### Water Management for California Shale Plays California Legal and Regulatory Issues

May 28, 2014 Denver, CO John J. Harris Paul M. Williams Dentons US LLP

T +1 213 623 9300

john.harris@dentons.com paul.williams@dentons.com

dentons.com

### Monterey Shale

2

### Water Management Considerations

In California Oil and Gas Operations



### • What state, federal and local agencies are involved in the regulation of water supply, water injection and disposal for oil and gas exploration and production 

### operations in California?

• With the implementation of SB4, what regulatory changes are likely in the short term to effect 

### hydraulic fracturing and shale exploration efforts in California?

3

### California Regulatory Agencies Involved in

Water Management Issues



### • Division of Oil, Gas and Geothermal Resources (“DOGGR”)

• Bureau of Land Management



### • State Water Resources Control Board

• Regional Water Quality Control Board



### • Local Water Districts

• Counties

• Cities

4

## California Division of Oil, Gas 

# and Geothermal Resources Permitting Authority

### Permitting by the Division of Oil, Gas and Geothermal Resources

• The duties of the Division of Oil, Gas and Geothermal Resources (“DOGGR”) are set forth in

• Sections 3000, et seq., of the Public Resources Code and

• Title 14, Chapter 4 of the California Code of Regulation s

• All oil and gas wells, onshore and offshore (within three nautical miles of the coastline), located on state and private lands are permitted, drilled, operated, and plugged and abandoned are regulated by DOGGR

6

### DOGGR Requirements for Operators

• Before drilling an oil or gas well, operator submits to DOGGR a notice of intent to drill or redrill with drilling program for review and approval.

• The approval only relates to the drilling or re

- working operation

• Most other actions do not require DOGGR approval

• Operations must be conducted in accordance with good oilfield practices. 14 C.C.R. § 1722(a).

7

### DOGGR Drilling Requirements

• Fundamental purpose of well construction standards are to ensure “zonal isolation”, including zones that might contain fresh water.

• DOGGR approves the proposal if notice of intent and program meet existing standards.

8“ The supervisor shall also supervise the drilling, operation, maintenance, and abandonment of wells so as to permit the owners or operators of the wells to utilize all methods and practices known to the oil industry for the purpose of increasing the ultimate recovery of underground hydrocarbons and which, in the opinion of the supervisor, are suitable for this purpose in each proposed case ....” 

### Public Resources Code § 3106(b):

9“.....To further the elimination of waste by increasing the recovery of underground hydrocarbons, it is hereby declared as a policy of this state that the grant in an oil and gas lease ...., in the absence of an express provision to the contrary contained in the lease or contract, is deemed to allow the lessee or contractor, or the lessee' s or contractor's successors or assigns, to do what a prudent operator using reasonable diligence would do, having in mind the best interests of the lessor, lessee, and the state in producing and removing hydrocarbons, including, but not limited to, the injection of air, gas, water, or other fluids into the productive strata , ..... or the creating of enlarged or new channels for the underground movement of hydrocarbons into production wells, when these methods or processes employed have been approved by the supervisor , ....” 

### Public Resources Code § 3106(b)



### (Cont’d)

10Public Resources Code § 3106(b) (Cont’d)

“....except that nothing contained in this section imposes a legal duty upon the lessee or contractor, or the lessee's or contractor's successors or assigns, to conduct these operations.”

11

### Waste Water Disposal and Injection

• Generally, 80

- 90% water cut is not uncommon in California oil and gas

• About 6 times more water than oil is produced from California’s oil and gas fields

• DOGGR was granted primacy by the United States Environmental Protection Agency (“EPA”) in 1983 to implement its UIC Program under the federal Safe Drinking Water Act (42 U.S.C. §§ 300f to 300j) and to oversee Class II well injection operations in California.

12

### Waste Water Disposal and Injection

• DOGGR Class II UIC Permitting process applies to

• Water disposal wells

• Water injection and other enhanced recovery wells

13

### Application of the Clean Water Act to

Oil and Gas Activities

• State Water Resources Control Board (“State Board”) was granted authority for its NPDES program

• NPDES Permits for Exploration and Production Activity

• Federal Water Pollution Control Act (“CWA”) (33 U.S.C. §§ 1251, et seq.)

14

### NPDES General Permits

• Industrial Permit

- Not required unless the industrial storm water discharge contributed to a violation of a water quality standard

• Construction Permit

- Not required if discharges of storm water runoff from drilling operations are not contaminated

• Notice of Intent (NOI) is a request for NPDES coverage for a General Permit

15

### Oil and Gas Operations Exemption

• Historically, most oil and gas exploration and production activities have been statutorily exempted from the permit requirements of the CWA

• The 1987 amendments added Section 402(l)

• Exempted oil and gas “operations” from NPDES permit requirement

• If the discharge is not contaminated by contact with “overburden, raw material, intermediate products, finished product, byproduct or waste products”

16

### Oil and Gas Operations Exemption

• 2005 Energy Policy Act

• Broadened the Section 402(l) NPDES permit exemption for uncontaminated oil and gas operations storm water discharges to include construction activities

• State Water Resources Control Board interpretation and application

17

### Waste Water Disposal and Injection Rulemaking

• DOGGR was planning to commence rulemaking in 2013 to update its UIC program.

• Area Of Review / Zone Of Endangering Influence

• Well Construction Practices

• Status Of Wells Located Within Area of Review

• Mechanical Integrity Tests

• Maximum Allowable Surface Injection Pressures

• Inspections And Compliance / Enforcement

• Idle Well Planning And Testing Program

• Financial Responsibility Requirements

• Plugging And Abandonment Requirements

• UIC Staff Qualifications

18

# Regulation of Hydraulic

Fracturing and Well 

# Stimulation in CaliforniaRegulatory Background

• Hydraulic fracturing is generally exempt from the federal Safe Drinking Water Act, UNLESS the fracing solution contains diesel 

### Regulation of Hydraulic Fracturing

20Hydraulic fracturing not regulated under UIC program The Energy Policy Act of 2005 amended the SDWA (42 U.S.C. § 300h(d)(1)): “The term “underground injection”

--

• means the subsurface emplacement of fluids by well injection; and

• excludes

--

• the underground injection of natural gas for purposes of storage; and

• the underground injection of fluids or propping agents (other than diesel fuels) pursuant to hydraulic fracturing operations related to oil, gas, or geothermal production activities....” 

### DOGGR Regulation of Hydraulic Fracturing

21

### Senate Bill 4

- Pavley

• Passed by Legislature on September 11, 2013

• Signed by Governor Brown on September 20, 2013

• Effective on January 1, 2014

• Requires DOGGR to adopt final well stimulation and hydraulic fracturing regulations by January 1, 2015.

• Governor's signing message:

• Directed DOGGR to develop an efficient permitting program for well stimulation activities that groups permits together based on factors such as known geologic conditions and environmental impacts, while providing for more particularized review in other situations when necessary.

• Noted that "The bill needs some clarifying amendments and I will work with the author in making those changes next year."

Dentons US LLP Document reference # 60398858 22

### Senate Bill 4

- Pavley

• Provides for notification to property owners within a specified distance of a well.

• Does not expressly modify the current process of filing a notice of intent to drill a well,

• Contemplates a second and separate permit unless fracturing is approved as part of original drilling permit.

• BLM Lands

- DOGGR’s regulations would govern.

• Requires DOGGR to conduct a study on the effects that hydraulic fracturing.

Dentons US LLP Document reference # 60398858 23

### Senate Bill 4 CEQA Review?

• Public Resources Code § 3160(d)(2)(B): "Where the supervisor determines that the activities proposed in the well stimulation treatment permit or the combined authorization have met all of the requirements of Division 13 (commencing with Section 21000) [CEQA] , and have been fully described, analyzed, evaluated, and mitigated, no additional review or mitigation shall be required."

• Public Resources Code § 3161(b):

" The division shall allow, until regulations governing this article are finalized and implemented, and upon written notification by an operator, all of the activities defined in Section 3157, provided all of the following conditions are met: ..."

SB4 and DOGGR appear to treat the approval of a well stimulation permit as being a ministerial act, not a discretionary act, and not subject to review under CEQA (Public Resources Code §§ 21000, et seq.)

Dentons US LLP Document reference # 60398858 24

### Senate Bill 1132

• Currently pending in the State Senate

• Would impose a moratorium on hydraulic fracturing

• Prohibits DOGGR from approving any authorizations for well stimulation treatments on or after January 1, 2015.

Dentons US LLP Document reference # 60398858 25• DOGGR commenced the rulemaking process for final hydraulic fracturing regulations.

• Final regulations will have to be completed by January 1, 2015 

### DOGGR Rulemaking

26• SB 4 does not require that the permanent regulations to take effect until January 2015

.

• Until the permanent regulations go into effect, SB 4 allows operators to proceed with well stimulation treatments without a permit if they comply with specified provisions of SB 4.

• DOGGR used emergency regulatory authority to adopt interim regulations which went into effect on January 1, 2014

. 

### DOGGR Interim Regulations

27Scope of Interim Regulations :

• Notification to DOGGR prior to fracturing

• Post

- completion Reporting requirements

• Public notification

• Chemical disclosure

• Review of well construction standards

• Well integrity tests

• Structural integrity of overlying formation

• Groundwater protection

• Fluid management



### DOGGR Interim Regulations 14 C.C.R. §§ 1761, et seq.

28

### WELL STIMULATION TIMELINE UNDER INTERIM REGULATIONS

29 Well Stimulation Occurs Submit Interim Well Stimulation Treatment Notice to Dogger (Form OG 109); Prepare Groundwater Monitoring Plan and Water Management Plan; Prepare List of Plugged and Abandoned Wells Give Notice to Neighbors

Confirm Mechanical Integrity of Wells Notify DOGGR that Well Stimulation will be Commencing

Confirm with DOGGR that Well Stimulation is proceeding Give Notice to SCAQMD of Well Stimulation

24 hours prior to well stimulation 72 hours prior to well stimulation at least 30 days prior to well stimulation

anytime prior to well Stimulation anytime prior to well stimulation at least 10 days prior to well stimulation

3 hours prior to well stimulation

Sample Groundwater Submit to DOGGR the Well Stimulation Treatment Disclosure Reporting Form Provide Additional Disclosures to SCAQMD within 60 days after well stimulation Sample Groundwater

within 60 days after well stimulation within 60 days after well stimulation

### What is "Well Stimulation"

T hree broad types of well stimulation used in California that are the focus of

• SB 4 and the Department's interim regulations address:

1. Hydraulic fracturing

2. Acid fracturing
3. Acid matrix stimulation

30Public Resources Code § 3157(b) and 14 C.C.R. § 1761(a)(1) exclude : 1. Steam flooding, 2. Water flooding 3. Cyclic steaming 4. Routine well cleanout work 5. Routine well maintenance 6. Routine removal of formation damage due to drilling
7. Bottom hole pressure surveys 8. Removal of scale or precipitate from the perforations, casing, or tubing DOGGR Interim Regulations Excluded Operations

319. Underground injection projects

10. Water disposal projects 11. A wells stimulation treatment that does not penetrate into the formation more than 36 inches from the wellbore. 12. Other routine activities that do not affect the integrity of the well or the formation. DOGGR Interim Regulations Excluded Operations

32No . The answer depends on whether the fluid injected could be considered a “well stimulation treatment fluid”, which is defined in Public Resources Code § 3153 and 14 C.C.R. § 1781(n) as: “... a base fluid mixed with physical and chemical additives, which may include acid, for the purpose of a well stimulation treatment. A well stimulation treatment may include more than one well stimulation treatment fluid. Well stimulation treatment fluids include, but are not limited to, hydraulic fracturing fluids and acid stimulation treatment fluids.”

DOGGR Interim Regulations Are all well stimulation operations subject to the

Interim Regulations?

3314 C.C.R. § 1781(e) defines “base fluid” as: “... the continuous phase fluid used in the makeup of a well stimulation treatment fluid. The continuous phase fluid may include, but is not limited to, water, and may be a liquid or a hydrocarbon or non

- hydrocarbon gas. A well stimulation treatment may use more than one base fluid.”

DOGGR Interim Regulations Are all well stimulation operations subject to the

Interim Regulations?

34The term “acid well stimulation treatment” is defined in 14 C.C.R. § 1781(b) as : “a well stimulation treatment that uses, in whole or in part, the application of one or more acids to the well or underground geologic formation. The acid well stimulation treatment may be at any applied pressure and may be used in combination with hydraulic fracturing treatments or other well stimulation treatments. Acid well stimulation treatments include acid matrix stimulation treatments and acid fracturing treatments.”

DOGGR Interim Regulations Definition of acid well stimulation treatment

35“ Acid well stimulation treatment ” is defined in 14 C.C.R. § 1781(b) as: “a well stimulation treatment that uses, in whole or in part, the application of one or more acids to the well or underground geologic formation. The acid well stimulation treatment may be at any applied pressure and may be used in combination with hydraulic fracturing treatments or other well stimulation treatments. Acid well stimulation treatments include acid matrix stimulation treatments and acid fracturing treatments.”

" Acid matrix stimulation treatment ” is defined in Section 1781(a) as: “an acid treatment conducted at pressures lower than the applied pressure necessary to fracture the underground geologic formation.”

DOGGR Interim Regulations Definitions of acid well and matrix stimulation treatment

3614 C.C.R. 1761(a)(1):

“ Well stimulation treatment does not include routine well cleanout work

; routine well maintenance; routine treatment for the purpose of removal of formation damage due to drilling; bottom hole pressure surveys; routine activities that do not affect the integrity of the well or the formation; the removal of scale or precipitate from the perforations, casing, or tubing; or a treatment that does not penetrate into the formation more than 36 inches from the wellbore .”

Thirty

- six inches is considered by DOGGR to be the typical limit of penetration distance associated with drilling or operational damage. What operations are excluded from the scope of the

Interim Regulations?

37Public Resources Code § 3160(b)(1)(C) requires DOGGR to establish threshold values for acid volumes and concentrations.

• To the extent that the chemicals contain any acid, and might be considered an “acid matrix stimulation treatment”, the Interim Regulations address the specified acid concentration threshold at which the regulations are applicable in Section 1780(a):

• An operator is not required to obtain a permit under Public Resources Code § 3160 (d), prior to performing an acid matrix stimulation treatment that uses an acid concentration of 7% or less. What operations are excluded from the scope of the

Interim Regulations?

38No . Operators can proceed with well stimulation if they have provided DOGGR with written notice and certification of compliance with specified requirements of SB 4.

• At least 10 days in advance of commencing a well stimulation treatment, the operator must submit an Interim Well Stimulation Treatment Notice ("WST Notice") (14 C.C.R. § 1783)

• Well stimulation treatments cannot commence unless DOGGR has reviewed the Interim Well Stimulation Treatment Notice form and approved the form as complete. 

### DOGGR Interim Regulations Is a permit required?

39Operators are required to include in the Interim Well Stimulation Treatment Notice:

 Operator contact information

 Well location information, including directionally drilled well information, if applicable

 Time period during which the well stimulation treatment is planned to occur

 Planned location of the well stimulation treatment on the well bore

 Estimated length, height, and direction of the induced fractures or other planned modification, if any.



### DOGGR Interim Regulations 

### Interim Well Stimulation Treatment Notice

40Operators must also include:  Specified chemical information  Water Management Plan  List of locations of existing wells, including plugged and abandoned wells, that may be impacted by the fractures  Groundwater Monitoring Plan  Neighbor notification information  Cement casing information  Production zone information  Mechanical integrity testing and pressure testing information 

### DOGGR Interim Regulations 

### Interim Well Stimulation Treatment Notice

41Operators must also include:  Well stimulation fluid concentration information  Information regarding the operator’s Spill Contingency Plan  Any claim of trade secret protection.



### DOGGR Interim Regulations 

### Interim Well Stimulation Treatment Notice

42

### WST Notice DOGGR Form OG 109

43

### DOGGR Form OG 109 (continued)

44

### DOGGR Form OG 109 (continued)

45• Public Resources Code § 3160(j) and Sections 1783.1(c) and 1788(d) of the Interim Regulations set forth a process for addressing any trade secret claim.

• 14 C.C.R. § 1783.1(c):

“ Notwithstanding any claim of trade secret protection, [DOGGR] shall not approve as complete an Interim Well Stimulation Treatment Notice unless all of the information specified in Public Resources Code section 3160, subdivision (d)(1)(D), has been provided to [DOGGR].”



### DOGGR Interim Regulations 

### Trade Secret Claims

46 14 C.C.R. § 1783(b) and Public Resources Code § 3160(d)(1)(D) require an operator to certify that it has attached to the DOGGR Form OG 109 a complete list of

• Names of chemicals in well stimulation fluid

• Chemical Abstract Service (CAS) numbers

• Estimated concentrations, in percent by mass, of each and every chemical constituent of the well stimulation fluids anticipated to be used

• If a CAS number does not exist for a chemical constituent, another unique identifier must be provided, if available. 

### DOGGR Interim Regulations 

### Chemical Content Disclosure

47• If any portion of the well stimulation treatment is performed by someone other than the operator or if additives are supplied, SB4 requires that supplier to furnish the operator, within 30 days following conclusion of the well stimulation treatment, with the information necessary to comply with DOGGR requirements and other similar public disclosure requirements. (Public Resources Code § 3160(f).)



### DOGGR Interim Regulations 

### Supplier Chemical Content Disclosure

48• The operator must certify that within 60 days after the cessation of the well stimulation treatment that it will make all public disclosures required by Public Resources Code §§ 3160(b) and (g) and Section 1788 of the Interim Regulations.

• Section 1788 requires an operator to disclose the chemical information on the Well Stimulation Treatment Disclosure Reporting Form.



### DOGGR Interim Regulations 

### Chemical Content Disclosure

49• SB 4 requires DOGGR to develop a website to provide chemical information to the public.

• Until website is developed, operators are required to employ the FracFocus.org website to make the information public.

• DOGGR will be collecting information from FracFocus.org, and directly from operators, and making all of the information available on its website in an aggregated spreadsheet that can be sorted and searched. 

### DOGGR Interim Regulations 

### Chemical Content Disclosure

5014 C.C.R. § 1782(a)(5) requires the operator to confirm that:

“The well stimulation treatment fluid shall not be of a concentration level that will damage the well casing, tubing, cement, or other well equipment, or would otherwise cause degradation of the well’s mechanical integrity during the treatment process.”



### DOGGR Interim Regulations 

### Chemical Concentrations

51Companies have a statutory right to protect trade secret information from public disclosure, but SB 4 put limitations on trade secret protection for well stimulation fluids. If the information is subject to a claim of trade secret, the operator is required to post the chemical family or similar descriptor for a chemical.

• Companies can withhold information about what is in the well stimulation treatment fluid based on a claim of trade secret to a limited extent only, subject to DOGGR review and court challenge.



### DOGGR Interim Regulations 

### Trade Secret Claims

52• Trade secret claim is subject to challenge in court.

• SB 4 also provides that even if the information is a protected trade secret, it must be disclosed to specified government entities, or for a health professional who reasonably believes that the information may be necessary in the diagnosis or treatment of a patient.



### DOGGR Interim Regulations 

### Trade Secret Claims

53• At least 30 days in advance of commencing well stimulation treatment, the operator must provide notice to property owners and tenants within  1500 foot radius of the wellhead, or  500 feet of the path of the well.

• Operators must hire an independent entity to provide notification. 14 C.C.R. § 1783.2



### DOGGR Interim Regulations Notice to Property Owners

54• Property Owners can request water quality sampling and testing on any water well located on the parcel that is suitable for drinking or irrigation purposes and on any surface water located on the parcel that is suitable for drinking or irrigation purposes

• Request must be made within 20 days of receipt of the notification.

• Upon receipt of a timely request for water quality sampling and testing, the operator must pay for testing and sampling by one or more qualified independent third

- party contractor or contractors designated by the State Water Resources Control Board.



### DOGGR Interim Regulations 

### Water Quality Sampling

55• .Operators may request that certain information about a well be maintained as confidential.

• Confidential status applies to onshore wells for two years, subject to six month extensions

• In no case may such status apply for longer than a total of 4 years.

• Public Resources Code § 3160(k) requires disclosure of a proposed or completed stimulation treatment on a well, but not the chemical constituents used.



### DOGGR Interim Regulations 

### Confidential Wells

56• Operator must certify: (1) The well’s casing is sufficiently cemented in order to effectively control the well at all times during well stimulation treatment; (2) All potentially productive zones, zones capable of

over

- pressurizing the surface casing annulus, or corrosive zones are isolated and sealed to prevent vertical migration of fluids or gases behind the casing; (3) The wellbore’s mechanical integrity is tested and maintained and all cemented casing strings and all tubing strings to be utilized in the well stimulation treatment operations will be pressure tested. 

### DOGGR Interim Regulations 

### Well Integrity

57• Operators must evaluate the casing, tubing, and cement lining of the well bore to ensure that it is more than adequate to withstand operations that are intended to increase the permeability of the hydrocarbon producing formation.

• Surface equipment utilized for well stimulation treatment be rigged up as designed

• Pump and all equipment downstream from the pump must be pressure tested.



### DOGGR Interim Regulations 

### Well Evaluation

58• Operators are required to analyze other wells in the area to ensure that they will not permit the migration of fluid to other zones.



### DOGGR Interim Regulations 

### Field Evaluation

59Operator must notify the Division at least 72 hours prior to commencing well stimulation so that Division staff may witness the well stimulation treatment.



### DOGGR Interim Regulations Notice Prior To Well Stimulation

60

### DOGGR Interim Regulations

Groundwater Monitoring Plan

1. A map and cross section of the well borehole(s)
2. Complete well construction details for the well and all new and existing groundwater monitoring wells
3. Map of all existing groundwater supply and monitoring wells within a 1500

- foot radius of the well, and within 500 feet of the surface representation of the horizontal path of the wellbore
4. A map showing the location of any abandoned or inactive wells within a 1500

- foot radius of the well, and within 500 feet of the surface representation of the horizontal path of the wellbore
5. Location of groundwater sampling wells
6. A contingency plan for reporting information in the event of a well failure

61

### DOGGR Interim Regulations

Groundwater Monitoring

• An operator must also test water quality:

• Prior to well stimulation, and

• Once within 60 days after well stimulation, and semiannually thereafter.

• The groundwater samples should be analyzed using current EPA

- approved analytical methods for water

• All groundwater quality data and groundwater monitoring reports must be submitted to the State Water Resources Control Board in an electronic format

62

### DOGGR Interim Regulations

Water Management Program

• Operators are also required to publicly disclose the composition and disposition of all water associated with a well stimulation treatment.

63

### Fluid Handling

• Current regulations require secondary containment features around fluid containers, regular testing and maintenance of tanks and pipelines, and maintenance of a detailed spill contingency plan.

• Interim regulations also require operators to address the handling of well stimulation fluid and additives in their Spill Contingency Plan.

64

### DOGGR Interim Regulations Monitoring

• Operators will be required to monitor specified pressures, conditions and production rates

• Daily for the first 30 days after fracturing and

• Monthly for 5 years after the fracturing operation to ensure that the actual fracturing operations did not damage the well

• Operators must retain data about the fracturing operation, including fluids used, to allowing long

- term monitoring.

65

### DOGGR Final Regulations

• Final regulations are supposed to completed in 2014 to become effective by January 1, 2015.

• Differences
1. Permit will be required
2. Potential project authorization for multiple wells
3. More information regarding planned operation required in the application
4. Cement evaluation and modeling
5. Pressure testing prior to treatment
6. Well monitoring during and after stimulation operations
7. Post

- Well Stimulation Treatment Report

66

### DOGGR Final Regulations

Economic Impact on Operations

The following areas of the proposed regulations have been identified by the DOGGR as potentially resulting in economic impact:

1. Well stimulation permitting.
2. Required public disclosure.
3. Neighbor notification / water well testing.
4. Cement evaluation.
5. Well stimulation treatment radius analysis.
6. Pressure testing prior to the well stimulation treatment.

7. Monitoring during a well stimulation treatment.
8. Storage and handling of well stimulation fluids.
9. Monitoring after a well stimulation treatment.
10. Post well stimulation reporting.
Estimated annual costs of between $216,000 and $504,000.

67

### DOGGR Final Regulations

Other Potential Regulatory Initiatives

1. Development of Group Permit Procedures

2. Regional groundwater monitoring plans.
3. Completion of Independent Scientific Study required by SB 4.
4. State Water Resources Control Board development of standards and protocols for testing wells and surface water.
5. Development of other agencies regulations

68

# Legal Issues Affecting

Water Use and Hydraulic 

# Fracturing in California

69

### Subsurface Trespass Issues Regarding

Hydraulic Fracturing

• CEQA lawsuit by environmental organizations

• Coastal Oil and Gas v. Garza , 268 S.W.3d 1 (Tex. 2008)

- Held

, hydraulic fracturing not a subsurface trespass

• Stone v. Chesapeake Appalachia, LLC, 2013 U.S. Dist. LEXIS 71121 (N.D. W.Va. 2013)

- Unpublished opinion

- Held , hydraulic fracturing can be a subsurface trespass

• Impact of a permit

Dentons US LLP Document reference # 60398858 70

### Water Supply and the

California Environmental Quality Act

71

### CEQA Issues

• California Environmental Quality Act (“CEQA”) Public Resources Code § § 21000

- 21177

• Establishes a procedural and substantive framework against which agencies are required to examine the impact of their decisions on the environment

72

### CEQA Water Supply Issues

• Impact of drilling operations

• Construction and operations discharges

• Hydrostatic test discharge

• Construction and operations storm water runoff

• Construction of pipelines

• Construction standards

• Re

- use/disposal of water

• Groundwater impacts

73

### California Water Supply Issues

74



### California Water Supply Issues

74

### Water Supply Issues in California

• Primary Water Sources in California

• Groundwater

• Surface Water

• Colorado River water

• State Water Project water

• Other Surface Water Sources

75

### Water Uses in California

• Agricultural

• About 80

- 85% of all California water is used for agricultural purposes.

• This water irrigates almost 29 million acres (120,000 km2), on which grow 350 different crops.

• Urban

• Urban users consume 10% of the water, or around 8,700,000 acre feet (10.7 km3).

• Industrial

• Industry, including the oil industry, receives rest of the water supply.

76

### Water Supply Issues in California

• Limited California Water Resources

• Less water from Colorado River

• Groundwater depleted

• State Water Project restrictions for species preservation

• Drought

• Agricultural vs. urban water use

• Storage limitations affect supply

• Inadequacy of storage facilities to capture runoff

• Seasonal fluctuations

77

### Basic Water Use Considerations

In Oil and Gas Operations

• Who owns the water?

• What are rights does the oil & gas operator have to use water?

78

### Primary Water Supply Issues In Oil and Gas Operations

Water Use in Conventional Exploration and Production Operations

Initial Production Secondary Recovery Operations

• Many of these recovery techniques involve injection of water or steam into the well

• Water consumption can range between 2 to 350 gallons of water per gallon of oil extracted, depending upon the recovery enhancement process.

• However, most of the water used for these purposes is not otherwise usable.

79

### Water Use in Hydraulic Fracturing Operations

• Typically ranges from 2 million to 10 million gallons depending upon the location and the number of frack stages.

• Between 20

- 40% of the water can be expected to return to the surface.

• However, fracturing uses only a fraction of the freshwater that is consumed by all users of water.

• Section 14 of the California Well Standards recognizes:

“ Hydraulic fracturing (hydrofracturing) is sometimes an acceptable well development and redevelopment method when properly performed.”

80

### Operational Water Supply Issues

• How much water is required?

• Can the lessor or surface owner supply the water?

• Is the property near to a watercourse?

• Is there a groundwater well on the property?

• How do you get water to the well site?

• Can water be used to support operations on multiple properties?

• What permits are required?

81

### Operational Water Supply Issues

• Is the basin in overdraft?

• Is the basin adjudicated?

• Other suppliers

- Metropolitan Water District or a local agency or water district?

• Is it feasible to purchase water from a State Water Contractor (i.e.)

• Handling waste water and flowback water

82

### Water Rights in California

The State of California owns all of the groundwater in California, not as a proprietary owner, but in a manner that empowers it to supervise and regulate water use. State of California v. Superior Court , 78 Cal.App.4th 1019, 1022, 1026 (2000).

83

### Water Rights in California Basic Principles

• Public Trust Doctrine

• All waters of the state, and all the fish and wildlife therein, are held by the state in trust for the people “All water within the State is the property of the people of the State, but the right to the use of water may be acquired by appropriation in the manner provided by law.” Water Code § 102

.

• Preferred Water Uses “the established policy of this State that the use of water for domestic purposes is the highest use of water and that the next highest use is for irrigation.” Water Code § 106

84Usufructary Right

A water right in California is a usufructary right

• Holder of the right is entitled to use the water, but does not actually own the water.

• No right of private ownership in a stream or groundwater.

• A usufructuary water right is the right to take water from the water source; the water source is the property and the water itself is the "profit" or fruit thereof.

• Analogous to oil, gas and mineral rights

People v. Shirokow

, 26 Cal. 3d 301, 308 (1980); State of California v. Superior Court

, 78 Cal.App.4th 1019, 1023, 1025 (2000); City of Santa Maria v. Adam , 211 Cal. App. 4th 266 (Cal. App. 2012)

85Usufructary Right

Water rights holders have the right to 'take and use water,' but they do not own the water and cannot waste it. State of California v. Superior Court , 78 Cal.App.4th 1019, 1022, 1025(2000); Central and West Basin Water Replenishment Dist. v. Southern Cal. Water Co ., 109 Cal.App.4th 891, 905 (2003); see also, Water Code § 102.)

86Usufructary Right

• Once an appropriator diverts the water from the stream or pumps it from the ground, the right to the substance of the water is no longer usufructuary. City of Santa Maria v. Adam, 211 Cal. App. 4th 266 (Cal. App. 2012).

• Although the appropriator does not own the water in the sense of having title to the individual water molecules, the appropriator does have "the sole and exclusive right to use the same for the purposes for which it was appropriated." Hoffman v. Stone, 7 Cal. 46, 49 (1857).

• A type of possessory right.

87

### California Water Use Doctrines

Reasonable and Beneficial Use

• Article X, Section 2 of the California Constitution, requires that water be put to reasonable and beneficial use. (See also, City of Barstow v. Mojave Water Agency , 23 Cal.4th 1224, 1241 (2000); Water Code § 100.)

• If the use of the water is wasteful or otherwise unreasonable, it is not part of the water right.

• Beneficial uses include domestic, irrigation, mining, power, industrial, municipal, storage, recreation, and preservation and enhancement of fish and wildlife.

88

### Reasonable and Beneficial Use

Reasonable and Beneficial Use

• Article X, Section 2 of the California Constitution, requires that water be put to reasonable and beneficial use.

• See also

, City of Barstow v. Mojave Water Agency, 23 Cal.4th 1224, 1241 (2000); Water Code § 100

89

### Dual System of Water Rights in California

Riparian

• Land abuts stream/watercourse

• The riparian doctrine confers upon the owner of land contiguous to a watercourse the right to the reasonable and beneficial use of water on his land.

90

### Dual System of Water Rights in California

Appropriative

• Land does not abut stream/watercourse.

• The appropriation doctrine contemplates the diversion of water and applies to "any taking of water for other than riparian or overlying uses." City of Pasadena v. City of Alhambra, 33 Cal.2d 908, 925 (1949).

91

### Application for Appropriative Rights

• Any person or entity, public or private, wishing to appropriate water covered by the act must file an application for a permit with the State Water Resources Control Board.
Water Code § 1260

.

92

### Surface Water Rights

Surface Water

• Surface water is subject to a statutory system of permits and licenses regulating its appropriation. Water Code § 1200.

• Includes rivers, streams and lakes

• Regulated by the State Water Resources Control Board (“State Board”) unless a pre

- 1914 right

93

### Groundwater Rights

Types of Groundwater

• Subsurface Flow

• Subterranean streams flowing through known and definite channels (unless pre

- 1914 right)

94

### Groundwater Rights

• No state

- wide system for allocating rights in groundwater.

• The Legislature has left regulation to local government or to adjudication by the courts. O.W.L. Foundation v. City of Rohnert Park

, 168 Cal.App.4th 568, 587

- 588 (2008).

95

### Groundwater Rights

Courts typically classify water rights in an underground basin

as

• Overlying

• Appropriative, or

• Prescriptive. City of Barstow v. Mojave Water Agency , 23 Cal.4th 1224, 1240 (2000)

96

### Groundwater

Overlying Rights

• The overlying right, like the riparian right, is associated with the ownership of land.

• Overlying groundwater rights are the rights of landowners to pump the groundwater below their property for use on land overlying the aquifer.

• "Overlying rights are special rights to use groundwater under the owner's property." City of Barstow v. Mojave Water Agency , 23 Cal.4th 1224, 1237, fn. 7 (2000).

97

### Groundwater

Overlying Rights

• Governed by reasonable and beneficial use doctrine, and correlative doctrine (if supply is insufficient as to all overlyers, each user is entitled to a fair and just proportion of water) City of Pasadena v. City of Alhambra , 33 Cal. 2d 908, 924 (Cal. 1948).

98

### Groundwater

Overlying Rights

• As between overlying owners, the rights, like those of riparians, are correlative and are referred to as belonging to all in common; each may use only his reasonable share when water is insufficient to meet the needs of all.
Katz v. Walkinshaw

, 141 Cal. 116 (1903)

• Not quantified unless adjudicated

99

### Groundwater

Appropriative Rights

• Analogous to that of a riparian owner in a surface stream, is the right of the owner of the land to take water from the ground underneath for use on his land within the basin or watershed.

• Right is based on ownership of the land and is appurtenant thereto. Pasadena v. Alhambra , 33 Cal. 2d 908, 924 (Cal. 1948).

• Water that is surplus to the needs of overlying owners may be appropriated for use off the land or exported outside the basin

100

### Appropriative Rights

• Appropriators may use any "surplus" water in the groundwater aquifer

• In times of overdraft, overlying uses of groundwater take precedence over all appropriations, and among themselves, overlying right holders must reduce their use equally.

• When the safe yield of the groundwater basin is being exceeded and overdraft begins, appropriators are required to stop pumping.

101

### Prescriptive Rights

• Water rights, whether groundwater or surface water as well) that are obtained through adverse use

• Also exist for surface water

102

### Water Transfers

• State Board Approval Of Transfers

-

• Water Code establishes detailed procedures

• Most transfers are not subject to State Board approval

• Majority of transfers in California occur among the State Water Project contractors (or the Central Valley Project contractors).

• Contractors may transfer water and these transfers are beyond direct regulation by the State Board.

• Transfers can be short

- term (lasting one year or less) or long

- term

• Most water transfers involve a transfer of water, not the actual water right.

103

### CONTACT INFORMATION



### John J. Harris
Paul M. Williams Dentons US LLP 601 South Figueroa Street Suite 2500 Los Angeles, CA 90017

- 5704 john.harris@dentons.com paul.williams@dentons.com

Tel (213) 623

- 9300 Fax (213) 623

- 9924

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