Environmental and Energy Law Resource Quarterly Teleseminar Lawrence A. Demase April 25, 2012

1. PENNSYLVANIA “AGGREGATION” LITIGATION UPDATENEW FEDERAL NEWS SOURCE PERFORMANCE STANDARDS AND NEW NATIONAL EMISSION STANDARDS FOR HAZARDOUS AIR POLLUTANTS FOR THE OIL AND GAS INDUSTRY Environmental and Energy Law Resource Quarterly Teleseminar Lawrence A. Demase April 25, 2012

2. I. PENNSYLVANIA AGGREGATION LITIGATION • Group Against Smog and Pollution v. The Pennsylvania Department of Environmental Protection. Appeal of issuance of a Plan Approval to Laurel Mountain Midstream for the Shamrock Compressor Station. Allegation is that DEP failed to include emissions from 73 wells, in which Atlas Energy had an ownership stake with the emissions from the Shamrock compressor station in which Atlas also had an ownership interest. • Clean Air Council v. The Pennsylvania Department of Environmental Protection. Appeal of Plan Approval issued to MarkWest Liberty Midstream and Resources, for its Houston Gas Processing Plant on the grounds that DEP failed to review the relationship between the Houston Plant and ten compressor stations also owned by MarkWest. Allegations regarding the interrelationship has led to demands by CAC to examine confidential business information of the Company.

3. cont…PENNSYLVANIA AGGREGATION LITIGATION • Citizens for Pennsylvania’s Future v. Ultra Resources, Inc.. This is a case pending in the District Court for the Middle District of Pennsylvania in which Penn Future alleges that the Court should impose penalties on Ultra Resources for failure to obtain the proper permit for various natural gas operations owned by Ultra in the Marshlands Play for which it alleges emissions should have been aggregated. A motion to dismiss has been filed by Ultra and the briefing is now complete. The issues raised by Ultra include whether the Court lacks subject matter jurisdiction because the complaint is an impermissible collateral attack on permits issued by Pennsylvania and whether the Court should abstain from deciding legal issues which best decided within the context of Pennsylvania’s comprehensive permitting scheme.

4. cont…PENNSYLVANIA AGGREGATION LITIGATION • Petition by the Clean Air Council to the Administrator of EPA requesting that she make a finding that Pennsylvania is failing to implement its State Implementation Plan with respect to the Oil and Gas Industry. Among the sanctions the Petitioner seeks is the withdrawal of approval of Pennsylvania’s authority to permit oil and gas operations under Title V of the Clean Air Act and instead for EPA to take over permit oil and gas operations as authorized by 40 C.F.R. § 70.10(b)(2)(ii) and (iii). DEP appears to be reacting by gathering information to support its program. DEP Guidance being attacked as well as permits issued by DEP.

5. II. NEW SOURCE PERFORMANCE STANDARDS • On April 18, 2012 the EPA issued new regulations to reduce air pollution from the oil and natural gas industry. • These regulations expand the scope of control of air emissions from oil and natural gas exploration, production, transmission and storage facilities. • New Source Performance Standards (NSPS) will regulate volatile organic compounds (VOC) and sulfur dioxides (SO2) from sources in the upstream oil and gas industry as well as the midstream sectors of the industry. • EPA has also amended and expanded two existing National Emissions Standards for Hazardous Air Pollutants (NESHAP) that regulate emissions of air toxics from specific oil and gas facilities. • The final rules include the first federal air standards for natural gas wells that are hydraulically fractured.

6. cont…NEW SOURCE PERFORMANCE STANDARDS • NSPS requirements for new hydraulically fractured wells (drilled after August 23, 2011) • EPA’s final NSPS for VOCs establishes two phases for reducing VOCs during well completion. • Phase 1: In the first phase (before Jan. 1, 2015), VOC emissions must be reduced either by flaring using a completion combustion device or by capturing the gas using green completions with a completion combustion device (unless combustion is a safety hazard or is prohibited by state or local regulations). • Industry may use completion combustion devices to reduce VOC emissions until Jan. 1, 2015, unless state or local requirements prohibit the practice or require more stringent controls.

7. cont…NEW SOURCE PERFORMANCE STANDARDS • Phase 2: Beginning Jan. 1, 2015, operators must capture the gas and make it available for use or sale through the use of green completions. • EPA estimates that use of green completions for the three-to-10 day flowback period reduces VOC emissions from completions and recompletion of hydraulically fractured wells by 95 percent at each well. • Both combustion and green completions will reduce the VOCs that currently escape into the air during well completion. According to EPA, capturing the gas through a green completion prevents a valuable resource from going to waste and does not generate NOx, which is a by-product of combustion. • Also according to EPA, methane and air toxics also would be significantly reduced as a co-benefit of reducing VOC’s.

8. cont…NEW SOURCE PERFORMANCE STANDARDS • Exceptions for new wells: Green completions are not required for: • New exploratory (“wildcat”) wells or delineation wells (used to define the borders of a natural gas reservoir), because they are not near a pipeline to bring the gas to market. • Hydraulically fractured low-pressure wells, where natural gas cannot be routed to the gathering line. Operators may use a formula provided by EPA based on well depth and well pressure to determine whether a well is a low-pressure well. • Owners/operators must reduce emissions from these wells using combustion during the well-completion process, unless combustion is a safety hazard or is prohibited by state or local regulations.

9. cont…NEW SOURCE PERFORMANCE STANDARDS NSPS Requirements For Refractured Wells Gas wells that are refractured and recompleted will not be considered to be “modified” if well owners and operators use green completions rather than flaring to reduce emissions, and they meet notification and reporting requirements for new wells. • In a number of states, this will allow owners/operators to refracture wells without triggering state permitting requirements. • Owners/operators of refractured gas wells may choose to reduce emissions through flaring until January 1, 2015, when they must use green completions. These wells will be considered modified under the new rule.

10. cont…NEW SOURCE PERFORMANCE STANDARDS NSPS Notification And Reporting Requirements For Well Completions • EPA has added the following notification and reporting requirements to its NSPS. • Notification: • Operators of hydraulically fractured and refractured natural gas wells must notify EPA (or in some cases, a state or local air agency) by e-mail no later than two days before completion work begins. The notification must include geographic coordinates of the affected wells and the estimated date that well completion will begin. • Well operators who are subject to state advance notification requirements for well completions will meet EPA’s requirements by meeting the state notification requirements.

11. cont…NEW SOURCE PERFORMANCE STANDARDS • Reporting • Each year operators must submit a report on their well completions that is certified by a company official attesting to the report’s truth, accuracy and completeness. This report may be submitted in two forms: • A traditional report detailing each well completion, along with information on compressors, pneumatic controllers and storage tanks constructed, modified or reconstructed during the year. The report also must report any deviation from NSPS requirements. • In lieu of the traditional report for well completions, owners/operators may submit a list of well completions accompanied by a digital photograph of each green completion in progress. The photo must include digital stamps, the geographic coordinates of the well and the date of the well completion.

12. III. NATIONAL EMISSION STANDARDS FOR HAZARDOUS AIR POLLUTANTS Requirements for Storage Vessels at the Well Site • Storage tanks at natural gas well sites are commonly used to store condensate, crude oil and produced water. These tanks may be subject to two standards: the NSPS for VOCs, and the NESHAP for Oil and Natural Gas Production. • NSPS Requirements: New storage tanks with VOC emissions of 6 tons a year or more must reduce VOC emissions by at least 95 percent. EPA expects this will generally be accomplished by routing emissions to a combustion device. • To ensure enough combustion devices are available, the final rule provides a one-year phase-in for this requirement. • After one year operators of new storage tanks at sites with wells in production must comply. Operators at sites with no wells in production will have 30 days to determine the emissions from a tank; and another 30 days to install controls.

13. cont…III. NATIONAL EMISSION STANDARDS FOR HAZARDOUS AIR POLLUTANTS • Air toxics requirements: In response to public comments, EPA did not finalize proposed air toxics standards for storage vessels without the potential for flash emissions, which currently are not regulated under the NESHAP for Oil and Natural Gas Production. The agency determined that it needs additional data in order to establish emission standards for this type of storage vessel. The previous standards for storage tanks with the potential for flash emissions remain in place. • The final rule amends the definition of “associated equipment,” meaning that emissions from all storage vessels now will be counted toward determining whether a facility is a major source under the NESHAP for Oil and Natural Gas Production.

14. cont…III. NATIONAL EMISSION STANDARDS FOR HAZARDOUS AIR POLLUTANTS Air Toxics Requirements for Glycol Dehydrators at the Well Site • Glycol dehydrators, used to remove excess water vapor from gas, are subject to one of two air toxics standards, depending on their location. Dehydrators located at the well site are subject to the NESHAP for Oil & Natural Gas Production. • The new rule retains the existing standards for large glycol dehydrators and sets new standards for small glycol dehydrators. • Large dehydrators: The rule also retains the existing 1-ton-per year benzene compliance option for large glycol dehydrators, meaning operators may reduce benzene emissions from large dehydrators to less than 1 ton per year as an alternative to reducing total air toxics emissions by 95 percent.

15. cont…III. NATIONAL EMISSION STANDARDS FOR HAZARDOUS AIR POLLUTANTS • Small dehydrators: A dehydrator is considered small if it has an annual average natural gas throughput of less than 85,000 standard cubic meters per day, or actual annual average benzene emissions of less than 1 ton per year. • Both existing and new small glycol dehydrators must meet a unit-specific limit for emissions of BTEX (benzene, toluene, ethylbenzene and xylene) that is based on the unit’s natural gas throughput and gas composition. The limit is determined by applying a formula set out in the final rule. • New small glycol dehydrators must comply with the air toxics requirements immediately upon startup or within 60 days after the final rule is published in the Federal Register, whichever is later. Existing small glycol dehydrators must comply within three years after the effective date of the rule.

16. IV. OTHER EPA has also promulgated NSPS and NESHAP for natural gas processing plants, including new and modified compressors, new and modified pneumatic controllers, and new storage vessels at those plants, natural gas gathering and boosting stations and natural gas transmission compressor stations

17. Need more information? Contact me Lawrence A. Demase (Pittsburgh) ldemase@reedsmith.com +1 412 288 4050 Visit our blog www.environmentallawresource.com

18. Overview of Fracking and Chemical Disclosure Requirements Environmental and Energy Law Resource Quarterly Teleseminar David W. Wagner April 25, 2012

19. Composition of Fracking Fluid • Typically contains mostly water, a proppant to keep the fractures open (such as sand), and a small percentage of chemical additives.

20. Composition (continued) • Additives are lubricants - assist the movement of the proppant into the fractures made in the formation by reducing friction between the fracking fluid and the pipe used to pump the fluid into the formation. • A 2011 report by the minority staff of the House Committee on Energy and Commerce found that between 2005 and 2009, the 14 leading oil and gas service companies used “780 million gallons of hydraulic fracturing products” in fracking fluids.

21. Chemical Disclosure - Federal Level • 2012 State of the Union: “all companies that drill for gas on public lands [will have] to disclose the chemicals they use.” • Proposed rule from BLM – but not yet in FR • disclose all fracking fluid additives by trade name • disclose complete chemical makeup of all materials used in fracking fluid

22. Chemical Disclosure – Federal Level • 112th Congress proposed FRAC Act • Would amend SDWA • define underground injection to include fracking • create disclosure requirement for chemicals

23. State Disclosure Laws • At least 11 states require some disclosure: • 3 others have proposed: California, New York, North Dakota • Approaches include laws, regulations, administrative interpretations

24. State Disclosure Laws - Categories • Who must make disclosures and to whom (public or state agency) • What info to disclose (specific ingredients, actual concentrations of additives, etc.) • Protection (if any) of trade secrets • At what time disclosure must be made in relation to when fracking takes place

25. After Review of State Requirements, Some Observations • Wide range of approaches • 3 states require direct public disclosure of chemical information at FracFocus.org; others require disclosure to state agencies • Disclosure registries to be “fully searchable”. • Raises liability implications in penalty and alleged contamination cases.

26. Observations (continued) • The level of disclosure often depends on how states protect trade secrets • Protections may allow submitting parties to withhold information from disclosure at their discretion or to submit fewer details about proprietary chemicals, except, perhaps, in emergencies. • If disclosure law does not protect information, other state laws, such as an exemption in an open records law, may protect the information – but it may not. • A few states require the submission of MSDSs for certain chemicals. • With regard to the timing, a few state laws require at least some disclosure of information about fracking fluid composition before fracking is performed, but these states typically require less detailed information to be provided before fracking than afterward.

27. Need more information? Contact me Dave Wagner (Pittsburgh) dwwagner@reedsmith.com +1 412 288 4056 Visit our blog www.environmentallawresource.com

28. Environmental Overview regarding Federal Fracking Regulation Environmental and Energy Quarterly Teleseminar Jennifer Smokelin, Esq. April 25, 2012

29. Executive Order 13605 • April 13, the White House released an Executive Order calling for the creation of an "Interagency Working Group" (Working Group) charged with "overseeing the safe and responsible development of unconventional domestic natural gas resources." • The Order defines the functions of the Working Group to include: (i) coordination of agency policy activities; (ii) coordination of the sharing of scientific, environmental, and technical and economic information; (iii) engagement in long-term planning with respect to research, natural resource assessment, and infrastructure development; (iv) promotion of interagency communications with outside stakeholders; and (v) consultation with other agencies and offices. • The Working Group will be comprised of members from 13 different high-level agencies and departments, including, among others, the Department of Defense, the Environmental Protection Agency, the Department of Energy, the Department of Transportation, and the Department of Homeland Security • "states are the primary regulators of onshore oil and gas activities, the Federal Government has an important role to play."

30. Hydraulic Fracturing rule proposed by the Bureau of Land Management • currently under review at the White House Office of Management and Budget • intended to address public concern with hydraulic fracturing by regulating the process on public and tribal lands. • Key provisions of the rule would require disclosure of chemicals injected underground, address the stability of wellbores to minimize the chance of groundwater contamination, and regulate the management of water that returns to the surface through the fracking process • At hearing of the House Natural Resources Subcommittee on Indian and Alaska Native Affairs last week representatives of nine tribes and the National Congress of American Indians argued that the rule would make development on tribal lands significantly more cumbersome than on state and private property, driving oil and gas production away and hurting tribal economies.

31. USEPA’s New Air Emission Rules for Oil and Gas Industry • On April 17, the USEPA promulgated the first-ever final regulation setting limits on air pollution from natural gas production aimed at reducing toxic air pollution from the natural-gas drilling process called fracking. • USEPA updated its New Source Performance Standards (NSPSs) and National Emission Standards for Hazardous Air Pollutants (NESHAPs) to include emissions from oil and gas production. • The new standards will reduce the amount of methane, volatile organic compounds, and other emissions coming from fracking operations by requiring that all newly fractured or refractured wells incorporate reduced emissions controls (RECs). • The regulations will also target emissions from compressors, oil storage tanks and other oil-and-gas sector equipment.

32. Republicans on the House Natural Resources Committee introduced three new bills • Tipton's bill would require the Interior secretary to develop a strategic plan every four years for meeting future energy demand through increased development of oil, natural gas, coal, wind, solar, hydropower, geothermal, oil shale and minerals from federal lands. • Coffman's bill would require the Interior secretary to conduct new lease sales in areas identified with the greatest energy potential, prohibit the agency from revoking leases once sold and set deadlines for the issuance of leases. It also would prohibit lease terms from being modified and ensure leasing on federal lands is not delayed during the development of resource management plans. • Lamborn's bill would set timelines for Interior to approve drilling permits and funnel a portion of industry fees to local permitting offices to ensure timely processing of proposals. It also would set a 90-day limit to file a lawsuit challenging an energy project, specify that all cases must be heard locally and limit preliminary injunctions to 60 days

33. Federal Government and LNG • federal regulators last week affirmed their support for exporting U.S. natural gas with approval of the first new liquefaction facility • Cheniere Energy Inc. now has permits from both the Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC), clearing the way for the company to pursue the $3 billion to $4 billion needed to begin converting its existing Sabine Pass liquefied natural gas import terminal in Louisiana into an export terminal. • Many observers predict that DOE will seek to control domestic prices by limiting the number of export facilities that it grants full export permission.

34. USEPA Withdraws Range Resources' Imminent and Substantial Endangerment Order in Fifth Circuit • "Resolving the lawsuits with Range allows EPA to shift the agency's focus in this particular case away from litigation and toward a joint effort on the science and safety of energy extraction" • USEPA's surprise withdrawal came less than a week after the unanimous U.S. Supreme Court decision is Sackett v. United States Environmental Protection Agency, et al., (Case 10-1062)

35. USEPA’s First Report on the Impact of Hydraulic Fracturing on Drinking Water Resources • USEPA is studying the impacts of hydraulic fracturing on drinking water resources primarily in shale formations. • Look for USEPA’s initial study results this year and an additional report based on long-term study projects in 2014.

36. EPA’s Development of Hydraulic Fracturing Wastewater Standards • EPA is also developing national standards for wastewater discharges produced by natural gas extraction from underground coalbed and shale formations. • The federal Clean Water Act (CWA) effluent guidelines program sets national standards for industrial wastewater discharges based on best available technologies that are economically achievable. • Effluent guidelines for oil and gas extraction prohibit the on-site direct discharge of wastewater from shale gas extraction into waters of the United States. • In 2012, EPA plans to gather data, consult with stakeholders – including industry stakeholders – and solicit public comment on a proposed rule for wastewater discharges produced by natural gas extraction from coalbed methane in 2013, and a proposed rule for shale gas in 2014

37. USEPA’s Permitting Guidance on Underground Injection Control for Facilities that Use Diesel Fuels in Injection Fluids • The Safe Drinking Water Act’s (SDWA) Underground Injection Control (UIC) program establishes requirements for proper well siting, construction, and operation to minimize risks to underground sources of drinking water. • Even though the Energy Policy Act of 2005 excluded hydraulic fracturing for oil and gas production from permitting under the UIC Program, the exclusion did not include fracturing using diesel fuel. • Armed with the authority to regulate hydraulic fracturing using diesel fuel, USEPA is developing permitting guidance for fracturing activities that use diesel fuels in fracturing fluids. • The permitting guidance is expected this year

38. Need more information? Contact me Jennifer Smokelin (Pittsburgh) jsmokelin@reedsmith.com +1 412 288 3016 Visit our blog www.environmentallawresource.com

39. California Hydraulic Fracturing: Pending Legislation Environmental and Energy Quarterly Teleseminar Todd O. Maiden April 25, 2012

40. Hydraulic Fracturing in California • Fourth Largest O&G Producing State • San Joaquin Basin: • 3.5 billion barrels (oil) reserve • Monterey Shale: • Oil - “maybe up to 300 billion barrels” • Gas – 1.5 – 2.0 trillion cu. ft. • Subject to “economic viability” http://oilshalegas.com/montereyshale.html (April 23, 2012)

41. AB 591 (Wieckowski - D) • Disclose chemicals in fracking fluids • Some “trade secret” protections • Burden on business • Under penalty of perjury • Criminal sanctions • Public Disclosure • Post on Chemical Disclosure Registry • Internet maps • Status • Introduced 2011 • Assembly -> Senate Com. on Rules

42. S.B. 1054 (Pavley – D) • Notice to neighbors • 20 days prior to drilling • 30 days prior to fracking • Notice to: • DOGGR • Neighbors within 300’ of well head; or • Neighbors above any underground waters suitable for irrigation or domestic purposes the well is “reasonably anticipated” to pierce • municipal governments; and • impacted water purveyors

43. S.B. 1054, cont’d • Notice Contents • Location • Describe activity • Time of fracking • Where to get more information • Contact information for DOGGR • Status: • 2012: • 4/23/12: Senate Committee on Environmental Quality

44. Need more information? Contact me Todd Maiden (San Francisco) tmaiden@reedsmith.com +1 415 659 5918 Visit our blog www.environmentallawresource.com

45. Shale Gas in Europe Environmental and Energy Law Resource Quarterly Teleseminar Lynne Freeman April 25, 2012

46. The UK: Overview: Seismic tremours –v- Seismic shift • September 2011: Reports of potential shale gas reserves in Blackpool of up to 200 trillion cubic feet. (The British Geological Survey puts this closer to 4.7 trillion cubic feet) • Lancashire: the potential to be the capital of Europe’s emerging shale gas industry?

47. The UK: Moratorium on Fracking • April/May 2011: 2 seismic tremors reported at Cuadrilla’s drill sites • Government imposes a moratorium on “fracking” while investigations are carried out • November 2011:Cuadrilla report: “highly probable” fracking caused the seismic tremours

48. DECC Report • April 2012: Government report: cautious recommendation fracking can continue • Recommendations: to ensure a more effective monitoring process to avoid future seismic events • Six week consultation period…but ministers will most likely accept recommendation • Extra monitoring processes are likely to make exploration more expensive

49. The UK: Issues and Outlook • Environmental concerns – water contamination • Need for regulation? • Policy issues (focus on renewables/ decarbonisation/climate change) • The future: the potential to be the capital of Europe’s emerging shale gas industry? UK offshore reserves: potentially 5-10 times as high as those found onshore, enabling the UK to become energy self-sufficient

50. Poland • Prioritising shale gas – energy security a key driver • Production is anticipated from 2014/2015 • 22 of the EU’s 31 test drills are in Poland (6 in Germany, 3 in UK) • Over 100 licences have already been granted for gas prospecting But… • Estimates of reserves have recently been downgraded after ExxonMobil announced results of two exploration drillings