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North Carolina Bill A Smorgasbord of Changes to Oil, Gas Laws

A trio of lawmakers supporting oil and natural gas drilling in North Carolina introduced a bill Thursday that would extend the deadline for the state to develop its own regulatory program; create a new Oil and Gas Commission; reconstitute the state's Mining and Energy Commission (MEC); invalidate local bans on oil and gas activities; ban wastewater injection wells, and establish a severance tax.

The bill, SB 786, also known as the Energy Modernization Act, would also make it a Class I felony for anyone to intentionally disclose the chemical contents of fluids used in hydraulic fracturing (fracking) if those chemicals are classified as confidential information. In North Carolina, Class I is the least serious felony and could come with a few months in jail.

SB 786 has not yet been assigned to a committee. The bill's primary sponsors are Sens. Bob Rucho (R-Mecklenburg), Buck Newton (R-Wilson) and Andrew Brock (R-Mocksville). Six additional senators, all Republicans, have signed on as co-sponsors.

The bill would extend a deadline for the state's Mining and Energy Commission, the Environmental Management Commission and the Commission for Public Health to adopt rules governing oil and gas development until Jan. 1, 2015, and directs the state Department of Environment and Natural Resources (DENR) to coordinate the effort.

The aforementioned agencies would also be required to receive input from a variety of sources -- including the State Review of Oil and Natural Gas Environmental Regulations (Stronger) and the American Petroleum Institute (API) -- in developing the rules.

SB 786 calls for establishing a new nine-member North Carolina Oil and Gas Commission within DENR. Six members would be appointed by the General Assembly and three would be appointed by the governor. Commission members would serve three-year terms.

Under the bill, a new seven-member Mining Commission, also under the dominion of DENR, would replace the MEC. Its members would include the state geologist and the chair of the Minerals Research Laboratory Advisory Committee at North Carolina State University. Of the remaining members, four would be appointed by the General Assembly and one would be appointed by the governor.

On the issue of chemical disclosure, SB 786 states that confidential information will be protected but also made available in case of an emergency.

"The General Assembly finds that while confidential information must be maintained as such with the utmost care, for the protection of public health, safety and the environment, the information should be immediately accessible to first responders and medical personnel in the event that the information is deemed necessary to address an emergency," the bill states.

Under SB 786, DENR would be required to immediately disclose confidential information to a treating health care provider or a fire chief upon request, if they determine that an emergency exists and regardless of whether a written statement of need or a confidentiality agreement exists. If any confidential information is disclosed, DENR will have 24 hours to notify the information's owner.

"The owner of the confidential information may require execution of a written statement of need and a confidentiality agreement...as soon as circumstances permit," the bill states. "The confidentiality agreement may restrict the use of the information to the...purposes indicated in a written statement of need; may provide for appropriate legal remedies in the event of a breach of the agreement, including stipulation of a reasonable pre-estimate of likely damages; and may not include requirements for the posting of a penalty bond. The parties are not precluded from pursuing non-contractual remedies to the extent permitted by law."

SB 786 would invalidate local ordinances prohibiting oil and gas exploration, development and production activities. Specifically, it would repeal any locality's prohibition on the siting of wells or the use of fracking.

But the bill would also ban wastewater injection wells. "Disposal of wastes produced in connection with oil and gas exploration, development and production, and use of horizontal drilling and [fracking] treatments for that purpose by injection to subsurface or ground waters of the state by means of wells is prohibited," the bill states.

Under SB 786, a severance tax of 5% would be levied on oil and condensates, based on gross receipts from the wellhead. The severance tax rate for gas would be based on the market value. Gas prices up to $3.00/Mcf would have a severance tax rate of 0.9%. The rate would go up to 1.9% for gas priced $3.01-$4.00/Mcf, and then climb incrementally by one percentage point -- 2.9% ($4.01-$5.00/Mcf), 3.9% ($5.01-$6.00/Mcf), 4.9% ($6.01-$7.00/Mcf), etc. -- all the way up to 9% for gas priced above $10.01/Mcf.

In January, MEC ruled that operators in North Carolina would not be required to disclose all of the chemical additives used in fracking (see Shale Daily, Jan. 21). Three months later, Baker Hughes Inc. said it planned to disclose all of the chemicals it uses in frack fluids but only in instances where its customers supported the disclosure (see Shale Daily, April 25).

Earlier this month, the U.S. Environmental Protection Agency began to seek input from the public and various stakeholders over what chemicals and mixtures used in fracking should be disclosed (see Shale Daily, May 9).

North Carolina currently has a moratorium on horizontal drilling and fracking, but legislators have passed a bill allowing both to be permitted beginning on March 1, 2015 (see Shale Daily, March 4, 2013). Last September, DENR returned more than $580,000 in grant money from the EPA to study fracking's effects on surface water quality (see Shale Daily, Sept. 27, 2013).

The North Carolina Geological Survey has estimated that technically recoverable gas exists in the state's Sanford sub-basin (including Lee, Chatham and Moore counties in central North Carolina) and possibly the Dan River sub-basin (including Stokes and Rockingham counties in northern North Carolina).

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