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December 17, 2013

California Proposes Emergency Oil and Gas Regulations

Unlike New York which is stalled in a more than five year moratorium, California is moving forward with shale development and the processing of permits for hydraulic fracturing.

Interim hydraulic fracturing regulations were released last week by the California Department of Conservation ("DOC"), which used its emergency process to have the rules take effect by January 1, 2014. The emergency regulations implement Senate Bill 4 ("SB 4"), the law that established environmental protections and transparency requirements for hydraulic fracturing and other well stimulation techniques. Permanent regulations are expected in early 2015 and will be promulgated via the standard rulemaking process.

The proposed regulations specify requirements for hydraulic fracturing, or "well stimulation" the process used to improve the flow of oil or natural gas from a hydrocarbon formation to a well head. Under the interim regulations, operators will be required to certify well integrity as well as complete notification requirements before fracking can begin. Once fracking is complete, operators must disclose all chemicals used in the process.

To ensure well integrity, operators will be required to evaluate and certify that well casings are sufficiently cemented as well as certify that production zones are isolated to prevent vertical migration of gases and fluids. In addition, each wellbore must pressure-tested.

A Well Stimulation Treatment Notice with information on groundwater monitoring, water management, and fluid composition must be submitted by the operator for approval by the Division of Oil, Gas, and Geothermal Resources ("DOGGR"). Once approved, the notice will be distributed to neighboring landowners at least 30 days before fracking begins. Residents will also have the option to have water well and surface testing performed by the operator.

Once stimulation activities are complete, operators will have 60 days to disclose information regarding the composition and disposition of chemicals used in the hydraulic fracturing and flowback fluids. All information, including claimed trade secrets, will be required to be disclosed to DOGGR who will determine if the information should be classified as a protected trade secret. Even if information is deemed a trade secret, full disclosure to health professionals and governmental entities will be mandated if the information is needed to diagnose or treat a patient.

Industrial groups appear to be accepting of the regulations. However, environmental groups feel that a more extensive environmental review should be conducted before the regulations take effect. Back in 2012, even before SB 4 took effect, the environmental groups filed suit against DOGGR to enjoin further permits. A California court will hear arguments on the case this Thursday, December 19, 2013.

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