Fracking and Allocation of Risk

Posted on by July 15, 2013

By Dennis R. Luna and Michael Newman

Part 3 of a 4-part series

Numerous parties are involved in the drilling and completion of a shale gas well. First and foremost, there is the owner/operator of the site. The operator will have others working at the site, including contractors building out infrastructure, such as roads, pads, and ponds, and drilling contractors who supply the rig and crew to drill the well.

There likely will also be wireline operators and equipment suppliers. Fracking operators provide the chemicals, blend the fluid, and supply the pumps to frack the wells. Another contractor may drill water wells on the site.

In addition to the operator and contractors, “nonoperating” owners who own a portion of the well through a “joint operating agreement” may be involved in the site.

So, how is risk allocated among all of these entities? Every agreement and arrangement is unique, but the on-shore exploration and production industry is relatively uniform in how the risks are allocated. Continue reading →

Fracking and Insurance Risk Transfer

Posted on by July 15, 2013

By Dennis R. Luna and Michael Newman

Part 4 of a 4-part series

Traditionally, operators carry several types of insurance policies that have the potential to provide environmental coverage in the event of a loss at a site.

These include: (1) Casualty Insurance Programs (i.e., General Liability and Umbrella Policies); (2) Operators Extra Expense (OEE) Policy (often referred to as “Control of Well”); and (3) Environmental Site Liability (ESL coverage). Nearly all operators carry the first two lines of coverage, but ESL coverage is far less common.

While casualty and OEE programs provide important protection, there are significant potential gaps between the risk and the coverage these policies provide. For example, the casualty coverage within an energy package program commonly provides third-party liability coverage from sudden and accidental pollution releases. But some policies include a total or absolute exclusion on pollution claims.

A policy may cover pollution claims that result from a “named peril” covered by the policy, such as fire. This is better than nothing, but it can still result in significant coverage gaps if the pollution does not happen to relate to the specific named peril. Continue reading →

Berkeley Releases Study on Fracking in California

Posted on by May 2, 2013

Berkeley Releases Study on Fracking in California

By Dennis R. Luna, P.E., J.D.

The potential impact of hydraulic fracturing of oil and gas wells is the focus of a 59-page report released April 12 by the Wheeler Institute for Water Law & Policy of UC Berkeley School of Law’s Center for Law, Energy and the Environment.

The report, which examines possible adverse effects on water quality and the environment, was prepared by Jayni Foley Heinis, J.D., Executive Director of the Center, and Michael Kiparsky, Ph.D., Associate Director of the Wheeler Institute.

Despite the report’s academic style, it leaves little doubt about the authors’ skepticism about fracking.

Continue reading →

Judge Rules BLM Must Allow Additional Review of Hydraulic Fracturing

Posted on by May 2, 2013

By Dennis Luna, J.D., P.E. 

The U.S. Bureau of Land Management (BLM) violated the National Environmental Policy Act (NEPA) by failing to include No Surface Occupancy (NSO) clauses when it sold oil and gas leases in California, a federal judge has ruled.

U.S. Magistrate Judge Paul Grewal in San Jose, California, said the BLM violated the environmental law when it sold four leases for 2,700 acres of federal land in Monterey and Fresno counties. In a ruling filed March 31, the judge said the agency should not have relied on outdated reviews which were conducted before hydraulic fracturing, or ‘fracking,’ accelerated development of energy deposits. (Click here for a copy of the ruling.)

“BLM’s dismissal of any development scenario involving fracking as ‘outside of its jurisdiction’ simply did not provide the ‘hard look’ at the issue that NEPA requires,” Judge Grewal said in his ruling. Continue reading →

SCAQMD Approves Disclosure Rule

Posted on by May 2, 2013

The South Coast Air Quality Management District (SCAQMD) has approved regulations requiring disclosures related to hydraulic fracturing, pre-production activities and work-overs.

The new rule (1148.2) requires operators to give public notice prior to doing hydraulic fracturing and disclose the chemicals that will be used in the hydraulic fracturing fluid.

Operators also must notify SCAQMD in advance of all drilling activity, well rework operations and well completions. (Click here to see the text of the regulations.) Continue reading →

BNK To Sell Oklahoma Shale Field for $147.5 Million

Posted on by May 2, 2013

Camarillo-based BNK Petroleum Inc., an oil and gas exploration and production company, announced that it has agreed to sell most of its holdings in Oklahoma’s Tishomingo Field to Exxon Mobil Corp for $147.5 million.

The deal is expected to close in late April. It gives Exxon Mobil’s XTO Energy unit, based in Fort Worth, Texas, rights to most of BNK’s Tishomingo Field operations. BNK will retain two areas where it plans to ramp up production. Continue reading →