On June 4, 2014, Governor Pat McCrory signed into law a bill that will allow permits to be issued in North Carolina for gas drilling by a method called hydraulic fracturing. The process, commonly referred to as "fracking," involves extracting oil and gas from the ground by injecting high-pressure mixtures of chemicals, sand, and water into rock. The permits may be issued by the Department of Environment and Natural Resources ("DENR"), Division of Energy, Mining, and Land Resources as early as March of next year.
Known as the "Energy Modernization Act" ("Act"), the law refines previous legislation and extends the deadline for the Mining and Energy Commission (renamed the Oil and Gas Commission) and its partner commissions to adopt rules regulating fracking activities from October 1, 2014 to January 1, 2015. Assuming the General Assembly approves the rules, permits could be issued as early as March.
North Carolina landowners who consider leasing their real property for the drilling of natural gas should be aware of the following changes the Act brings to the original legislation:
- Notice of Activity – Any company holding lease rights for oil and gas must provide 30 days' notice to the owner of the surface property before starting exploration, development, and production activity.
- Trade Secrets – Oil and gas companies will need to disclose the chemicals used in fracking fluid to DENR, but trade secret information will be protected from public disclosure under the confidentiality provisions in the North Carolina Public Records Act. The State Geologist can provide the information when necessary to respond to an emergency.
- Limits on Local Governments – The Act preempts local ordinances that have the effect of prohibiting oil and gas exploration and production, horizontal drilling, and fracking.
- Environmental Compliance Review – Applicants for oil and gas permits, including parent and subsidiary companies, will find themselves subject to a review of historical significant or repeated violation of statutes, rules, orders, or permit conditions that would enable DENR to deny the permit application.
- Wastewater Disposal – The Act reinforces the prohibition on underground injection of waste associated with oil and gas exploration, development, and production into subsurface or ground waters as had once been contemplated.
- Liability for Contamination – Pre-drilling tests of water supply sources near a proposed wellhead now will cover a range of only one-half mile rather than the original 5,000 feet. In addition, the area in which a presumption of operator liability of the oil and gas company for water supply contamination would apply to only the same one-half mile radius.
Progress on the rule-making from the tasked commissions within DENR will take us one step closer to fracking reality.
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