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Fracking in Ohio

Whether you support the industry or not, you should be concerned about how the state has prepared for the fracking boom. Governor Kasich has taken a strong public position about the need for robust safety standards, enforcement capacity, transparency on the chemicals being used in fracking, as well as the economic benefits to the citizens of Ohio from the extraction of natural gas and oil in the state. And NRDC has been actively engaged to help make sure that tougher laws deliver real protections of public health and safety when the state concludes its current regulatory revamp effort. But, the protections are not there yet.

Why does Ohio need tough, clear and enforceable standards, based on science and technology? A recent Wall Street Journal piece pops to mind as illustrative. It had nothing to do with fracking, or energy for that matter. It was about the Titanic. And in typical Journal fashion, the article was an attempt to blame government standards for the historic disaster. But the facts actually painted a cautionary tale about weak regulations and the failure to demand the safety that technology and science could deliver in the interests of business, health and safety. In short, the article said that the main reason for massive loss of life when the ocean liner sank was that outdated British regulations had not kept up with the changing size, speed, performance and nature of vessel traffic. Documents point back to a seminal moment in the Titanic’s construction when ship owners were deciding how many lifeboats to build into the vessel. Ultimately, they noted that the regulations did not require enough lifeboats to accommodate all the passengers and assure their safety; and accordingly, decided to only build up to the required minimum, rather than invest to meet the risks they knew they were taking on. The resulting disaster has become a metaphor for human failure, hubris and refusal to heed the facts.

I see similar things happening with state laws for fracking all over the country. Some states, like New York, have environmental review laws that create the time and process for a thorough review of where and how fracking can proceed (which is why there is a moratorium, which we support, while that process is engaged and completed in the state). But in most places, this stuff is already moving forward without appropriate oversight to keep up with the realities on the ground. That’s why these fights are so important---not only to ensure state of the art standards are put in place to protect the public health and safety, meet the risks of water and air pollution and prevent the despoliation of unique environments---but to do it in a timely manner, before the risks multiply or damage occurs. In many states, the regulations proposed by state governments fall well below what the industry itself considers appropriate and the American Petroleum Institute’s best practices would be an improvement over existing and proposed regulations, so let’s make them the legal threshold that everyone needs to meet in places like Illinois and Ohio.


Fracking Sand Threatens Gas Well Workers, Researcher Says

Sand dust created from the hydraulic fracturing to extract natural gas from rock is one of the most dangerous threats to workers at wells blossoming across the U.S., a government safety researcher said.

About four out of five air samples from well sites in five states in the past two years exceeded recommended limits for silica particles, said Eric Esswein, an industrial hygienist at the National Institute for Occupational Safety and Health. The particles in sand dust created during the so-called fracking process can lodge in the lungs and cause potentially fatal silicosis, he said today at a conference sponsored by the Institute of Medicine.


Sand County, the Sequel

Crystalline silica causes cancer. More specifically, crystalline silica dust is listed by both the World Health Organization and the U.S. National Toxicology Program as a known human lung carcinogen. Unlike tobacco smoke, silica dust does not provoke tumors via genetic mutations. Instead, its method of injury is to trigger inflammation and suppress immune functioning. It also causes silicosis, a disabling and sometimes fatal condition in which fibrous nodules fill the spongy pulmonary chambers, prompting infections and heart failure. For both reasons, crystalline silica is regulated by the Occupational Safety and Health Administration. There are legal limits to how much silica dust a person operating a sandblaster can inhale.

Before midwestern sand counties were turned inside out—and towering, windblown dunes of powdery silica began appearing within view of people’s kitchen windows—the general public was not thought to suffer appreciable exposures. There are thus no standards for us. No research program has ever addressed the possible impact of silica dust on, say, pregnancy outcome or the lung development of children. Lack of study on public health effects means that the occupational carcinogen crystalline silica is not regulated as a hazardous air pollutant. At least not in Wisconsin and not at this writing.

A SAND COUNTY ALMANAC was published in 1949. In the same year, an oil-field service company called Halliburton fracked its first commercial well and so ushered in a new method for extracting oil and gas by using pressure, water, chemicals, and sand to blow up shale. The function of the sand is to hold the stone doors ajar so that the hydrocarbons can flow out and up.

But the shale boom didn’t really take off until 2005, the year that fracking received exemptions from most major federal environmental regulations (the now-famous “Halliburton loophole”). By 2008, Wisconsin sand had become a highly prized quarry. The Samson of silica, its grains were the ideal size, shape, and strength for propping open cracks a mile or more below the earth’s surface. And that’s how the nation’s Devonian bedrock became the new destination spot for Sand County. That’s how Aldo Leopold’s farm in central Wisconsin could end up fracking Rachel Carson’s childhood home on the Marcellus shale of western Pennsylvania.

In 2009, the last year for which data are available, 6.5 million tons of U.S. sand were mined, washed, processed, loaded onto trucks and trains, carried to wellheads, and shot into the center of the earth. Six and a half million tons is the approximate weight of the Great Pyramid of Giza. According to commodities analysts, that figure probably doubled in 2010 and likely doubled again last year.


Trustee board wonders: Will law allow OU to say no to fracking?

OU legal and financial officials told members of the Board of Trustees Thursday that while the university is trying to stake out a position that it can veto any attempt to drill for oil and gas on its land, they don't know for sure whether state regulators will read a new law that way.

Ohio Substitute House Bill 133, which changed the rules on drilling for oil and gas on state-owned lands, is "very vague," Nicolette Dioguardi, OU associate director of legal affairs, told the board.

She said that based on the wording of the law, university officials believe they will have the last word on whether to allow drilling on OU-owned land, and they plan to assert that position. Whether the state will agree with that stance or not, however, remains to be seen, she suggested.

State regulators have interpreted a similar law, H.B. 278, as barring local governments from regulating oil and gas drilling operations in municipal or county limits in any way.

Stephen Golding, OU's vice president for finance and administration, however, echoed Dioguardi's assessment, saying the university will act on the assumption that it can say no to drilling if it so chooses.

"I would say that we are taking that position," Golding said, though he, like Dioguardi, said it's still unclear how the state will interpret the dictates of the new law.

"We're trying to do a delicate balancing act, if you will," he explained. "There are no rules… We are staking out a position. The question is, will that position be upheld?"

Dioguardi added that the board has a "window of opportunity" prior to June 30, to enter into leases under the terms it wants with any drilling companies. After that, the new commission process will kick in.

The state of Ohio is currently being eyed by the oil-and-gas industry for possible widespread drilling for oil and/or natural gas in deep underground shale beds, using the controversial "horizontal hydraulic fracturing" technique. It's popularly known as "fracking."

However, recent maps released by the Ohio Department of Natural Resources showing the prime Utica shale prospects in Ohio exclude Athens County from that area. Experts, though, seem to agree that nobody will know the local oil and gas resources until someone drills one or more exploratory wells. No permit applications for any such wells have been filed for Athens County.

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'World's Biggest Fracker' Pockets $1 Billion in Shady Deal 

But it gets worse.  McClendon arranged the financing of some of these loans through EIG Global Energy Partners, a global equity firm that also finances deals for Chesapeake.  The potential for conflict of interest is obvious; you can imagine a quiet quid pro quo where McClendon gets cheap terms on his personal loan and EIG gets a piece of one of Chesapeake’s billion-dollar financing deals.  I’m not suggesting McClendon or EIG made such an arrangement.  I’m suggesting that it’s possible to imagine it happening.

And then there is the issue of disclosure.  You would think that when the CEO of a publicly-traded company takes out a billion dollars worth of loans against company assets, it would be disclosed in the company’s Securities and Exchange Commission filing. Henry Hood, the general counsel for Chesapeake (who also happens to be an old college buddy of McClendon’s) told Reuters that indeed it is, buried deep down in the fine print, and that the company’s disclosures are "fully compliant all legal and regulatory requirements." But if that’s true, it was news to the shareholders Reuters interviewed.

In the coming days, financial journalists are going to have a lot of fun following up on this story.  Among the questions worth asking:     

1. If Chesapeake plays this fast and loose with disclosure on McClendon’s loans, why should we not assume they are also playing fast and loose with disclosure about chemicals that are injected underground during fracking operations or the disposal of polluted flow-back water?

2. Where is the Securities and Exchange Commission on this?  How is that the CEO of a publicly traded company can take a billion dollars in loans, use the wells as collateral, and not disclose it in any significant way to shareholders?  Does the name Bernie Ebbers mean anything to anyone these days?

3. How long are Chesapeake’s stockholders going to tolerate a CEO whose first priority is to pocket billions for himself, rather than maximize profits for shareholders?  As Frances McKenna, who writes about the accounting industry for Forbes put it, the company’s response to questions about McClendon’s secret billion dollar loans "is not only disingenuous, it’s borderline delusional."  One Wall Street analyst I talked to today was even more blunt: "Long term, it is in the best interests of shareholders for someone else to be running the company."

4. How close to bankruptcy is Chesapeake?  The company already projects a $10 billion revenue shortfall this year, thanks in part to rock-bottom natural gas prices (caused, in part, by over-drilling in the rush to cash in on the fracking boom).  But the company’s complex accounting methods make it almost impossible for analysts and stockholders to determine what the risks really are.  The fact that the CEO is taking out billion-dollar loans and not openly disclosing them only furthers the perception that everything is not as it appears at Chesapeake – that the company is Enron with drilling rigs.  I mean, Enron might have been a bunch of crooks, but when they went down, at least they didn’t leave a legacy of toxic drinking water and industrial wastelands.


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ALEC and ExxonMobil Push Loopholes in Fracking Chemical Disclosure Rules

One of the key controversies about fracking is the chemical makeup of the fluid that is pumped deep into the ground to break apart rock and release natural gas. Some companies have been reluctant to disclose what's in their fracking fluid. Scientists and environmental advocates argue that, without knowing its precise composition, they can't thoroughly investigate complaints of contamination.

Disclosure requirements vary considerably from state to state, as ProPublica recently charted. In many cases, the rules have been limited by a "trade secrets" provision under which companies can claim that a proprietary chemical doesn't have to be disclosed to regulators or the public.

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Rules on drilling in parks got more lenient

A year ago, state officials considered creating rules for oil and gas drilling rigs in state parks that were much more stringent than the rules they now have proposed.

The rigs would have had to have been placed at least 1,500 feet from campgrounds; 1,200 feet from lakes, streams and drinking-water wells; and 900 feet from trails, picnic areas and sites of historic value, under rules discussed in May, according to documents released yesterday.

Two weeks ago, the Ohio Department of Natural Resources released proposed rules that would keep the rigs at least 300 feet from most of those areas.

Information about the previous discussions comes from emails and documents that were shared among agency officials drafting mineral-rights leases and drilling guidelines for parks and other state lands.

Other emails contained a list of state parks, forests and wildlife areas in eastern Ohio that could have been offered to drilling companies as early as January. That never happened.

Officials also shared copies of draft leases and drilling guidelines with an Ohio-based oil and gas company — Chagrin Falls-based Reserve Energy Exploration Co. — in November.

“We look forward to hearing your thoughts and suggestions,” wrote Gene Wells, the agency’s real-estate administrator, in a Nov. 4, 2011, email to Joseph W. Haas of Reserve Energy. The Sierra Club’s Ohio chapter had asked to see the same leases in October. The environmental advocacy group then filed a lawsuit on April 9 demanding to see the public records.The Dispatch asked to see them this spring. “These emails confirm my earlier suspicion that ODNR has been consulting with the oil and gas industry on their rules all along,” said Jed Thorp, manager of the Sierra Club’s Ohio chapter.

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