids Figure 7: Volumetric Composition of a Fracture Fluid Source: Compiled Data from Multiple Sources

10 MIT and the University of Texas Studies Surface spills pose greater risks to groundwater sources than fracking itself (Both Studies) Leading risks include:1) contamination due to improper disposal; 2) excessive water withdrawal from aquifers; 3) excessive road traffic (MIT) Methane found in water wells (e.g., Marcellus Shale) can most likely be traced to natural sources, and likely was present before the onset of shale gas operations (UT) No evidence of groundwater contamination from fracking chemicals and no leakage from hydraulic fracturing at depth (UT) Blowouts are a rare occurrence; subsurface blowout are under-reported (UT) The Future of Natural Gas: An Interdisciplinary MIT Study. MIT Energy Initiative. June Fact-Based Regulation for Environmental Protection in Shale Gas Development. Energy Institute, University of Texas at Austin. February 2012.

11 State & Federal Legislation

12 Federal Legislation Safe Drinking Water Act Established in 1974 Did not include regulation of fracking operations 2005 Energy Policy Act Emergency Powers Clean Water Act Prohibits Discharge of Pollutants into US Waters Permit Requirements (NPDES) Surface Water Discharge October 2011 National Standards for Wastewater April 2012 Proposed EPA Air Pollution Regulations

13 State Legislation State Level Fracking Bans NY, NJ Well Construction Statutes Most oil and gas producing states have them Not specific to hydraulic fracturing Land Use Statutes Disclosure Statutes Fracking Fluid Full or Modified Texas HB 3328 Trade Secret Protections

14 Municipal/ Local Regulation Land Use & Zoning Law Anschutz Exploration Corp. v. Town of Dryden, Index No (Tomkins County 2011) - In 2011, the Dryden Town Board amended the town s zoning ordinance to ban all activities relating to oil and gas extraction, development and production, and prohibit the exploration and extraction of natural gas and or petroleum and the storage, treatment or disposal of natural gas exploration and production wastes within the Town. February Trial Court upheld the local ordinance. (Appeal forthcoming) Historical Preservation of Land Preservation League of New York is considering deeming land as endangered historic and cultural resources to prevent shale gas exploration

15 Insuring the Risks

16 Shale Gas Players Land owners Oil and gas exploration and production companies Drilling, casing and cement companies Fracking companies Oilfield Service Companies Wellhead equipment manufacturers and suppliers Chemical manufacturers and suppliers Injection well owners/operators Pipeline owners & operators Professional consultants Trucking companies Testing companies Waste disposal companies Wastewater recycling companies Natural gas processors Power plants LNG export facilities

17 Potentially Applicable Policies CGL (with Oilfield Industry Endorsements) Control of Well (Operators Extra Expense) Pollution Property & Business Interruption Products Liability Errors & Omissions (Professional Liability) Directors & Officers Excess

18 CGL Commercial General Liability

19 Control of Well (Operators Extra Expense)

20 Chesapeake Blowout (April 19, 2011, LeRoy Township, Pa.) Blowout during fracking operation with spill into nearby stream Maryland Attorney General gave notice of suit under Clean Water Act and Resource Conservation & Recovery Act

21 Fracking Fluids Product Liability Risk

22 Property Damage/Business Interruption

23 Property Damage/Business Interruption

24 Professional Liability Engineers and Consultants

25 Directors & Officers U.S. investors have filed shareholder resolutions with ExxonMobil, Chevron, Ultra Petroleum, El Paso, Cabot Oil & Gas, Southwestern Energy, Energen Anadarko and Carrizo Oil & Gas, requesting disclosure of their plans for managing water pollution, litigation and regulatory risks associated with hydraulic fracturing operations

26 Claims & Litigation

27 Typical Hydraulic Fracturing Claims Underground Water Contamination Surface Water & Soil Contamination Air Pollution Noise Pollution Earthquakes

28 Causes of Action Alleged Assault Intentional Infliction of Emotional Distress Negligence Gross Negligence Negligence Per Se Private Nuisance Public Nuisance Trespass Res Ipsa Loquitur Injunctive Relief Fraud/Misrepresentation Breach of Contract Deceptive Business Practices Strict Liability Abnormally Dangerous Activity Design Defect Defective Product Failure to Warn Premises Liability Medical Monitoring Trust Fund Violations of State & Federal Environmental Statutes Natural Resource Damage

29 Claims Arising Out of Shale Gas Operations Wellsite Fires and Accidents Failed Well and Fracking Equipment Trucking/Hauling Claims Damage to Roads & Infrastructures Disposal Claims Gas Processing Claims Storage Facility Claims Pipeline Claims Injection Well Claims Taking of Water Resources Damage to Oil & Gas Reservoirs Leasing Disputes Investor Actions

30 Examples of Pending Litigation Texas United States v. Range Prod. Co. et al., No. 3:11-cv (N.D. Tex., Jan. 18, 2011) (EPA Emergency Order) Parr, et al. v. Aruba Petroleum, Inc., et al., No. CC E, County Court of Dallas County (Texas, March 8, 2011) - (Air & Land Contamination) Sizelove v. Williams Production Co., LLC; Mockingbird Pipeline, LP; XTO Energy, Inc.; Gulftex Operating, Inc.; Trio Consulting & Mgmt., LLC; Enexco, Inc., No (367th Dist. Court, Denton County, Tex. Nov. 3, 2010) (Air & Land Contamination)

31 Examples of Pending Litigation Pennsylvania Fiorentino, et al. v. Cabot Oil & Gas Corp., et. al, No (M.D. Pa. filed November 19, 2009) (Well contamination) Zimmerman v. Atlas Energy, Inc., No. C-63-CV , (Washington County Court of Commons Pleas, Pennsylvania, filed September 21, 2009) (surface owner) New York Baker, et al, v. Anschutz Exploration Corp., et al., No (W.D.N.Y. filed March 9, 2011) (Professional Liability)

32 Pending Litigation Arkansas Berry v. Southwestern Energy Co.; XTO Energy; Chesapeake Energy Corp.; BHP Billiton Petroleum, No. 1:11-cv-0045-DPM (E.D. Ark., filed May 17, 2011) - (Proximity to well Class Action) Ouachita Watch League, et al. v. Judith L. Henry, et al., 4:11-cv (E.D. Ark. filed May 9, 2011) - (Special Interest Group) Sheatsley v. Chesapeake Operating, Inc., 4:11-cv (E.D. Ark. filed April 22, 2011) - (Earthquake class action) West Virginia Cain v. XTO Energy, No. 1:11-cv (N.D. W.Va., filed July 22, 2011) - (Takings)

33 Developments to Watch for in 2012 Increased shale development, production, investment EPA study full report expected 2014 Investigations Industry, Environmental Group, Academic Increased litigation Further federal/state/local regulation Industry Solutions, Innovations, Patents New Insurance Products, Wording, Endorsements

34 Sedgwick Hydraulic Fracturing Digest

35 Sedgwick Hydraulic Fracturing Task Force Julia Adams Danielle Carlson Pete Condron David Dolendi Martin Eide Matthew Francois Richard Geddes Earl Hagström Mark Kendall Gregory Lahr George McCall Christopher Novak Anna Shimko

36