Joint Legislative Energy Policy Joint Legislative Energy Policy CommissionCommission

Status Update on the North Carolina Oil Status Update on the North Carolina Oil & Gas Regulatory Framework& Gas Regulatory Framework

Oct 1, 2013Oct 1, 2013

Presented by:Presented by:North Carolina Mining & Energy North Carolina Mining & Energy

CommissionCommission1

Senate Bill 820 (2012-143)Senate Bill 820 (2012-143)Clean Energy & Economic Security ActClean Energy & Economic Security Act

• Establishes the Mining & Energy CommissionEstablishes the Mining & Energy Commission

• Requires a Modern Regulatory Program for Oil & Gas Requires a Modern Regulatory Program for Oil & Gas DevelopmentDevelopment

• Authorizes Horizontal Drilling & Hydraulic FracturingAuthorizes Horizontal Drilling & Hydraulic Fracturing

• Enhances Landowner & Public ProtectionsEnhances Landowner & Public Protections

• Establishes Joint Legislative Commission on Energy PolicyEstablishes Joint Legislative Commission on Energy Policy

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Senate Bill 76 (S.L. 2013-365)Senate Bill 76 (S.L. 2013-365)Domestic Energy Jobs ActDomestic Energy Jobs Act

• Streamlines Regulatory Process by Waiving Fiscal NotesStreamlines Regulatory Process by Waiving Fiscal Notes

• Mandates Legislative Review of Rules before Commencement Mandates Legislative Review of Rules before Commencement of Drillingof Drilling

• Requires Special Study of Coordinated PermittingRequires Special Study of Coordinated Permitting

• Requires Special Study of Landmen Registration and Taxation Requires Special Study of Landmen Registration and Taxation of Hydrocarbonsof Hydrocarbons

• Establishes Energy Policy CouncilEstablishes Energy Policy Council

MEC Standing CommitteesMEC Standing Committees• Environmental Standards

– Hydrogeological investigations, collection of baseline data, setbacks, chemical disclosure, testing & monitoring, etc.

• Water and Waste Management– Water use and re-use, water and wastewater management plans,

waste disposal, etc.• Administration of Oil & Gas Operations

– Unitization, pooling, pre-drilling activities, site development, well construction, impoundments, record keeping, etc.

• Rules -- Rules properly formatted, cross-referenced, integrated -- Master definitions list, statutory change requests• Mining• Civil Penalty Remissions

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NC Mining & NC Mining & Energy Energy

CommissionCommission

NC Mining & NC Mining & Energy Energy

CommissionCommission

Mining Mining CommitCommit

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Mining Mining CommitCommit

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Rules Rules CommitCommit

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Rules Rules CommitCommit

teeteeEnvironmeEnvironme

ntal ntal Standards Standards CommitteeCommittee

EnvironmeEnvironmental ntal

Standards Standards CommitteeCommittee

Water & Water & Waste Waste

Management Management CommitteeCommittee

Water & Water & Waste Waste

Management Management CommitteeCommittee

Oil & Gas Oil & Gas Operations Operations CommitteeCommittee

Oil & Gas Oil & Gas Operations Operations CommitteeCommittee

Civil Penalty Civil Penalty Remissions Remissions CommitteeCommittee

Civil Penalty Civil Penalty Remissions Remissions CommitteeCommittee

Funding Levels & Potential

Funding Sources Study Group

Funding Levels & Potential

Funding Sources Study Group

Compulsory Pooling Study

Group

Compulsory Pooling Study

Group

Local Government Regulations Study Group

Local Government Regulations Study Group

Coordinated Permitting Study

Group

Coordinated Permitting Study

Group

Landmen Registry Study

Group

Landmen Registry Study

Group

Severance Tax Study Group

Severance Tax Study Group

Due: 1 Oct 2013Due: 1 Oct 2013

Due: 1 Oct 2013Due: 1 Oct 2013

Due: 1 Oct 2013Due: 1 Oct 2013

Session Law 2012-143Session Law 2012-143

Due: 1 Mar 2014Due: 1 Mar 2014

Due: 1 Apr 2014Due: 1 Apr 2014

Due: 1 Apr 2015Due: 1 Apr 2015

Session Law 2013-365Session Law 2013-365

MEC STUDY MEC STUDY GROUPSGROUPS

STAKEHOLDER STAKEHOLDER GROUPGROUP(Managed by NC

DENR)Local Jurisdictions, Technical Experts, Environmental Interests, RAFI, API, ANGA, NCDENR, NCDOT, NCDHHS, NCDOJ, Commerce, Agriculture, Wildlife Resources, Emergency Management

NC General NC General AssemblyAssembly

(Non-Binding Recommendations)

NC General NC General AssemblyAssembly

Protection of Trade

Secrets & Proprietary Information Study Group

Protection of Trade

Secrets & Proprietary Information Study Group

Internally Internally Generated Generated

by MECby MEC

Various White Papers

MEC AccomplishmentsMEC Accomplishments

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• MEC Constituted by Statute-- 1 Aug 2012

• MEC Sworn In at First Meeting-- 6 Sep 2012• By-Laws Adopted & Committees Assigned-- 2 Nov

2012• Staff Research & Presentations Began-- 18 Dec

2012• DENR Support Staff Hiring Completed-- Jan 2013• Study Groups Began Meeting-- 8 Feb

2013• First Rules Passed by MEC-- 3 May

2013• Study Group Work Completed-- 25 Sep

2013• Study Group Reports Transmitted-- 27 Sep

2013

Proposed Future MilestonesProposed Future Milestones

• Statutory Change Requests to NCGA- 14 Jan 2014• Subsequent Study Group Reports-- Mar/Apr 2014• Completion of MEC Internal Rule-writing-- 5 Sep 2014• Public Comment Period-- Sep/Oct 2014• MEC Adoption of Rule-set-- 15 Nov 2014• MEC Turnover of Adopted Rules to RRC-- 20 Nov 2014• RRC Consideration of Rules-- 15 Dec 2014

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Committee Updates Committee Updates

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Administration of Oil & Gas Operations CommitteeAdministration of Oil & Gas Operations Committee

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• 70 Rules AssignedRules Assigned• 22 Rules in ResearchRules in Research• 9 Rules Moved Out of CommitteeRules Moved Out of Committee• 6 Rules Approved by Full MECRules Approved by Full MEC

• Target Dates for Rules CompletionTarget Dates for Rules Completion:• Well Development Rules – 22 Nov 2013• Site Development Rules – 6 Dec 2013• Coordinated Permitting Rules – 31 Jan 2014• Unitization & Pooling – 17 Mar 2014• Bonding Rules - 6 June 2014• Production Rules – 25 July 2014

Charles Holbrook- Charles Holbrook- ChairmanChairman

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Administration of Oil & Gas Operations CommitteeAdministration of Oil & Gas Operations Committee

Rule-writing Challenges:Rule-writing Challenges:

• Forming Drilling Areas / Units-- UnitizationForming Drilling Areas / Units-- Unitization• Compulsory Pooling & AppealsCompulsory Pooling & Appeals• Rules on Mineral Rights Leasing Rules on Mineral Rights Leasing • Applying Statutory Language on AllowablesApplying Statutory Language on Allowables• Applying Statutory Language on Oil-Gas RatiosApplying Statutory Language on Oil-Gas Ratios

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Water & Waste Management CommitteeWater & Waste Management CommitteeDr. Vikram Dr. Vikram RaoRao

• 23 Rules AssignedRules Assigned• 12 Rules in ResearchRules in Research• 7 Rules Moved Out of CommitteeRules Moved Out of Committee• 7 Rules Approved by Full MECRules Approved by Full MEC

• Target Dates for Rules CompletionTarget Dates for Rules Completion:• Water Management Rules -- 18 Feb

2014• Waste Management Rules -- 4 Apr 2014

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Water & Waste Management CommitteeWater & Waste Management Committee

Rule-writing Challenges:Rule-writing Challenges:

• Class II Injection Wells vs. Water Re-UseClass II Injection Wells vs. Water Re-Use• Disposal of Drilling Wastes at Municipal FacilitiesDisposal of Drilling Wastes at Municipal Facilities• Pre-treatment and Discharge of Water at Pre-treatment and Discharge of Water at

CulminationCulmination

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Environmental Standards CommitteeEnvironmental Standards Committee

• 25 Rules AssignedRules Assigned• 17 Rules in ResearchRules in Research• 7 Rules Moved Out of CommitteeRules Moved Out of Committee• 1 Rule Approved by Full MECRule Approved by Full MEC

• Target Dates for Rules CompletionTarget Dates for Rules Completion:• Chemical Disclosure Rules – 24 Oct 2013• Environmental Testing Rules – 14 Jan 2014• Aesthetics & Nuisance Rules – 2 May 2014

George Howard - ChairmanGeorge Howard - Chairman

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Environmental Standards CommitteeEnvironmental Standards Committee

Rule-writing Challenges:Rule-writing Challenges:

• Hazardous Chemical DisclosuresHazardous Chemical Disclosures• Frequency & Scope of Water TestingFrequency & Scope of Water Testing• Statutory Distance from Wellhead for Water Well Statutory Distance from Wellhead for Water Well

TestingTesting• Use of Tracer Agents & Canary TestingUse of Tracer Agents & Canary Testing• Setbacks Based on Health & Safety ImperativesSetbacks Based on Health & Safety Imperatives

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Rules CommitteeRules Committee

• 13 Rules AssignedRules Assigned• 9 Rules in ResearchRules in Research• -- InternalInternal Rules Moved Out of CommitteeRules Moved Out of Committee• -- Internal Rules Approved by Full MECInternal Rules Approved by Full MEC• 26 Other Committee Rules Processed to Full MECOther Committee Rules Processed to Full MEC

• Target Dates for Rules CompletionTarget Dates for Rules Completion:• Administration & Safety Rules – 8 Aug 2014• Final Rule-set for Public Comment – 5 Sep 2014

Amy Pickle- Amy Pickle- ChairwomanChairwoman

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Rules CommitteeRules Committee

Rule-writing Challenges:Rule-writing Challenges:

• Statutory Authority for Variances & WaiversStatutory Authority for Variances & Waivers• Potential Potential ‘‘BottleneckBottleneck’’ in Rules Committee by in Rules Committee by

Summer 2014Summer 2014• Preparation of Administrative & Safety RulesPreparation of Administrative & Safety Rules• Early & Frequent Interaction with RRCEarly & Frequent Interaction with RRC

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Study Group Updates Study Group Updates

Compulsory Pooling Study GroupCompulsory Pooling Study Group

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Dr. Ray Covington - Dr. Ray Covington - DirectorDirector

• Scope Included Statutory Review, Rules in Other States, Surface Use Scope Included Statutory Review, Rules in Other States, Surface Use Agreements, Severed Estates, Pooling, and UnitizationAgreements, Severed Estates, Pooling, and Unitization

• Participants Included RAFI, NC Conservation Network, NCSU, Commerce, Participants Included RAFI, NC Conservation Network, NCSU, Commerce, Agriculture, State Employees Credit Union, NC Real Estate Commission, AAgriculture, State Employees Credit Union, NC Real Estate Commission, AGG’’s Office, Local Jurisdictions, and the Humphrey Law Firm s Office, Local Jurisdictions, and the Humphrey Law Firm

• Recommendations—Recommendations—• Mineral Rights Clarifications Needed (NCGA Action)Mineral Rights Clarifications Needed (NCGA Action)• Compulsory Pooling of Subsurface Areas OnlyCompulsory Pooling of Subsurface Areas Only• Surface Use Agreements RequiredSurface Use Agreements Required• 90% Secured Lease Rule90% Secured Lease Rule• Landowner ProtectionsLandowner Protections• Cost SharingCost Sharing• Risk Penalty Provisions Risk Penalty Provisions

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Compulsory Pooling Study GroupCompulsory Pooling Study Group(DENR Commentary)(DENR Commentary)

Mitch Gillespie- Assistant Mitch Gillespie- Assistant Secretary, DENRSecretary, DENR

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Local Government Study GroupLocal Government Study GroupCharles Taylor - DirectorCharles Taylor - Director

• Scope required an examination of and recommendations for reasonable Scope required an examination of and recommendations for reasonable local regulations that do not prohibit oil and gas developmentlocal regulations that do not prohibit oil and gas development

• Participants Included Local Jurisdictions, NC League of Municipalities, NC Participants Included Local Jurisdictions, NC League of Municipalities, NC Association of County Commissioners, UNC School of Government, John Association of County Commissioners, UNC School of Government, John Locke Foundation, Morningstar Law, and Impact Properties GroupLocke Foundation, Morningstar Law, and Impact Properties Group

• Recommendations—Recommendations—

• SetbacksSetbacks

• Noise, Light, & Odor (Nuisance) EnforcementNoise, Light, & Odor (Nuisance) Enforcement

• Emergency PreparednessEmergency Preparedness

• ZoningZoning

• Infrastructure Impacts & ReimbursementsInfrastructure Impacts & Reimbursements

• Chemical DisclosureChemical Disclosure

• BondingBonding

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Funding Levels & Potential Funding Levels & Potential Funding Sources Study GroupFunding Sources Study Group

Jane Lewis-Raymond - Jane Lewis-Raymond - DirectorDirector• Scope required the team to estimate the costs for the regulatory program Scope required the team to estimate the costs for the regulatory program

and industry impacts then identify potential sources to address those costsand industry impacts then identify potential sources to address those costs

• Study effort included examination of other statesStudy effort included examination of other states’’ costs, fees and taxes; costs, fees and taxes; break-down of our expected costs into local and state-level categories; break-down of our expected costs into local and state-level categories; development of objective methods for cost recovery; then developing development of objective methods for cost recovery; then developing scenarios to help establish levels for taxes and feesscenarios to help establish levels for taxes and fees

• Participants Included NC DENR, NC DOT, NC Highway Patrol, NC League Participants Included NC DENR, NC DOT, NC Highway Patrol, NC League of Municipalities, NC Association of County Commissioners, Commerce, of Municipalities, NC Association of County Commissioners, Commerce,

• Recommendations—Recommendations—

• Severance tax for state-level cost recoverySeverance tax for state-level cost recovery

• Impact fees & trust fund for local cost recoveryImpact fees & trust fund for local cost recovery

• Ad Valorem taxationAd Valorem taxation

• BondsBonds

• Maintenance Agreements for Municipal RoadsMaintenance Agreements for Municipal Roads

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Coordinated Permitting Study GroupCoordinated Permitting Study GroupDr. Ken Taylor - DirectorDr. Ken Taylor - Director

• Scope is to develop the methods and procedures for a single comprehensive Scope is to develop the methods and procedures for a single comprehensive environmental permit for oil and gas exploration and developmentenvironmental permit for oil and gas exploration and development

• Effort includes examination of the best practices for streamlined, Effort includes examination of the best practices for streamlined, comprehensive, electronic permitting among the other statescomprehensive, electronic permitting among the other states

• Formal participation from all DENR DivisionsFormal participation from all DENR Divisions

• Emerging Findings & Recommendations—Emerging Findings & Recommendations—

• Several states have refined digital application and permitting processes Several states have refined digital application and permitting processes we can borrow heavily fromwe can borrow heavily from

• NC DENR can readily adapt the DEMLR process already used for NC DENR can readily adapt the DEMLR process already used for coordinated mining permitscoordinated mining permits

• Final report to the General Assembly in December 2013Final report to the General Assembly in December 2013

• Interim recommendations to the Administration of Oil & Gas Committee Interim recommendations to the Administration of Oil & Gas Committee of the MEC for rule-writing purposes of the MEC for rule-writing purposes

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Protection of Trade Secrets & Proprietary Protection of Trade Secrets & Proprietary Information Study GroupInformation Study Group

Jim Womack - DirectorJim Womack - Director

• Scope Includes examination of existing state statutes and practices Scope Includes examination of existing state statutes and practices protecting trade secrets and other proprietary informationprotecting trade secrets and other proprietary information

• Participants Include UNC School of Government, Elon University, DENR, Participants Include UNC School of Government, Elon University, DENR, Commerce, Dept of Labor, AGCommerce, Dept of Labor, AG’’s Offices Office

• Emerging Findings & Recommendations—Emerging Findings & Recommendations—

• Several areas of oil & gas development involve the handling of trade Several areas of oil & gas development involve the handling of trade secrets and proprietary informationsecrets and proprietary information

• State statutes do not readily distinguish various protections afforded State statutes do not readily distinguish various protections afforded official documents- trade secrets, confidential information, competition official documents- trade secrets, confidential information, competition sensitive information, proprietary information, secret information, etc.sensitive information, proprietary information, secret information, etc.

• State sunshine laws may be in conflict with protecting trade secrets State sunshine laws may be in conflict with protecting trade secrets when the publicwhen the public’’s right to know is compelling (e.g., hazardous chemical s right to know is compelling (e.g., hazardous chemical disclosure)disclosure)

• Anticipate completing the final report with statutory recommendations by Anticipate completing the final report with statutory recommendations by early 2014.early 2014.

Questions?

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Commissioner Jim WomackChairman, Mining & Energy Commission(919) 770-4783commissioner.womack@gmail.com

Tracy E. Davis, PE, CPMDirector, Division of Energy, Mineral, and Land Resources(919) 707-9200tracy.davis@ncdenr.gov

To stay abreast of the activitiesof the Mining and Energy Commission

Join the Shale Gas Listserv at:http://lists.ncmail.net/mailman/listinfo/denr.shale.gas

Or Visit the Mining and Energy Commission web page at:

http://portal.ncdenr.org/web/mining-and-energy-commission/home

Back-up Slides

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Expected NC Shale Gas ReservesExpected NC Shale Gas Reserves

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Analytical Work Analytical Work

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Active Shale Gas Plays in U.S. Active Shale Gas Plays in U.S.

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Well Casing & Well Casing & CementingCementing

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Drilling SitesDrilling Sites

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Vertical SeparationsVertical Separations Marcellus Shale LayerMarcellus Shale LayerUp to 9,000 feet deep in PA3,000-5,000 feet deep in OH Utica Shale LayerUtica Shale LayerAs deep as 14,000 feet in PA4,000-8,000 feet deep in OHFayetteville Shale LayerFayetteville Shale Layer3,000-5,000 Feet deep in AR

Potable groundwater generally above 500’ in depth

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The Colonial Pipeline SystemThe Colonial Pipeline System

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Economic ImpactsEconomic Impacts

Shale Oil & Gas PotentialShale Oil & Gas Potential• Direct Economic Lift to Landowners & GovernmentDirect Economic Lift to Landowners & Government

– $Millions in Royalties from Extraction of Oil, Condensates, Natural Gas, Helium

– $Millions in Severance & Ad Valorem Taxes, Impact Fees

• Direct & Indirect JobsDirect & Indirect Jobs– Skilled Tradesmen, Service & Support Contractors– Hundreds of Secondary Jobs in Motels, Restaurants, Repair

Shops, Storage Yards, Equipment Suppliers

• Cheaper, Cleaner-burning Fuel for Power Generation & Cheaper, Cleaner-burning Fuel for Power Generation & Local ConsumptionLocal Consumption– 20+ Years of Sustained Supply of Local Natural Gas

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