California’s Monterey shale, underlying a substantial portion of California, from Los Angeles to San Francisco, is estimated to hold 400 billion barrels of oil, or as much as 64% of the total shale oil reserves in the continental U.S. 15 billion barrels of oil in the Monterey shale are believed to be recoverable using today’s technology. Hydraulic fracturing is a process by which a high-pressure mix of water, sand and small amounts of chemicals is injected into a well bore to unlock oil and natural gas from shale rock layers deep below the earth’s surface. Hydraulic fracturing techniques have been in use for more than 30 years, but have been widely expanded in recent years with developments in technology. Increased public attention to hydraulic fracturing has led to a recent regulatory initiative in California that will impact such operations.

On December 18, 2012, California’s Department of Conservation, Division of Oil, Gas, and Geothermal Resources (“DOGGR”) released a pre-rulemaking discussion draft of regulations for hydraulic fracturing. The draft regulations will provide the starting point for the industry, environmental community, and lawmakers when a formal rulemaking process begins. DOGGR anticipates the rulemaking process to begin in early 2013 and to be completed by the end of the year.

Of concern to many operators and service providers is the ability to maintain trade secret protection over their hydraulic fracturing fluid formulas. In the absence of legal protection, information disclosed to a public agency, such as DOGGR, can potentially be obtained by third parties through a request under California’s Public Records Act. The proposed regulations also require disclosure of certain information to the public after the operation concludes. However, California’s draft hydraulic fracturing regulations include ample trade secret protections for operators and the manufacturers of hydraulic fracturing fluid.