Thursday, March 6, 2014
Houston, TX
10:00–11:15 a.m.
GRADUAL POLLUTION: INSURING THE OVERLOOKED RISK
Presented by
Moderator:
Shawn Tate
Managing Director
Wortham Insurance and Risk Management
Panelists:
Bruce Bricarell
Ken Cornell
Keith Taunton
Managing Director
Wortham Insurance and
Risk Management
Executive Vice President,
Chief Environmental Officer
Aspen Insurance
Managing Partner
Tucker, Taunton, Snyder &
Slade, P.C.
The evolution of new technologies has brought about types of development not previously used in the oil and gas industry and has allowed development in areas never before involved. This has resulted in a heightened awareness of environmental issues and
higher standards to which companies are held. Because so much is happening below
ground, companies cannot rely on contractual indemnities or tradition insurance solutions. This session will look at the nuances of these emerging exposures and standards
and why the traditional approach of having time element coverage is no longer adequate. It will then discuss gradual pollution coverage, which is the only way to properly
protect interests.
Copyright © 2014 International Risk Management
Institute, Inc.
www.IRMI.com
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Notes
This file is set up for duplexed printing. Therefore, there are pages that are intentionally left
blank. If you print this file, we suggest that you set your printer to duplex.
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Shawn Tate
Managing Director
Wortham Insurance and Risk Management
Shawn Tate has been a member of Wortham’s Houston practice since 2008. She primarily serves
clients in oil and gas as well as related service industries. Her areas of expertise are workers compensation, domestic and international primary casualty, and environmental liability. Prior to joining Wortham, she spent 20 years in underwriting and management roles with two major insurance companies.
Ms. Tate received her B.B.A. in finance and economics from Stephen F. Austin State University.
Bruce Bricarell
Managing Director
Wortham Insurance and Risk Management
Mr. Bricarell has been a member of Wortham’s Houston practice since 1984, and he specializes in
the placement and management of the firm’s environmental risks. He has been actively involved
in the development of the pollution/environmental markets, as well as being involved with a
number of large risk placements involving the use of captives and other financial plans.
Along with the traditional chemical and energy placements, the environmental practice also has
involved real estate sales property redevelopment and acquisition. Working with consultants,
regulators, and attorneys, Mr. Bricarell has been able to bring the various environmental markets
to provide solutions to Wortham clients. Another important development for this line of coverage has been the placement and management of municipal entities and their environmental
compliance concerns.
Prior to joining Wortham, Mr. Bricarell was an underwriter and supervisor with two major insurers.
He received his B.S. in economics from the University of Delaware.
Ken Cornell
Executive Vice President, Chief Environmental Officer
Aspen Insurance
Ken Cornell joined Aspen in June 2011 and serves as executive vice president and head of the Environmental Division based in New York. Mr. Cornell has over 29 years of experience within the
environmental insurance industry. His experience includes work in both the broking and underwriting sectors. He was with AIG Environmental from 1985 to 2006. He served in various executive positions while there, including serving as chief underwriting officer of AIG Environmental
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from 1999 to 2006. Prior to joining Aspen, Mr. Cornell spent time as an environmental insurance
broker and started a new environmental division at a major insurer.
Mr. Cornell has a bachelor’s degree in biology from Gettysburg College and a master’s degree in
environmental management from Duke University.
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Gradual Pollut ion:
I nsuring t he Overlooked Risk
Present ed By:
Panelist s:
Bruce Bricarell
M anaging Direct or
Wor t ham I nsurance and
Risk M anagement
Ken Cornell
Execut ive Vice President
Aspen I nsurance
www.IRMI.com
1
Keit h Taunt on
M anaging Par t ner
Tucker, Taunt on, Snyder
& Slade, P.C .
M oderat or:
Shaw n Tat e
M anaging Direct or
Wor t ham I nsurance and
Risk M anagement
www.IRMI.com
www
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IRMI
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.com
com
IRMI.com
1
Pollution Liability Insurance
SupportingtheNewEnergyIndustry
J. Wortham, L.L.C., General Partner
John L. Wortham & Son, L.P.
2
5
Panel
•
Moderator
ShawnTate,ManagingDirector,
WorthamInsuranceandRiskManagement
•
KeithTaunton,ManagingPartner,
Taunton,Snyder&Slade,P.C.
•
KenCornell,ExecutiveVicePresident,
AspenInsurance
•
BruceBricarell,ManagingDirector,
WorthamInsuranceandRiskManagement
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A Partnership That Works
•
Placingover$1billioninpremiumsannually
•
Texasbasedsince1915
•
Over500associates
•
WorthamisthelargestinsuranceagencyheadquarteredinTexas,with
officesinHouston,FortWorth,Austin,SanAntonio,andDallas
• Alimitedpartnershipownedby120managingdirectorswithaverage
tenureof20years.Employeetenureismorethan12years
• Approximatelyhalfofourmanagingdirectorsareinvolvedinthetechnical
placementofinsurance
• Transparentandopencommunication,especiallyoncompensation
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6
Aspen Insurance
• Aspenisaglobalinsuranceandreinsurancecompany
• Establishedin2002,begantradingontheNYSEin2003
• Aspenhasahistoryofprovidingbothliabilityandfirstpartycoveragetotheenergysector
• Aspenhasbeenwritingenvironmentalinsurancesince
2009
• TheAspenEnvironmentalteamisexperiencedin
underwritingenergyoperatorsandcontractors
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WhatIsaPollutant?
“Pollutants” meananysolid,liquid,gaseous,or
thermalirritantorcontaminant,includingsmoke,
vapor,soot,fumes,acids,alkalis,chemicals,and
waste.Wasteincludesmaterialstoberecycled,
reconditioned,orreclaimed.
Butthere’sasimplerdefinition...
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7
Toomuchofanythinginthe
wrongplace.
7
Do You Have Pollution Liability Coverage?
• How?
– Commercialgeneralliability
– Excess:controlofwell
– Automobileliability
• Whereiscleanupaddressed?
• AreliabilitiesforNaturalResourceDamages
covered?
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8
• ExclusionF.isincludedintheISOGLform.Itis
alsoknownasthe“absolutepollutionexclusion.”
• Thetotalpollutionexclusionendorsementwas
laterintroducedtoeliminateallpotentialcoverage
thatmayhavebeenaffordedundertheCGL,
includingpollutionclaimsarisingfromproducts
andcompletedoperationsaswellashostilefire.
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What Does the Design of an Insurance Policy
Do for This Exposure?
• Supportsanindemnitywithintheagreement
• Satisfiesanyregulatoryobligationsthatmayarise
fromunknownpollutionconditions
• Fillsgapsinthesciencebehindtheconditionas
outlinedbytheconsultant
• Providesfinancialcertainty
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9
What Is Oil and Gas?
Upstream
• Exploration
• Development and construction
• Production
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What Is Oil and Gas?
Midstream
• Crude oil and gas: separation
• Pipelines onshore
• Terminals
• Gas treatment and LNG plants
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What Is Oil and Gas?
Downstream
•
•
•
•
•
•
•
•
Oil refineries
Gas plants/LNG
Petrochemical complexes
Fertilizer plants
Organic chemical plants
Utilities
IPPs
Renewables
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Environmental Legal Liability: Energy
Environmentalinsuranceforupstream,midstream,and
downstreamoperations:cancoverbodilyinjury,property
damage,orcleanupcostsarisingfrompollutionconditions:
• Onorunderinsuredproperties(includingwells,tank
batteries,gatheringlines,pipelines)
• Migratingfromorontoinsuredproperties
• Transportation
• Disposalofwasteatanonownedlocation
• Sudden/Accidentalandgradual
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Environmental Legal Liability
Whoneedsthispolicy?
Upstream
• Operatorsofproductionsites
• Non-operatingworkinginterest
• Royaltyinterest
Midstream
• Pipelines/Crudetanksandterminals/transloading
• Wastedisposalsites(disposalwells/landfarms/
incinerators/landfills/recyclingplants)
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Contractors Pollution Liability: Energy
Environmentalinsuranceforcontractors(includingdrilling,
pressureservices,wasteandmaterialshandling):Covers
pollutionconditionsarisingfromcoveredoperations
• Bodilyinjury,propertydamage,environmentaldamage
• Defenseisoutsidethelimitofliabilityandnotsubjectto
thedeductible(Defenseobligationendswhenindemnity
limitistendered)
• Transportation
• Disposalofwasteatanonownedlocation
• Incidentallocationcoverage(locationsusedforstagingof
materials,equipment:notatthejobsite)
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12
Contractors Pollution Liability
Whoneedsthispolicy?
• Oilandgasandinfrastructurecontractors
–
–
–
–
–
Drillingcontractors
Fracking/Pressureservicescontractors
Wirelineservice
Completionservices
Cementing
• Remediationcontractors
• Constructionandplantmaintenancecontractors
–
–
–
–
–
Pipelineinstallation
Fluidsmanagers
Padsitedevelopment
Solidwastemanagementservices
Tankconstruction
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Underwriting Issues
•
•
•
•
•
•
•
•
“Grandfathered”assets:Concernoverconditionofoldassetsandexposureto
releasesduetocorrosion,equipmentfailure.Upgradeprogramsinplace?
Naturaldisasters:Potentialforfloodingandothernaturaldisasterstoimpact
surfaceoperations.Whatprotectivemeasuresareinplace?
Monitoringandintegritytesting:Areallsystemsmonitoredandintegrityassessed
onregularbasis?
Non-operatingworkinginterests:Reportingandadjustmentofclaimsfor
companieswithwellscheduleswherenon-operatinginterestsrepresentamajority
oftheexposure.
Contractorrelationships:Proceduresforchoosingcontractors(expertise,
experience,long-termrelationships)
Preproductionandpostproductiongroundwatertesting:Isthereaprogramin
place?
Productionwatersourcesandmanagement:Watersourceiscritical.
Flowbackandproducedwatermanagementanddisposal:Recycle,injection,useof
wastewatertreatmentplants
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Pollution Liability: Marketplace
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
ACE
AIG
AlliedWorld
Aspen
Beasley
Berkley
Catlin
Chubb
GreatAmerican
Ironshore
JamesRiver
LibertyInternational
Navigators
Philadelphia
Star
Travelers
XL
Zurich
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Pollution Liability: Energy Subgroup
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
ACE
AIG
AlliedWorld
Aspen
Beasley
Berkley
Catlin
Chubb
GreatAmerican
Ironshore
JamesRiver
LibertyInternational
Navigators
Philadelphia
Star
Travelers
XL
Zurich
Contractors/Excesslayer/Midstreamsite
Alllines
Contractors/Midstreamsite
Alllines
Notparticipating
Contractors
Alllines
Contractors/Midstreamsite
Contractors/Excesslayer/Midstreamsite
Alllines
Notparticipating
Contractors/Excesslayer/Midstreamsite
Contractors
Notparticipating
Midstream
Notparticipating
Contractors/Midstreamsite
Excesslayer/Midstreamsite
OPTIONS:Sitepollutionoperators/Sitepollutionmidstreamassets/Excesslayersite
pollution/Contractorspollutionliability/ExcessCPL
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Pollution Liability: Limits of Liability
•
Sitepollution: Limitsofliabilityincludedefensecostwithinlimit
•
Widerangeoflimits:Insurersoffer$5,000,000to$50,000,000
•
Excesspolicies areprovidedoverprimarypolicies:Someinsurersthatwillnot
provideaprimarypolicywillprovideanexcesslimit
•
Contractorspollution:Limitsofliabilitymayincludedefensecostwithinlimit,
someinsurerstakedefensecostoutsideoflimitsofliability
•
Policyterm: Historically,pollutionliabilitypolicieshavehadanoptionforthe
policytermtobeseveralyears.Thisoptionstillexistsformidstreamassetsand
operations.Forupstreamoperations,termsareusually1year.Somearestill
beingissuedfora2-yearterm.UNCERTAINTYandCHANGEarethedrivingforce
forshorteningpolicytermsbackto1year.
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Pollution Liability: Coverage Specifications
•
Definitionofcoveredlocations
•
Whatcontractualassumptionscanbeadded?
•
Howtoaddressacquisitions
•
Transportation
•
Nonowneddisposalsites
•
Preexistingconditions
•
Retroactivedate
•
Additionalinsured
•
Waiverofsubrogation
•
Marginclause
•
Revisedreportingfornon-operatinginterest
•
Municipalindemnitiesandinsuranceregulations
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Pollution Liability: Process
• Workwithaninsurancebrokerthatunderstandsyour
businessandunderstandstheenvironmentalpolicies
andinsurers
• Informationisthe“coinoftherealm”:Ambiguitydoes
notworkinyourfavor
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Pollution Liability: Process
• Informationtobindthiscoverage
– Sitepollution
• Application
• Wellschedule
• Contractualliabilitiesthataretobecovered
• PhaseIorPhaseIIreports(environmentalsiteassessments)
• Explanationofduediligenceprocessusedtoacquirenewproperties
• Phonesurveywithinsurancecompany
• Whatareyourobligationsforapropertywhensold(reminder,theseareclaims-madepolicies)
• Scheduleofassets(tanks/compressors/equipment)
• Disposalassets(saltwaterdisposalwells/landfarming)
• Detailsofpipelines(gatheringlines/saleslines/brinelines/commoncarrierlines/
distance/diameter/maintenance)
• Transportationbytruck/railorbarge
• Detailsofenvironmentalclaimsoverthepast5years,insuredoruninsured
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Pollution Liability: Process (cont’d)
– Contractorspollution
• Application
• Detailsofoperations
• Revenueestimateforupcomingterm
• Amountofworksubcontracted
• Safetyprotocol
• Proceduresforvettingcontractualliability
• Fleetinformation
– Phoneconferenceoron-sitelosscontrolvisitshouldbeexpectedprior
tobinding
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But … I Have Never Had a Pollution Claim!!
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QUESTIONS
and
DISCUSSION
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Recent Developments in Air
Quality Regulations
1. New source review and aggregation after Summit
2. New source performance standards (NSPS)
3. Emissions standards for hazardous air pollutants
(NESHAPS)
1
Air Quality Permitting:
The Basics
Regulation at inception
•
Type of activity
•
Potential for emissions
•
Available controls
2
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Air Quality Permitting:
The Basics
Hierarchy of air authorizations
•
De minimis sources
•
Insignificant sources (PBR)
•
Standard permits
•
New source review (NSR) permits
3
New Source Review
AGGREGATION
Allowed regulators to treat separate facilities or operations as
one “source” for purposes of permitting emissions.
In EPA’s view, a single “source” could be anything, when
aggregated, which (1) was reasonably consistent with the
purposes of the regulations; (2) approximated the common sense
notion of “plant”; and (3) fit within the ordinary meaning of
“building,” “structure,” “facility,” or “installation.”
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30 Years of Aggregation
Separate units or facilities could be aggregated where they:
1. belonged to the same industrial grouping;
2. were under control of the same person or company; and
3. were located on one or more contiguous or adjacent
properties.
40 C.F.R. § 51.166(b)(6).
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EPA Loses Its Way
For more than 30 years, EPA has utilized a caseby-case
analysis,
looking
at
whether
noncontiguous units could be “adjacent” by
examining:
• Proximity
• Exclusive interdependency
These concepts receive no expression in the Clean
Air Act.
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“The simple fact that a pipe connects two physically
separate oil and gas facilities or emission units does
not, by itself, imply that these two facilities or units
should be considered to be a part of the same
emission source.”
In re Anadarko Petroleum Corp., Frederick Compressor Station, Pet. No.
VIII–2010–4 (Resp. of Colo. Dep’t of Pub. Health and Env’t, Air Pollution
Control Div. to Order Granting Pet. for Objection to Permit) at 5 (July 14,
2010).
7
Just When Things Started To
Seem Normal ...
In 2009, EPA backtracked and
disavowed the Wehrum Memo.
EPA’s position was that proximity
alone could not be a “sufficient
endpoint.” See “Withdrawal of
Source Determinations for Oil
and Gas Industries” at 1–2 (Sept.
22, 2009) (“McCarthy Memo”).
In 2007, EPA issued guidance on
aggregation of OGS, which
emphasized the importance of
proximity, noting several states
used a presumption that units
located outside a quarter-mile
radius were not adjacent. See
William L. Wehrum, “Source
Determinations for Oil and Gas
Industries” (Jan. 12, 2007)
(“Wehrum Memo”).
8
22
Summit Petroleum Corp. v. EPA
Summit Petroleum Corporation owns and operates a natural gas sweetening
plant located in Rosebush, Michigan.
Plant receives natural gas from over 100 production wells located across a 43square-mile area.
Wells ranging from 500 feet to 8 miles away from the plant.
The Rosebush plant emits slightly less than 100 tons per year of sulfur
dioxides (SO2) and nitrous oxides (NOx).
Facility would not need a Title V operating permit unless the emissions from
some or all of the wells were aggregated with the emissions from the plant.
See 42 U.S.C. § 7602(j).
9
Summit Petroleum Corp. v. EPA
January 2005: Summit submits a request to EPA to determine
whether the Rosebush plant was a major source that required a
Title V permit.
During the next four (4) years, Summit continues to provide EPA
with additional information about its operations.
In September 2009, EPA concludes the plant along with all its
associated production wells constitute a single stationary source
and therefore need a Title V operating permit as a major source.
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23
Summit Petroleum Corp. v. EPA
Summit and EPA agreed the plant and production wells
1. were under common control and
2. belonged in the same major industrial grouping.
Only issue was whether the plant and production wells were
contiguous or adjacent.
EPA argued every case it considered required an analysis of the
functional relationship between the connected facilities.
11
Summit Petroleum Corp. v. EPA
Summit’s position: “Adjacent” means adjacent.
The Sixth Circuit agreed.
The meaning of “adjacent” is unambiguous, and the use of the
term did not require any analysis of the functional relationship
between the two plants.
EPA was engaging in an “impermissible and illogical stretch”
by asking about the purpose of an activity at a plant.
12
24
Just Because You Have Always
Done It That Way ...
“An agency may not insulate itself from
correction merely because it has not been
corrected soon enough, for a longstanding error
is still an error.”
13
Summit Aftershocks
• Clarified what had become increasingly
complicated and unpredictable
• Could chill efforts by regulators to overreach
in their regulations
• Generated increased compliance scrutiny
14
25
II. New Source Performance
Standards (NSPS)
Crude oil and natural gas production
40 C.F.R. Part 63 Subpart OOOO regulates VOCs and
applies to affected facilities.
It regulates hydraulically fractured natural gas wells,
compressors, storage vessels, and fugitive equipment
components.
Compliance dates feature a phased timeline for the
implementation of control measures.
15
II. New Source Performance
Standards (NSPS)
Crude oil and natural gas production
Goal is to reduce VOC emissions from well completions.
Applies to new facilities constructed or modified after
August 23, 2011.
For fractured and refractured gas wells, requires operators to
use reduced emissions completions, also known as “RECs”
or “green completions.”
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II. New Source Performance
Standards (NSPS)
Crude oil and natural gas production
Owners and/or operators may use RECs or completion
combustion devices, such as flaring, until January 1, 2015.
As of January 1, 2015, owners and/or operators of gas wells
must use RECs and a completion combustion device.
Documentation of compliance with a photograph of the
recovery and completion combustion equipment that contains
the location of the wellhead and date of completion
operations.
17
II. New Source Performance
Standards (NSPS)
Crude oil and natural gas production
Notable points from new rule:
Imposes general duty requiring owners/operators to
“safely maximize resource recovery and minimize
releases to the atmosphere during flow back and
subsequent recovery.”
Elimination of the maintenance, startup, shutdown
(MSS) exemptions. Compliance required from outset.
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27
II. Additional NSPS Changes
OGS transmission and distribution
• Compressor standards
• Storage tanks
• Registration, notification, and recordkeeping requirements
19
III. New Emissions Standards for Hazardous
Air Pollutants (NESHAP)
40 C.F.R. part 63
Subpart HH regulates hazardous air pollutants from oil
and natural gas production facilities.
Subpart HHH regulates hazardous air pollutants from
oil and natural gas storage and transmission facilities.
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III. New Emissions Standards for Hazardous
Air Pollutants (NESHAP)
Notable changes:
• Imposition of new emission limits for small
glycol dehydration units
• Lowering of leak detection limits for valves to
500 ppm
• Elimination of malfunction, startup, and
shutdown (MSS) exemption
21
Summary of Changes to 40
CFR Part 63, Subpart HH
Affected Source
Nature of Change
Small glycol
dehydrators
Established MACT standards for
previously unregulated source
Standard
BTEX emission limit: New
sources—4.66x10-6 g/scmppmv
Existing sources—3.28x10-4
g/scm-ppmv
“Associated
equipment”
Revised definition to exclude all
storage vessels
N/A
Valves: equipment
leaks
Revised definition of leak
LDAR for valves must be
applied at 500 ppm
All affected sources
Eliminated exemption from
compliance during periods of
startup, shutdown, and
malfunction
Standards apply at all times
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22
III. New Emissions Standards for Hazardous
Air Pollutants (NESHAP)
Record-keeping, reporting, and notifications
•
Facilities using carbon adsorbers as control devices are
required to keep records of their carbon replacement schedule
and records for each carbon replacement.
•
Record occurrence and duration of each malfunction of
process equipment, air pollution control equipment, and
monitoring equipment.
•
Submit an initial notification within 1 year after existing
glycol dehydration units become subject to the provisions of
this subpart.
23
III. New Emissions Standards for Hazardous
Air Pollutants (NESHAP)
Record-keeping, reporting, and notifications (cont’d)
Periodic reporting will include:
•
Test results and information regarding any carbon replacement events
during the reporting period
•
Number, duration, and a brief description for each type of malfunction that
occurred during the reporting period and that caused or may have caused
any applicable emission limitation to be exceeded
•
A description of actions taken during a malfunction of an affected source
to minimize emissions, including actions taken to correct a malfunction
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What It All Means
EPA has moved toward addressing oil and gas sites, as
opposed to specific operations.
Oil and gas owners and operators face greater scrutiny
and more administrative requirements in production,
transmission, and storage operations.
EPA’s 2011–2013 National Enforcement Initiatives
include “Assuring Energy Extraction Sector Compliance
with Environmental Laws.”
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Fracking Litigation Update
What is a carrier to do?
26
31
Recent Decisions
Robinson Township v. Pennsylvania
Pennsylvania Supreme Court invalidated a recent oil and
gas Act, which purported to restrict local government
regulation of hydraulic fracturing in their jurisdictions.
The plurality of the court found that the Environmental
Rights Amendment precluded such an act because the Act
impermissibly commanded municipalities to ignore their
obligations under the ERA and to take affirmative actions
to undo existing local protections of the environment. The
court likened hydraulic fracturing and its environmental
impacts to “industrial exploitation of Pennsylvania’s
coalfields.”
27
Recent Decisions
Reece v. AES Corp.
Plaintiffs alleged they sustained personal injuries and
property damage from defendants’ improper handling,
transporting, storage, or disposal of waste fluids from oil
and gas drilling operations. The Federal District Court
dismissed the liability claims against all but the
owners/operators of a commercial disposal pit and
dismissed trucking companies entirely. Although the court
allowed trespass, nuisance, and unjust enrichment claims
to proceed against the oil producer, the court ordered the
plaintiffs to plead sufficient damages—damages
personally sustained by plaintiffs caused by the conduct.
28
32
Recent Decisions
Hagy v. Equitable Prod. Co.
Plaintiffs asserted claims for property damage and
personal injury as the result of defendants’ drilling
operations. The court affirmed the granting of summary
judgment as to trespass and negligence claims because the
plaintiffs had effectively released the claims and plaintiffs
had no evidence of negligence or trespass on the part of
the defendant that had performed cementing services on
wells.
29
Recent Decisions
Hiser v. XTO Energy, Inc.
Plaintiff alleged her home was damaged by vibrations
resulting from nearby drilling activity. Jury verdict in
plaintiff’s favor ($100,000 in compensatory and $200,000
in punitive) was upheld despite jury’s extra-record
discussion of fracking, including sending a note to the
court asking, “Were they drilling only or were they also
fracking?”
30
33
Recent Decisions
Hill v. Southwestern Energy Co.
Group of plaintiffs sued lessees of mineral rights because
the company injected waste fluids from hydraulic
fracturing in wells owned by third parties that migrated to
the plaintiffs’ properties. The court ruled the plaintiffs had
standing but dismissed most of the claims, including
RICO, DTPA, fraud, civil conspiracy, strict liability,
conversion, breach of contract, and bad faith but allowed
the claims of trespass and unjust enrichment to proceed.
31
Recent Decisions
Whiteman v. Chesapeake Appalachia, LLC
Court upheld the granting of summary judgment to
defendant on plaintiff’s common law trespass claim.
Plaintiff was surface owner of 101 acres of farmland.
Defendant owned mineral rights and operated 3 natural gas
wells and installed permanent waste disposal pits on 10
acres. Court held the intrusion onto the surface area did
not impose a “substantial burden” on the surface estate
where expert opined the pits had not impacted the property
value. Court also held plaintiff did not prove the pits were
not “reasonably necessary,” as the open pit system was
common and ordinary method in West Virginia at the time.
32
34
Recent Decisions
Magers v. Chesapeake Appalachia, LLC
Plaintiffs alleged methane pollution to well resulting from
gas drilling and storage activities on adjacent property.
Court granted defendant’s motion for failure to state a
claim. The court held that the statute cited by plaintiffs as
the basis for their action did not provide a private right of
action to adjacent landowners. The court also held that
plaintiffs had not adequately plead the duty and breach
elements of a negligence claim. In December 2013, the
court did allow plaintiffs to amend to recouch their
negligence claims.
33
Challenges to Municipal Action
Beezley v. Broomfield
Court enjoined the City of Broomfield from certifying the
results of a recount for an election in which city voters
approved a measure to amend the city’s home rule charger
to impose a 5-year moratorium on hydraulic fracturing and
the disposal of hydraulic fracturing waste. The parties
agreed to place the action on hold pending the Colorado
Supreme Court’s determination of Halen v. Gessler,
another lawsuit that concerns the election process.
34
35
Challenges to Municipal Action
Matter of Norse Energy Corp. USA v. Town of Dryden
The court granted leave to appeal the decision of the
intermediate appellate court that held that state law did not
explicitly or impliedly preempt local laws restricting
hydraulic fracturing and other drilling activities.
35
Challenges to Agency Action
Center for Biological Diversity v. California Dept. of
Conservation
Court dismissed an action by four environmental groups
alleging the California Division of Oil, Gas and
Geothermal Resources had violated the California
Environmental Quality Act by issuing permits for oil and
gas drilling without analyzing the risks posed by fracking.
Case was found to be moot due to new legislation.
36
36
Challenges to Agency Action
Hilcorp Energy Corp. v. Pennsylvania
Hilcorp applied for an order to establish well spacing and
drilling units for more than 3,000 acres, first to
Department of Environmental Protection (DEP), then to
Environmental Hearing Board (EHB). EHB found that
such orders should be submitted to DEP with appeals to
EHB. The court noted that if the DEP granted the
application, it would be the first use of force pooling in
Pennsylvania in the context of horizontal hydraulic
fracturing.
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Challenges to Agency Action
Impact Energy Resources, LLC v. Jewell
US Supreme Court denied writs of certiorari that sought
review of the 10th Circuit’s decision that dismissed as time
barred lawsuits brought by energy companies to challenge
the Bureau of Land Management’s decision not to lease oil
and gas rights for certain parcels in Utah for which the
companies had submitted the highest bid. Court found 90day statute after notification that the leases would not be
issued.
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Challenges to Agency Action
Minard Run Oil Co. v. US Forest Service
The court affirmed an order of summary judgment as to
plaintiffs, who had challenged a 2009 settlement
agreement between the US Forest Service (USFS) and
environmental groups that required USFS to conduct
environmental reviews prior to authorizing new oil and gas
drilling in connection with privately owned mineral rights
in the Allegheny National Forest.
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Challenges to State and Federal
Laws and Regulations
Rodriguez v. Krancer
Plaintiff, a nephrologist, challenged the provision of a
Pennsylvania law that placed restrictions on health
professionals’ ability to disclose information released to
them about the chemical content of hydraulic fracturing
fluids and waste products. Court dismissed for lack of
standing.
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Government Enforcement
Actions
United States v. Stinson
The court sentenced two men and an oil well operating company for
criminal violations of the Safe Drinking Water Act. The two men had
pleaded guilty to conspiracy to commit violations of an underground
injection control (UIC) program, and the company had pleaded guilty
to violation of a UIC program. Defendants had configured piping to
inject fluids brought to the surface in connection with oil production
into sinkholes and had ignored orders to stop discharging the waste
into the sinkholes. The individuals were sentenced to 2 years of
probation, and one of the individuals must personally pay a $45,000
fine and provide documentation that the well used for the illegal
injections has been plugged and abandoned in a way that is protective
of groundwater.
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Government Enforcement
Actions
United States v. Chesapeake Appalachia, LLC
Chesapeake reached an agreement with the United States and West
Virginia over alleged violations of the Clean Water Act (CWA) and
the West Virginia Water Pollution Control Act related to its natural
gas extraction activities. The company discharged dredged or fill
material without a permit in connection with these activities. Under
the terms of the agreement, Chesapeake will pay a $3.2 million civil
penalty, half to the United States and half to the state. The court did
not impose a civil penalty in connection with Chesapeake’s activities
at the Blake Fork, which resulted in a December 2012 guilty plea in a
federal criminal proceeding involving CWA violations. The court also
required Chesapeake to purchase stream and wetland mitigation
credits from mitigation banks and to undertake mitigation and
restoration activities at sites that have not already been restored.
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Government Enforcement
Actions
Wisconsin v. Preferred Sands of Wis., LLC
The State of Wisconsin and the operator of a sand mining
operation that produced sand for hydraulic fracturing
resolved the state’s claims that the sand mine operator had
violated storm water and air pollution control
requirements. The stipulation and judgment entered by a
Wisconsin Circuit Court require the company to pay
$195,000 in five installments through 2017 as well as
$5,000 in attorney fees. This was reportedly Wisconsin’s
first environmental enforcement action against a sand
mine.
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Government Enforcement
Actions
United States v. XTO Energy, Inc.
The federal district court for the Middle District of
Pennsylvania entered a consent decree that resolved a
federal Clean Water Act enforcement action against XTO
Energy, Inc. (XTO). The consent decree required payment
of a civil penalty of $100,000. It also required XTO to
undertake what the government estimated would be a $20
million plan to improve wastewater management
practices, including by recycling flowback and produced
fluid to the maximum extent practicable and restricting
the waste treatment facilities at which XTO could dispose
of such fluid. The settlement required XTO to implement
a spill prevention plan under the oversight of EPA.
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Government Enforcement
Actions
United States v. Guesman
On August 29, 2013, defendant Michael Guesman
pleaded guilty to violating section 309(c)(2)(A) of the
Clean Water Act. The indictment charged that Guesman
discharged fracking waste liquids into a storm drain that
flowed into a tributary of the Mahoning River in Ohio.
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Constitutional Claims
Trail Enters., Inc. v. City of Houston
The Texas Supreme Court denied the petition of review filed
by Trail Enterprises, Inc., d/b/a Wilson Oil Co. in this
inverse condemnation action. A jury had awarded Trail and
other parties $17 million after the trial court found that the
City of Houston’s restrictions on oil and gas drilling in the
vicinity of Lake Houston constituted a compensable taking.
In reversing this judgment, the appellate court found that
two of the three Penn Central factors weighed heavily in the
city’s favor because protection of water sources was a
primary governmental function and Trail and the other
mineral lessees demonstrated minimal reasonable and
distinct investment-backed expectations.
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Notes
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