New State Oil-By-Rail Regulations Take Effect, While Rail Capacity Is Squeezed

As we reported earlier, consideration of proposed federal rulemaking concerning crude oil-by-rail transportation recommended by the Pipeline and Hazardous Material Safety Administration and Federal Railroad Administration is underway, and, after receiving more than 3,000 submissions, the comment period closed on September 30.  Nevertheless, and despite the possibility of preemption challenges in litigation, state governments in Minnesota and North Dakota have proceeded to bolster their own regulatory requirements. 

During the last legislative session, Minnesota lawmakers considered numerous proposals related to oil-by-rail.  New legislation produced from the session took effect earlier this fall, and included requirements for submission of disaster prevention plans, new safety measures such as at-grade rail crossing improvements, and funding for three additional state rail inspectors.  Minnesota state law now also requires railroad to provide local emergency response training every three years, and railroad personnel must be available by phone within one hour and on-site within three hours of any accident.  The legislation secured funding for these initiatives, in part, by assessing new fees on railroads.

In response to safety concerns stemming from train derailments in Casselton, North Dakota, and elsewhere, the North Dakota Industrial Commission (NDIC) is considering new regulations on operating standards for oil conditioning equipment.  A working draft of Order No. 25417 would require operators to condition Bakken crude oil to a Reid Vapor Pressure (RVP) of no more than 13.7 pounds per square inch (PSI), a lower threshold than the federal standard.  The order would also require operators to separate Bakken crude oil from light hydrocarbons and prohibit blending light hydrocarbons back into crude oil supplies prior to transport.  The NDIC held a hearing on the proposed oil conditioning rules on September 23, and the draft order was presented to the NDIC on November 13.  At that time, the comment period was extended to November 19, and the NDIC has yet to reconsider the draft.  The updated case file is available here.

At the same time, pressure on the rail infrastructure has resulted in freight and passenger rail delays, particularly in Minnesota.  Industries from agriculture to energy to taconite mining have experienced significant delay as a result of the increased volume of rail traffic throughout the state and the Upper Midwest.

Railroad Companies Allege Federal Law Governing Petroleum Transport Preempts SB 861

Railroad transportation of raw petroleum, often referred to as “crude-by-rail,” has received increasing media attention in recent months, due to health and environmental concerns.  California took a stab at legislating rail transport through Senate Bill 861 (“SB 861”), which the State Legislature passed in June 2014 and the Governor subsequently signed into law.  On Tuesday, October 7, 2014, a group of railroad companies, led by Union Pacific Railroad Company, filed a complaint the United States District Court, Eastern District of California, alleging that SB 861 is preempted by federal law.

SB 861 imposes requirements on railroads operating within California that are duplicative of federal regulations.  For example, the law mandates oil spill prevention measures including reporting the quantity and substance of transported materials, and a map of track routes and facilities, both which are already required under federal law.  (See Gov. Code § 8670.29.)  Additionally, railroad operators must submit and gain approval of an oil spill contingency plan before they can legally operate throughout California.

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Senators Critique Proposed Federal Rules for Hydraulic Fracturing on Federal and Indian Lands

On September 30, 2014, a block of twelve Democratic U.S. Senators presented a letter to the White House’s Office of Management and Budget (“OMB”), urging stricter fracking regulations.  The Bureau of Land Management (“BLM”), an agency within the Department of the Interior, is authoring the federal regulations for fracking on public and Indian lands.  The BLM submitted its final regulations to the OMB for inter-agency review on August 26, 2014.

The twelve Democrats claim that the currently proposed rules do not provide strong enough protections for the environment and human health.  These claims come in spite of the stricter revised proposed rules.  The revised rules require disclosure of chemicals used in hydraulic fracturing on public land and Indian land, strengthened regulations related to well-bore integrity, and address issues related to flowback water.  Interestingly, the letter comes just weeks after two studies were published concluding that fracking is not linked to groundwater contamination.  One study was authored by the U.S. Department of Energy and the other was jointly issued by Ohio State University, Duke University and the University of Rochester.

The Democratic Senators’ letter demands the “strongest possible” regulations for hydraulic fracturing.  Among their specific requests, the letter calls for the creation of a searchable database to house chemical disclosures for public access, consistent water quality monitoring requirements at fracking sites, and strict worker safety standards.

If the regulations are finalized in accordance with the Democratic demands, the oil and gas industry would be forced to make public their chemical usage.  This would put a strain on the industry in terms of the time necessary for information disclosure, and could lead to issues with trade secret protections.  The Western Energy Alliance estimates that the regulations will add a cost of about $97,000 per new well, substantially increasing the cost of mineral development.  Further, the natural gas industry states that these regulations are redundant because it has already made significant improvements in well-bore integrity.

This rulemaking process has been ongoing for more than two years.  On May 11, 2012, the BLM published the initial proposed rule in the Federal Register: “Oil and Gas; Well Stimulation, Including Hydraulic Fracturing, on Federal and Indian Lands,” available here.  When finalized, these proposed rules represent the first time in more than 30 years that the BLM has updated its fracking regulations.

By Mike Mills (mnmills@stoel.com) and Shannon Morrissey.  Ms. Morrissey is a Law Clerk with Stoel Rives LLP and is not currently licensed to practice law in California.

California Governor Signs Bill Regulating Oil by Rail

On September 25, 2014, California Governor Jerry Brown signed legislation that will provide California’s emergency responders with more information about trains carrying crude oil and require railroad companies to provide more information about potentially hazardous cargo to the state’s Office of Emergency Services (“OES”).  In summary, Assembly Bill 380 requires:

  • a rail carrier to prospectively estimate and submit to OES notification of the weekly movements of trains through a county, as specified and to update that notification once every 6 months;
  • a rail carrier to update and notify OES within 30 days of the rail carrier determining that there will be a material change in the estimated volume of Bakken oil, as defined, plus or minus 25% per week relative to the most recent estimate previously submitted OES;
  • each rail carrier to maintain a response management communications center, as specified;
  • OES to disseminate information necessary for developing emergency response plans from the reports it receives pursuant to this act to each unified program agency, as defined, when OES determines a unified program agency area of responsibility may be impacted by a hazardous material or oil cargo spill;
  • each rail carrier to provide OES with a summary of the rail carrier’s hazardous materials emergency response plan, as specified;
  • OES to provide a copy of each summary report of a rail carrier’s hazardous materials emergency response plan to each unified program agency when OES determines a unified program agency area of responsibility may be impacted by a rail carrier spill of hazardous material or oil cargo, as specified; and,
  • prohibits a recipient of the reports and hazardous materials emergency response plan from divulging or making known that information to unauthorized recipients, as specified.

Co-authored by Michael N. Mills and  Kimberly J. Hellwig

Mineral Law Blog Launches New Responsive Design and Enhanced Reader Features

Dear Mineral Law Blog Readers. Sharing analysis and insight about key oil, gas, pipeline and mining law developments has been our mission since launching our Blog in late 2010. While our commitment to keep you informed hasn’t changed, technology certainly has. Back when we first started posting, it was still largely a desktop- and RSS-dominated world. Today, more and more of you are reading our posts on tablets and smartphones. As readers ourselves, we understand your need for news on-the-go and at your convenience.

So we’re very excited to announce to you today a completely new – and improved – blog design, along with new feature sets we think will enhance your content experience.

  • First, Mineral Law Blog now uses a responsive design format. So no matter where – or on what device – you visit us, you can be assured of a consistent, clean and crisp reader experience.
  • Second, we’ve added new social sharing features to our posts. With easy-to-read social icons, sharing Mineral Law blog posts with your social networks is now a snap.
  • Third, we’ve improved our content subscription options. We’ve expanded the number of RSS subscription feeds, optimized the look and feel of our email subscription service, and added links to our Twitter feed as an alternative content consumption option.

We hope you enjoy these readership experience improvements. Thanks again for visiting and keeping us on your list of go-to mineral law news sites.

Alaska Voters Reject Referendum Regarding Oil and Gas Production Taxes

Last Tuesday, Alaska voters rejected a referendum proposal that would have repealed oil and gas production tax legislation signed into law by Governor Sean Parnell in May 2013, known as the “More Alaska Production” Act.

With the referendum rejected, we thought our readers would appreciate a review of what this might mean for the oil and gas industry in Alaska. A recent article we published in Alaska Business Monthly discussed in detail the trends and specifics of the production tax credits that remain in effect after the vote. Read on for the full discussion at “Alaska Tax Credits Promote Financing Opportunities.”

For a point-by-point discussion of Alaska’s oil and gas production tax structure, see our June 2013 Tax Law Alert

Zinc: It’s Not Just for Lifeguards

Minerals Make Life – an initiative created by the National Mining Association – has recently developed an infographic explaining the importance of the mineral zinc. Many consumers do not know it, but minerals are present in products we all use on a regular basis. That includes the mineral zinc, which is used in sunscreen, swimming pools, electric vehicles and many other products as noted on the infographic.

According to the U.S. Geological Survey, domestic zinc mine production slightly increased in 2013; however, the United States remains 74 percent import reliant for zinc. Imported zinc primarily comes from Canada, Mexico, and Peru.

For more information regarding the importance of zinc and domestic mineral production, visit Minerals Make Life.

Co-authored by Mike Mills and Michael Sherman.

U.S. House Hearing Supports Legislation for Development of Domestic Minerals (H.R. 761)

On Wednesday, July 23, 2014, the U.S. House of Representatives Subcommittee on Energy and Mineral Resources held an oversight hearing, titled “American Metals and Mineral Security: An examination of the domestic critical minerals supply and demand chain.”  During the hearing, a panel of witnesses spoke on the benefits of securing a supply of minerals through domestic mining.  This panel included representatives from GE Global Research and the National Defense Industrial Association, among others.

The hearing demonstrated support for H.R. 761, the National Strategic and Critical Minerals Production Act.  H.R. 761 passed the House (246-178) on September 18, 2013, and is awaiting Senate approval.  The purpose is to “more efficiently develop domestic sources of the minerals and mineral materials of strategic and critical importance to United States.”  Key sections of H.R. 761 introduce mandates for streamlining the permitting process for mineral development and limits the permitting review period to 30 months. 

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USDOT Proposes New Rules for Rail Transport of Fossil Fuels

On Wednesday, July 23, 2014 the Pipeline and Hazardous Materials Safety Administration (“Administration”), an agency within the U.S. Department of Transportation (“USDOT”), issued a Notice of Proposed Rulemaking (“NOPR”) for rail transport of crude oil and ethanol.  The NOPR, titled “Enhanced Tank Car and Operational Controls for High-Hazard Flammable Trains,” is available online, but has not yet been published in the Federal Register. 

There are three main provisions of the NOPR: “(1) new operational requirements for certain trains transporting a large volume of Class 3 flammable liquids; (2) improvements in tank car schedules; [and] (3) revision of the general requirements for offerors to ensure proper classification and characterization of mined gases and liquids.”  (NOPR, at p. 1.)  Notably, the USDOT proposes to phase out the use of older USDOT tank cars for the shipment of certain liquids within two years, unless the tank cars are retrofitted to comply with new tank car design standards.  (See USDOT, U.S. DOT Announces Comprehensive Proposed Rulemaking for the Safe Transportation of Crude Oil, Flammable Materials.)  This rule would include gradual prohibition on transport of most Bakken crude oil.

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EPA Delays Potential Fracking Chemical Disclosure Mandates

On Friday, July 11, 2014 the U.S. Environmental Protection Agency (“USEPA”) extended the public comment period for its advanced notice of proposed rulemaking (“ANPR”) for hydraulic fracturing chemical disclosure rules.  The USEPA initially requested public comment on May 9, 2014 by issuing the ANPR.  This set a 90-day public comment period, slated to end on August 18, 2014.  The July 11 announcement extends the public comment period for 30 days, setting the new deadline for September 18, 2014.

The USEPA issued the ANPR in response to a citizen petition under Section 21 of the Toxic Substances Control Act (“TSCA”).  The purpose of the ANPR is to solicit public comments in order for the USEPA to gather information to “develop an approach to obtain information on chemical substances and mixtures used in hydraulic fracturing.”  ANPR, EPA-HQ-OPPT-2011-1019; FRL-9909-13, at 1.  According to the USEPA’s recommendations in the ANPR, the “mechanism” for obtaining chemical information may be both regulatory and/or voluntary, under TSCA Sections 8(a) and 8(d).  Id.

The USEPA’s goal in this process is to develop and ensure external transparency.  Additionally, the agency seeks incentives to “support the development and use of safer chemical substances and mixture in hydraulic fracturing.”  Extension of Comment Period, EPA-HQ-OPPT-2011-1019; FRL-9912-42.  The USEPA announced that it aims to avoid duplicative federal and state regulation on this issue.

By Mike Mills (mnmills@stoel.com) and Shannon Morrissey.  Ms. Morrissey is a Law Clerk/Summer Associate with Stoel Rives LLP and is not currently licensed to practice law in California.

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