The Rules Are Still Changing

As we reported in the August IOGA News, on June 29, 2012, the West Virginia Department of Environmental Protection (“DEP”) filed a legislative rule titled “Rules Governing Horizontal Well Development,” 35 C.S.R. 8 (the “Proposed Rule”), with the West Virginia Secretary of State’s (“WVSOS”) Office. The Proposed Rule was developed to provide further direction in the implementation and administration of the Natural Gas Horizontal Well Control Act that became effective on December 14, 2011 (“Act”). On July 31, 2012, representatives of IOGA participated in the public hearing on the Proposed Rule and filed extensive comments along with 344 other commenters.

As the next step in the rulemaking process, on September 14, 2012, DEP filed with the WVSOS its “Response to Comments” (“Response”) and the Proposed Rule with revisions based upon comments received (“Revised Rule”) (both the Response and the Revised Rule are available at http://apps.sos.wv.gov/adlaw/csr/ruleview.aspx?document=6578). This article highlights some of the more significant revisions DEP has made, comments that were rejected by DEP and issues that other commenters can be expected to continue to pursue. The Revised Rule is now submitted to the Legislative Rulemaking Review Committee where the Revised Rule will be subjected to further scrutiny and opportunity for amendment before it is submitted to the Legislature for further review, possible amendment and approval. Thus, the Revised Rule is not the final product of this process.

DEP POSITION

As an initial matter, DEP explains in the Response that it is its “intent with this rule to be consistent with 35 CSR 4 (the existing regulation governing conventional and unconventional oil and gas operations) and the related W. Va. Code § 22-6, to the extent possible.” Thus, DEP’s default position appears to be that, when in doubt, simply copy the language from the traditional regulations 35 CSR 4. This position is taken in opposition to objections raised by the industry to various provisions from 35 CSR 4 that have been copied into the Revised rule and despite DEP’s observation in the Response that “essentially everything associated with [horizontal well] sites as compared to conventional operations is larger and/or poses a greater environmental or safety threat.”

COMMENTS ACCEPTED

DEP agreed with a number of comments that cleaned up the Proposed Rule to avoid inconsistent definitions, deviation from language in the Act and overlapping or confusing language. For example, the definitions of “completed,” “impoundment,” “pit” and “use” were deleted and definitions for “Office” and “well completion” were added. Similarly, the requirement to provide “to the Chief” a report of the quantity of flowback and produced water from a well was eliminated because that obligation was not included in the Act (see, § 9.1.b.3) (section references are to the Revised Rule unless otherwise noted). Of course, those records must be created, available for inspection by DEP and maintained for 3 years consistent with the Act. Also, DEP amended well location restriction language to conform to the Act (§ 6.2.k.2) and eliminated the 24-hour minimum time period for notification of intent to commence water withdrawal which was not in the Act (§ 9.1.b.1). DEP clarified that section 12.7 “Requirements for Production and Gathering Pipelines” applies only to pipelines installed, relocated or replaced after the effective date of the rule which will be in 2013. With regard to reclamation requirements on well pads designed for multiple horizontal wells, DEP also eliminated language requiring new well work permits to be obtained within 6 months of the prior well completion in order to qualify for the reclamation schedule set forth in § 14 of the Act (deleting § 5.1.i of the Proposed Rule). DEP also deleted section 16 “Groundwater Remediation” of the Proposed Rule because the W. Va. Groundwater Protection Act addresses that topic more fully.

The Revised Rule also incorporates a number of more substantive recommendations from industry such as (a) authorizing the operator and timber owner to agree to alternatives to cutting and stacking logs on site (§ 5.5.c.1); (b) providing operators more flexibility in constructing slopes as part of the required site construction plan (§§ 5.5.c.7 and 9); (c) authorizing stream flow monitoring to ensure minimum pass-by flow (§ 5.6.d); (d) allowing operators to monitor water withdrawal locations once per calendar day instead of continuously (§ 5.6.e); (e) adding a new section 5.6.g to address how to incorporate recycled water into a Water Management Plan; (f) eliminating the requirement that registered professional engineers prepare or supervise the preparation of applications and reports related to centralized pits and impoundments (§§ 17.3.a.1 and 4); (g) amending a number of provisions in section 9.2 “Casing and Cementing Standards,” creating more flexibility in designing and installing casing and cement in the well; (h) relieving operators of “shallow” horizontal wells of the obligation to file well logs by amending section 10.2.b to apply only to “deep” horizontal wells; (i) agreeing to provide notice and 45 days to pay the annual registration fees for centralized pits and impoundments before the certificate is deemed void (§ 17.7.c) and (j) establishing a process for transfer of ownership of a centralized pit or impoundment (§ 17.11.b).

In addition, DEP accepted the comment of one group that requested that the well plat locate and identify all active or abandoned wells within 500 feet of a horizontal well bore or within the projected length of the fractures (§ 6.2.j). This proposed amendment will significantly extend the area for which wells will need to be located and platted. In response to a request by the same group, DEP also clarified that “occupied dwelling” means “dwellings that are used on a permanent or temporary basis for human habitation” (§ 6.2.k.2) for purposes of the Revised Rule’s well location restrictions.

COMMENTS NOT ACCEPTED

Of equal importance, however, are the comments and suggestions that DEP elected not to accept. For example, IOGA requested guidance on what rules and regulations will remain in place when the Emergency Rule expires pursuant to statutory rulemaking limitations in November 2012. DEP simply remained silent on this significant inquiry.

In response to as seemingly simple a comment as requesting DEP to provide advance notice of and opportunity to comment on changes to published forms, DEP explained that it does not believe that an advance notice is necessary but DEP will “clearly identify on its webpage form changes and the date of the change.” It is not clear how DEP benefits from this position, as the requested advance notice would ensure that oil and gas operators are aware of the applicable forms before their use is mandated and would have avoided inefficiencies arising from the submittal of out-of-date forms that the agency then must return to the operator.

IOGA also requested that horizontal well work permits be transferrable to different owners after providing proper notice and appropriate information to DEP. The fact that horizontal well work permits are dramatically more technical and costly to prepare than conventional well work permits, in addition to the 16-fold increase in the application fee (from $600 to as much as $10,000), provides a rational basis for authorizing issued permits to be transferred between the time a well work permit is approved and the date the well is drilled. DEP’s response simply relied on the existence of the “non-transferrable” language in 35 CSR 4 and the regulatory efficiency of maintaining consistency between the two rules, although the agency also asserted that “it is important that the ultimate permit holder be the party for which all the entities were aware of through the permit application notice and permit review process.” The DEP’s position ignores the significantly greater burden on a legal successor to a permit owner in preparing and filing a new application and disregards the ease with which standards could be established to ensure that permits may only be transferred to responsible compliant operators.

IOGA also requested the deletion of the requirement to use “West Virginia” registered professional engineers in connection with preparation and design of Erosion and Sediment Control Plans and Site Construction Plans because the Act does not contain such a requirement. DEP’s response asserts that “it is implicit in the West Virginia State Registration Law for Professional Engineers (W. Va. Code § 30-13-2) that certified engineering work done for locations in West Virginia must be done by Professional Engineers that have been registered in the state of West Virginia” (emphasis added). DEP’s position contains two obvious flaws. First, the Legislature was perfectly capable of indicating when it believed a “West Virginia” license was necessary, which it did in W. Va. Code § 22-6A-9(f) by using the phrase “a registered professional engineer licensed to practice in West Virginia.” No similar language is incorporated in W. Va. Code §§ 22-6A-7(c)(2) and 22-6A-7(d), both of which require only the use of “a registered professional engineer.” Moreover, DEP is overreaching in an attempt to interpret and enforce a chapter of the W. Va. Code for which it has no regulatory or enforcement oversight.

In a similar comment, IOGA requested that DEP delete language providing that the Site Construction Plan and Water Management Plan “shall be considered conditions of the permit and enforceable as such.” DEP simply responded by stating that it believes these plans are a part of the terms and conditions of the permit, even though the Legislature expressly made the Erosion and Sediment Control Plan “part of the terms and conditions of any well work permit” and did not include similar language with respect to the other two plans. W. Va. Code § 22-6A-7(c)(1). DEP’s position will reduce operational flexibility that otherwise would be available in the absence of the “terms and conditions of the permit” phrase. DEP did explain that it “understands the need for some flexibility with plans. On-site modifications have been allowed in the past. As has been historically the case, desired changes should be addressed with the inspector to determine whether the change constitutes the need for a formal approval or not. If so, that approval must be received before the changes can be made.” The question arises: if nothing has changed, then why retain the “terms and conditions of the permit” language?

IOGA, along with others, commented that the Well Site Safety Plan requirement for an evacuation plan for both onsite personnel and residents in the surrounding area was beyond the operator’s expertise and would be better left to local emergency response personnel. Again, DEP rejected the comment and explained that “while operators may not have the authority to require evacuations, they are in a position to develop a plan identifying those that have the potential to be affected and to address an appropriate route.” While DEP cites § 22-6A-7(b)(13) as a statutory basis for its position, that language requires only a “well site safety plan” that addresses operational issues at the site and requires that a copy of the plan be delivered to local emergency planning personnel at least seven days prior to commencing work. It would appear to be safer and more efficient to make the local emergency planning group responsible for evacuation route designation for the entire community.

Comments from others were also ignored or rejected. For example, DEP did not accept the suggestion by many individuals to require surface water quality monitoring as part of the well work permit. Other requests that were not accepted or deemed to be outside the scope of the Proposed Rule include: (i) prohibiting work at night or on holidays; (ii) imposing a moratorium on drilling; (iii) mandating testing of water supply wells ½ mile or more from the well pad; (iv) monitoring air quality; (v) requiring a land use agreement with the surface owner prior to issuing a permit; (vi) requiring an operator to replace water taken from a pond or other local source with water of equal quality;

MORE REGULATIONS TO COME

DEP’s Response also puts the industry on notice that more rulemaking and guidance activity is on the horizon, including but not limited to:

1. Guidance concerning forms and instructions for proper location, installation, and calibration of the staff gauge or other suitable stream flow measuring devices.
2. Rulemaking governing water supply flow and quality testing in connection with operator-drilled water supply wells, as described in W. Va. Code § 22-6A-8(g)(5)(D).
3. Rulemaking governing investigation of natural gas migration, as described in W. Va. Code § 22-6A-24(c)(2).
4. Future modifications to pit and impoundment construction requirements based upon the current safety study of pits and impoundments in accordance with W. Va. Code § 22-6A-23.
5. Rulemaking governing horizontal well development in Karst terrain.
6. Rulemaking by Division of Air Quality governing air emissions associated with noise, light, dust and volatile organic compounds in accordance with W. Va. Code § 22-6A-22.

CONCLUSION

The Revised Rule includes changes that will provide improved predictability for future operations, but still does not incorporate some important issues noted above. Of course, it will be vital to the industry to continue to monitor and participate in the ongoing review and approval process for the Revised Rule. Other interest groups can be expected to continue to push for changes that will create permit delays and obstacles, and increase operational costs. Stay tuned because there is more to come.