An Assessment of Marcellus Shale Environmental Issues in West Virginia

1. An Assessment of Marcellus Shale Environmental Issues in West Virginia By: David M. Flannery Kathy G. Beckett Jackson Kelly PLLC Presented at: Marcellus Shale in WV: Emerging Issues June 21, 2011 Morgantown, WV

2. Overview of Presentation • WV Oil and Gas Program • Marcellus Shale activities in WV • Well work permitting • Water • Zero discharge effluent guideline • Disposal options • TDS • Pit Solids • Water withdrawal • EPA Study • Air issues • NORM • Legislative initiatives

3. WV Oil and Gas Program • Interstate Oil and Gas Compact Commission – minimum state program guidelines • STRONGER – State Review of Oil and Gas Environmental Regulation • The 2003 West Virginia review consisted of two parts. A follow-up review of the progress made since the 1993 Review and a supplemental review.

4. Marcellus Shale activities in WV

9. Marcellus Shale Wells Drilled in West Virginia

10. Marcellus Shale Water Tracking in West Virginia • In 2010, 28 of 58 wells reported: • 156.5 million gallons water withdrawn • 16 million gallons water recovered (10.2%) • 2 million gallons UIC disposal • 13 million gallons reuse • 1 million gallons centralized treatment plant and reuse

11. Well Work Permitting

12. Well Work Permitting Permit required from Office of Oil and Gas for all wells* - bonding - soil and erosion and sediment control plan - notice to: • surface owners • coal operators * W. Va. Code '22-6-6

13. Water Quality

14. Water Pollution Control Permits Additional permit required for any stream discharge*: - applicable to individual or general permits - must meet water quality standards - must meet effluent guidelines Onshore Oil and Gas Effluent Guideline (40 C.F.R. '435.32) - “no discharge of waste water pollutants” - exception: “stripper oil wells” - Appalachian Producers requested exemption “Marginal gas wells” – no action by USEPA - Are Marcellus Shale wells covered by effluent guidelines? See September 1976 Development Document * W. Va. Code '22-6-7

15. Water Disposal* • Prohibition against on-site stream discharge • UIC – “best option” • Recycling • POTW option heavily restricted; none authorized at this time * Office of Oil and Gas, Industry Guidance, January 8, 2010

16. Land Application General Permit General Water Pollution Control Permit (GP-1-WV-88) – “land application permit” - no discharge to streams - pit liquids treated / land applied - pit solids disposed on site July 30, 2010 Office of Oil and Gas memorandum “land application of any return fluids from completion activities in the Marcellus Shale formation is prohibited”

17. Drilling Pit Reclamation* Requirements: 1. Pit liners remain intact 2. Pit contents must be solidified with approved materials 3. A liner must be placed over the top of pit * Office of Oil and Gas, Memorandum, March 23, 2010

18. Total Dissolved Solids • Existing water quality criteria • chloride • sulfate • On-going water quality concerns are causing some to call for TDS criteria of 500 mg/l • WV Legislature rejection of TDS criteria • ORSANCO? • Issues • 500 mg/l is a non-enforceable drinking water criteria • no stream discharge of Marcellus Shale water • need for additional scientific research

19. Water Withdrawal

20. Water Withdrawal* • W.Va. Code Chapter 22, Article 26 requires after-the-fact reporting • Office of Oil and Gas now requires prior reporting and approval: • supplemental permit application form • no withdrawal allowed “at volumes beyond which the waters can sustain” • Water Withdrawal Guidance Tool * Office of Oil and Gas, Industry Guidance, January 8, 2010

21. USEPA Hydraulic Fracturing Study • February 28, 2011 request to EPA Science Advisory Board • Initial results: end of 2012 • Additional results: 2014 • Scope: • acquisition of water • chemical additives • fracturing • flow back management (including treatment and disposal)

22. Air Issues

23. Air Issues • Permitting: • Minor source permitting (45 CFR 13) - individual compressors, etc. • Major source permitting (45 CFR 14) - aggregation of activities? - McCarthy Memo (September 22, 2009) - aggregation criteria 1. adjacent property 2. common control 3. single industrial grouping - Hughes v. DEP (10-3-AQB) – dismissed

24. Air Quality Modeling* * Performed by Alpine Geophysics for the Midwest Ozone Group

25. O3 Trends by Regions

26. 8-hour Ozone Modeling Results* * Performed by Alpine Geophysics for the Midwest Ozone Group

27. PM2.5 Trends: Regions

28. PM 2.5 (Annual) Modeling Results* * Performed by Alpine Geophysics for the Midwest Ozone Group

29. PM 2.5 (24-hour) Modeling Results* * Performed by Alpine Geophysics for the Midwest Ozone Group

30. Air Quality Modeling Conclusion • The ozone NAAQS can be achieved with no new controls no later than 2014 • The annual PM NAAQS can be achieved with no new controls no later than 2014 with the possible exception of local controls at the Allegheny PA location • The 24-hr PM NAAQS can be achieved with no new controls no later than 2014 with the possible exception of local controls at the Allegheny PA and Brooke WV locations

31. NORM

32. NORM WVDEP presentation to legislative committee (May 7, 2011) - testing shows “safe levels of radioactivity from drilling the Marcellus Shale” - radiation in WV may be of less concern than PA - testing in PA has shown radiation levels “at or below normal”

33. Legislative Initiatives

34. WVDEP Proposed Legislation SB 424 (2011) • $10,000 fee for horizontal drilling • Revised permitting requirements • Require a water management plan for horizontal drilling • Increased penalty authority • New regulation of large impoundments (independent of well work permit)

35. WVDEP Proposed Legislation SB 424 (2011) (cont) 6. New BMP requirement (including protection of groundwater and fugitive particulate matter) 7. No water withdrawal beyond what the waters can sustain 8. Enhanced notice requirements 9. Enhanced inspection authority 10. Seismic activity subject to notice to Miss Utility and to property owners 11. Regulate pooling of gas from horizontal shallow wells

36. Joint Judiciary Proposed LegislationHB 2878 (2011) • New well work permit required for horizontal wells • New water pollution permit required • Permit application must include certification of Division of Highways • Enhanced notice to property owners • 1000 feet buffer from building / water wells • 2500 feet buffer from surface (1000 feet from groundwater) source for horizontal wells • Enhanced enforcement authority

37. Joint Judiciary Proposed LegislationHB 2878 (2011) (cont) • Expanded pre-drilling survey requirement • Disclosure of chemicals used in fracturing • Double liners for centralized impoundments • Water withdrawal plan required • Mandates surface use and compensation agreement • Appeal to Environmental Quality Board • Pre-empts local ordinances but not zoning

38. Conclusion • WV DEP has developed a Marcellus Shale regulatory program based upon its well work permit. • New legislation will buttress the existing regulatory program and address important issues such as horizontal shallow well pooling. • Even with new legislation, it is likely that some parties will continue to raise objections to horizontal drilling.

39. Contact Information Kathy G. Beckett Jackson Kelly PLLC PO Box 553 Charleston, WV 25322 Telephone: (304) 340-1019 Email: kbeckett@jacksonkelly.com