Fracking Comes to Illinois; Drilling Into the Hydraulic Fracturing Regulatory Act

On June 17, 2013, the Illinois Assembly enacted the Hydraulic Fracturing Regulatory Act. See Public Act 098-0022. This Act empowered the Illinois Department of Natural Resources (“Department”) to regulate hydraulic fracturing in throughout the State of Illinois. This blog entry summarizes key aspects of this newly enacted law.

Hydraulic fracturing or “fracking” is a process used to exploit oil and gas formations previously deemed either too difficult to reach or unproductive due to greatly diminished output. Fracking is the process of pumping, under high pressure, engineered fluids containing chemical and natural additives into the natural gas or oil well. This process creates and holds open fractures in the oil or natural gas formation. These fractures, by increasing the exposed surface area of the rock in the formation, allow oil and gas to flow up through the well. Thus, fracking allows the extraction of oil or natural gas from previously unavailable sources, including tight sands, shale gas, coal bed methane (CBM), and other unconventional shale formations.

This Act applies to all wells where high volume horizontal hydraulic fracturing operations are planned, have occurred, or are occurring in the State of Illinois. The provisions of the Act are in addition to the requirements set forth in the Illinois Oil and Gas Act. However, the Act expressly makes clear that if there is a conflict between it and the Illinois Oil and Gas Act, that the Hydraulic Fracturing Regulatory Act supersedes the provisions of the Illinois Oil and Gas Act.

Setbacks and Prohibitions

The Act sets forth certain setbacks and prohibitions on hydraulic fracturing activities. Under the Act, no well site where high volume horizontal hydraulic fracturing operations are proposed, planned or occurring may be located: (i) within 500 feet of any residence or place of worship unless the owner of the residence or governing body of the place of worship expressly agrees in writing to a closer well location; (ii) within 500 feet from any school, hospital, or licensed nursing home facility; (iii) within 500 feet from any existing water well or developed spring used for human or animal consumption unless the owner of the well expressly agrees in writing to a closer well location; (iv) within 300 feet from any perennial spring or from the high water mark of any river, natural or artificial lake, pond or reservoir; (v) within 750 feet from any nature preserve or any site located on the Register of Land and Water Reserves; or (vi) within 1,500 feet from any surface water or groundwater intake of a public drinking water supply.  The Act has very specific distance restrictions with respect to well placement. Additionally, if a water source identified in subparagraph (iv) above, is wholly contained on an owner’s property, then the owner may expressly agree, in writing to a closer well location.

The Act specifically prohibits the injection or discharge of hydraulic fracturing fluid, produced water, BTEX, diesel, or petroleum distillates into fresh water, as well a prohibits the high volume horizontal hydraulic fracturing operations by knowingly or recklessly injecting diesel fuel.

Permitting Requirements

The Act also contains permitting requirements for high volume horizontal hydraulic fracturing operations. Namely, persons may not drill, deepen or convert a horizontal well where high volume horizontal fracturing operations are planned or occurring or convert a vertical well into a horizontal well without a permit issued by the Illinois Department of Natural Resources and authorizations required by the Illinois Oil and Gas Act. Furthermore, if multiple wells are to be stimulated using high volume horizontal hydraulic fracturing operations from a single well site, then a separate permit is required for each well at the site. The Act contains public comment periods applicable to each permit. The public comment period begins seven days after receipt by the Department and last thirty days.

Additionally, when a permit application is submitted to conduct high volume horizontal hydraulic fracturing operations for the first time at a particular well site, any person having an interest may file written objections to the permit and request a public hearing. This hearing must occur during the public comment period. Such hearings must be conducted in accordance with the contested case requirements of the Illinois Administrative Procedure Act. Finally, the Department’s decision to grant or deny a permit is considered a final administrative decision subject to judicial review under the Administrative Review Law.

Well Preparation, Construction and Drilling Requirements

The Act also contains specific well preparation, construction and drilling requirements. The Act also sets forth certain operational requirements, including requirements related to integrity tests and monitoring, fluid and waste management, and emissions controls.

Water Quality Monitoring Requirements

The Act also contains water quality monitoring requirements. Sampling related to water quality monitoring must analyze for PH, total dissolved solids, dissolved methane, dissolved propane, dissolved ethane, alkalinity, specific conductance, chloride, sulfate, arsenic, barium, calcium, chromium, iron, magnesium, selenium, cadmium, lead, manganese, mercury, silver, BTEX, and gross alpha and beta particles to test for the presence of any naturally occurring radioactive materials.

Rebuttable Presumption of Pollution or Diminution

Also, of significance is the Act’s inclusion of a presumption of pollution or diminution. This provision states that there is a rebuttable presumption for purposes of evidence and liability regarding claims of alleged pollution or diminution of a water sources as a result of hydraulic fracturing operations. The Act sets forth specific defenses that may rebut this presumption. These defenses are: (i) the water source is not located within 1, 500 feet of the well site; (ii) the pollution or diminution occurred prior to hydraulic fracturing operations or more than 30 months after completion of such activities; or (iii) the pollution or diminution occurred from a cause other than hydraulic fracturing operations.

Plugging and Restoration

The owner of wells used for hydraulic fracturing operations must also comply with plugging and restoration requirements, which must be undertaken pursuant to the Illinois Oil and Gas Act.  Additionally, the Act requires to be plugged all previously unplugged well bores within 750 feet of any part of the horizontal well bore that penetrated within 400 vertical feet of the formation that will be stimulated as part of the high volume horizontal hydraulic fracturing operations. Restoration of lands used to a condition as closely approximating the pre-drilling conditions that existed before the land was disturbed for any stage of site preparation activities, drilling, and high volume horizontal hydraulic fracturing operations. Restoration shall be commenced within 6 months of completion of the well site and completed within 12 months. Restoration shall include repair of tile lines, repair of fences and barriers, mitigation of soil compaction and rutting, application of fertilizer or lime to restore the fertility of disturbed soil, and repair of soil conservation practices such as terraces and grassed waterways.

Seismicity

The Act provides that the Department will adopt rules for seismic activity attributable to hydraulic fracturing operations. The Department will adopt such rules in coordination with the Illinois State Geological Survey. The Act does mandate that the rules developed employ a “traffic light” system allowing for low levels of seismicity while including additional monitoring and mitigation requirements when seismic events are of sufficient intensity to result in a concern for public health and safety.

Conclusion

Illinois joins five other Midwest states (North Dakota, South Dakota, Kansas, Nebraska and Michigan) to enact or propose legislation aimed at regulating hydraulic fracturing operations. Advances in horizontal drilling deep underground has enabled the United States to become the world’s largest producer of natural gas (and oil), surpassing Saudi Arabia and Russia.

In fact, according to the Energy Information Association, in 2015, OPEC countries (excluding Iran) will earn $375 billion less in net oil revenues than they did just two years ago. The dramatic change is due in large part to the plummeting price of crude oil. Oil prices are sliding largely as a result of booming production from U.S. shale plays. Domestic oil output eclipsed 9.1 million barrels per day this month—the most oil we’ve pumped in almost three decades and a 78 percent increase since January 2008. The ability to extract oil and natural gas from dense shale rock formations is a recent phenomenon made possible by innovations in horizontal drilling and hydraulic fracturing.

For more information on hydraulic fracturing contact sbligh@evans-dixon.com.

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Think Twice Before Suing to Enforce a Confidentiality Agreement

This past October, in nClosures Inc. v. Block and Company, Inc., the 7th Circuit Court of Appeals ruled that under Illinois law, a confidentiality agreement is not enforceable in absence of proof that reasonable efforts were undertaken to maintain the confidentiality of information shared pursuant to the agreement.

A. Why is this ruling important?

Virtually every company uses confidentiality agreements. Many do so routinely — with the full expectation they will be enforced on the basis that the parties contractually agreed to treat all information shared as confidential.

The nClosures ruling turns that expectation on its head and indicates that confidentiality agreements are not automatically enforceable and are only enforceable when the shared information is actually confidential. (more…)

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EPA Revises RCRA Definition of Solid Waste

On December 10 2014, EPA pre-published certain revisions to RCRA’s definition of solid waste. This is a pre-published version of the final rule that EPA is submitting for publication in the Federal Register. The final rule is of greatest impact to the manufacturing sector.  Those areas of the manufacturing sector impacted the most by this final rule consist of metals, metal products, machinery, computer & electronics, electrical equipment, transportation equipment, furniture, wood products, paper, printing, petroleum & coal products, chemicals plastics and rubber products, and nonmetallic mineral products, and other miscellaneous manufacturing sectors. The final rule would also have more limited applicability on the public administration factor and the professional, scientific, technical sectors.

First, the rule revises the exclusion for Hazardous Secondary Materials (HSMs) that are legitimately reclaimed under the control of the generator. The revisions include: (1) adding a codified definition of “contained,” (2)  adding recordkeeping requirements for same-company and toll manufacturing reclamation; (3) making notification a condition of the exclusion; (4) adding a requirement to document that recycling under the exclusion is legitimate; and (5) adding emergency preparedness and response conditions.

The rule also proposes to amend the speculative accumulation exclusion under RCRA. Specifically, the rule would add a record keeping requirement to this exclusion. The record keeping requirement would apply to all persons subject to the speculative requirement.

Second, the final rule would replace the exclusion for HSMs that are transferred for purposes of reclamation with a “Verified Recycler Exclusion.” This revision would apply to generators who send their HSMs for reclamation to a verified recycler who has obtained a solid waste variance from EPA or an authorized state. In order to obtain a variance, the recycler must: (1) demonstrate their recycling is legitimate; (2) have financial assurance in place to properly manage the hazardous secondary material when the facility closes; (3) not be subject to a formal enforcement action in the previous three years and not be classified as a significant non-complier under RCRA Subtitle C, or must provide credible evidence that the facility will manage the hazardous secondary materials properly; (4) have the proper equipment and trained personnel, and meet emergency preparedness and response conditions to safely recycle the material; (5)  manage the residuals from recycling properly; and (6) take steps to protect nearby communities and reduce risk of potential unpermitted releases of the permit (such as a permit to discharge to water or air).

EPA is also finalizing a “Remanufacturing Exclusion” to exclude from the definition of solid waste certain higher-value solvents transferred from one manufacturer to another for the purpose of extending the useful life of the solvent by remanufacturing the spent solvent back into the commercial grade solvent.

Fourth, the rule revises the definition of legitimacy and prohibits “sham recycling.” This would codify a long-standing policy aimed at prohibiting materials that are sham recycled from being excluded from the definition of solid waste under RCRA. This policy will be codified at 40 CFR 261.2(g).

EPA has also changed the definition of legitimate recycling, which is found in 40 CFR 260.43. In addition to the existing four criteria evaluated by EPA in determining if certain types of recycling are legitimate, EPA has added an element of flexibility to determine legitimacy.

Finally, the rule proposes to revise solid waste variances and non-waste determinations. The revisions include: (1) requiring facilities to send a notice to the Administrator (or State Director, if the state is authorized) and potentially re-apply for a variance in the event of a change in circumstances that affects how a hazardous secondary material meets the criteria upon which a solid waste variance has been based; (2) establishing a fixed term not to exceed ten years for variance and non-waste determinations, at the end of which facilities must re-apply for a variance or non-waste determination; (3) requiring facilities to re-notify every two years with updated information; (4) revising the criteria for the partial reclamation variance to clarify when the variance applies and to require, among other things, that all the criteria for this variance must be met; and (5) for the non-waste determinations in 40 CFR 260.34, requiring that petitioners demonstrate why the existing solid waste exclusions would not apply to their hazardous secondary materials.

This rule will become effective 180 days after publication in the Federal Register.

For more information on this final rule or general questions regarding RCRA compliance, please contact Shawna Bligh at sbligh@evans-dixon.com.

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Missouri Attorney General Files TRO to keep Ebola Medical Waste Out of St. Louis Treatment Facility

The Missouri Attorney General’s Office seeks to enjoin an Illinois-based company with a facility in north St. Louis from accepting Ebola medical waste from Texas. The Attorney General’s action is due to the facility’s prior compliance history, namely its past violations of Missouri medical waste laws and regulations. In light of the threat posed by the Ebola virus, the Missouri Attorney General is not confident that the facility is capable of carrying such a large responsibility for the proper handling, treatment and disposal of the Ebola medical waste. The attorney general’s action is demonstrative of the importance of a facility’s environmental compliance record, particularly when lack of compliance poses a potentially substantial public health risk. The occurrence of Ebola in the United States brings to prominence the importance of proper handling, treatment and disposal of medical waste and the substantial consequences associated with strict compliance with these laws and regulations.

Gene Schmittgens and Shawna Bligh will be presenting on compliance with medical waste laws at an upcoming conference of the St. Louis Association of Healthcare Risk Managers. Contact gschmittgens@evans-dixon.com or sbligh@evans-dixon.com for more information on federal and state medical waste laws.

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Sumpin’ New on All Appropriate Inquiries

Since the last blogs on what one needs to do when acquiring an interest in real estate, there have been a change or two which are kind of important. See examples 12 and/or 3. The most significant is that there is a new ASTM 1527 standard; ASTM 1527-13 to be exact. In the event one does not know why we get to do an environmental site assessment with each acquisition of any interest in real estate, just re-read the above posts, or read the following brief review. (more…)

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Inherently Confusing: Bikes and Trademarks (Part 3)

What we Learned From the Specialized Trademark Incident

Part 3 – The Internet Determines Whether Marks are Confusingly Similar.

In my last post, I followed upon the discussion of the Specialized trademark saga. That saga provides another important pointer for trademark practitioners.

A trademark can only have one owner — the owner is the exclusive source or quality control agent of the goods sold under the mark. (That owner may in turn license others if the owner is monitoring the quality of goods sold under the mark. So in the case here, ASI was assumedly monitoring the quality of Specialized bikes sold under the Roubaix mark.) This is an important point, because it puts a trademark owner in a difficult position. (more…)

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Inherently Confusing: Bikes and Trademarks (Part 2)

What we Learned From the Specialized Trademark Incident

Part 2 – Never Miss an Opportunity to Publicly Scold Your Competitor.

In my last post, I opened a discussion on the Specialized trademark saga, with the goal of highlighting what hard rules, according to the Internet, apply when dealing with a mark infringement issue.  Our first take-away point was this little gem:  Mark owners who fear infringement must investigate the veteran status of the alleged infringer before sending out a cease and desist letter.  The saga teaches us a second rule, which I explain below. (more…)

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Inherently Confusing: Bikes and Trademarks (Part 1)

What We Learned From the Specialized Trademark Incident…
Part 1 – Always Investigate the Infringer’s Military Service History

People always complain: Why must everything in the law be so uncertain? What happened to black and white rules of law? How come everything involves a multi-factor balancing test that depends upon facts that require a 36-month lawsuit to uncover and a jury three days to decide? Well, sometimes, current events provide us a lesson that does provide us with black and white principles of law.

For example, three months ago the Specialized Bicycle company sparked a wildfire of Internet discussion when it sent a letter to a Cochrane, Alberta bicycle shop requesting it cease from using the word ROUBAIX as part of its name. It seems the bicycle shop decided to call itself “Café Roubaix.” The backlash supposedly went “viral” and even included reports appearing on cycling media outlets. An example of the “jumping on the pile” response from the Internet are the several articles appearing last December on the Velonews website. I especially liked the story objectively entitled: “Specialized’s disastrous trademark case is unnecessary to defend the brand.” So what are the hard and fast rules of law we learned from this incident? Well, here is the first rule: Investigate whether the alleged infringer is a war veteran.

Every story I came across about this matter pointed out that the bicycle shop owner was a veteran of the Afghanistan war. And though I am greatly in favor of veteran rights and accommodations (and was so years before it became Hollywood fashionable to do so), I was not sure what veteran status had to do with trademark rights. Of course, the Internet is never wrong. In discussing the pertinent merits of the Specialized trademark matter, the Internet nabobs would certainly not key onto an immaterial point just to create press? Would they? That would be so highly unusual.

I instruct all clients forming a new business or rolling out a new brand that the best money one can spend is on a comprehensive search to determine what other marks and names may be out in the business world that could pose infringement issues. In this case, the bike shop’s owner apparently opened his shop without even checking the Canadian intellectual property office’s registry of marks. Had he, he would have seen that Specialized owned a registration for the mark “ROUBAIX” for use in connection with bicycles and bicycle components. (Be honest reader, if you saw that registration, would you open up a bicycle shop named “Café Roubaix” without evaluating the trademark risks?) Nevertheless, comment posters vilified Specialized as a trademark bully. So putting aside the question of whether there is any type of infringement between Specialized’s registered mark and “Café Roubaix,” the Internet tells us that mark owners who fear infringement must investigate the veteran status of the alleged infringer before sending out a cease and desist letter. According to the Specialized case, this is a relevant inquiry under trademark law. By extension of this first rule, one must not assert mark rights against a veteran of the Afghanistan conflict. I have no idea what should happen if the alleged infringer has a blemished military record.

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Sole Owner LLC – Is Your Liability Really Limited?

paper(275)You are proud of yourself. You went on-line at the Secretary of State’s website and filed your Articles of Organization. This means that you have limited your personal liability right? Well … maybe.

People rarely understand that what they do AFTER filling Articles of Organization is as important as the filing itself.

You are living under a rock if you think that one of your creditor’s attorneys will say this:

“Oh, my, she has an LLC. I guess there’s no way to hold her personally liable.”

NOT …….

There will be a search to see if you have maintained the appropriate separation between you and your company. You formed an entity, and now the question is whether you acted like an entity. If not, you’ll be a target … personally.

What must you do to protect yourself? Keep these reminders handy: (more…)

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Leases – Reasonable Wear and Tear Excepted

bell(275)Every commercial lease has a sentence that reads like this: “… at the end of the lease term, the Tenant must return the leased premises to the Landlord in the same condition as when the lease term began, normal wear and tear excepted.” Sounds pretty simple. But what about all of the improvements you made, like cabinets, lighting and partitions?”  Those improvements weren’t there when you signed the lease.  So, returning to the “same condition” may not include those improvements. Who pays to remove them and return your space to its original condition?” Most likely, it’s you. (more…)

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