OIL AND GAS

N.C. works to build fracking regs from scratch

North Carolina doesn't know oil and gas.

Mining, it knows. Textiles, sure. But fossil fuels? The mid-Atlantic state doesn't have a drip-drop of production.

That's not to say the state is clueless about the industry; more than 100 exploratory wells have poked through North Carolina soil since 1925. But only recently has anyone shown interest in allowing development of the state's limited, but existent, resources.

In a flurry of action this year from the governor's office and Legislature, the state seems poised to legalize hydraulic fracturing and horizontal drilling -- techniques that access hard-to-reach gas -- and build a whole new regulatory structure to manage the practice.

North Carolina's inexperience in oil and gas is unique among states exploring their shale potential. It's a clean slate for drilling regulation, with only antiquated laws on the books to regulate energy extraction. Industry observers are keenly watching which bits of other states' policies North Carolina adopts.

First, though, the state has to legalize unconventional drilling. Old North Carolina injection laws predate hydraulic fracturing but have the unintended result of outlawing it. The same is true for horizontal drilling. An old statute banned drilling outside a specified vertical diameter in order to keep neighbors from stealing resources from one another.

Now, two Republican-sponsored bills call for the state to sanction the modern drilling practices and string together the needed regulations.

The first bill, from state Sen. Bob Rucho, would legalize fracking and horizontal drilling starting in mid-2014, and create an Oil and Gas Board to set and enforce rules. The board's authority would trump that of local governments and the state Department of Environment and Natural Resources (DENR).

The North Carolina chapter of the Sierra Club has taken issue with that provision, saying it overrides environmental protections. Indeed, the language says that when it comes to horizontal drilling and hydraulic fracturing, DENR cannot enforce any environmental rule that "would have the effect of prohibiting such activities."

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"It's definitely a fast track for fracking," said North Carolina Sierra Club spokesman Dustin Chicurel-Bayard.

Also of concern to environmentalists and residents of the Piedmont region where shale rock has been detected is a section of Rucho's bill that prevents immediate public access to drilling information.

Seismic surveys, proposed well bore trajectories, borehole logs and fracking chemicals would not be available to the public until two years after the records were given to the Oil and Gas Board. Fracking fluids deemed trade secrets would never be published.

The trade secret rule is a common exception found in various states' chemical disclosure requirements, including those supported by the American Legislative Exchange Council (ALEC), which has promoted model legislation hinging on the loophole. ALEC's specific language, which originated in Texas and was repeated in an Illinois proposal, does not appear in the North Carolina bill.

Rucho's bill, which also promotes government use of compressed natural gas in vehicles, was referred to the Senate agriculture, environment and natural resources committee Monday night. The senator was not available for comment earlier this week.

Limited information

House Republicans this week introduced legislation identical to Rucho's Senate bill. But one sponsor of the mirror legislation introduced his own bill that calls for further study of fracking before it is legalized. Rep. Mitch Gillespie's more cautious approach also places authority over drilling with the state’s environmental department, rather than creating an oil and gas board.

The bill will not likely move, but ideas from it are expected to play into conference negotiations of the broader Senate and House legislation.

The North Carolina Sierra Club said it favors Gillespie's approach, which includes plans to follow the recommendations outlined by DENR and the state Department of Commerce in a 504-page report commissioned by the Legislature. The oil and gas study, released last month, explores available resources, oversight issues and potential impacts of fracking on infrastructure, the environment and health.

The report highlights the state's advantage of preparation time before oil and gas development can reach the area.

"A number of states have experienced problems associated with natural gas exploration and development because the appropriate measures were not in place from the beginning," the report says, "forcing both the state and the industry to react after damage had already been done."

The study calls for environmental safeguards to shepherd the state's first foray into natural gas drilling, such as waste management standards and a collection of baseline environmental data.

Data are just what North Carolina is missing in its calculations. The report points out that information about the state's resources is limited. Most of the state's old exploratory wells are capped off and along the coastal plain, not a shale target. The state's sandstone-laden Triassic basins, in central North Carolina, have undergone less study. For the report, data from only two wells were considered. Those spots are in the Sanford sub-basin, which underlies central North Carolina's Research Triangle: Raleigh, Durham and Chapel Hill.

Assistant State Geologist Kenneth Taylor, who authored part of the report, is quick to acknowledge the amount of research that remains to be done.

The total area of the basins is 785,000 acres, a small chunk compared with sprawling plays in Pennsylvania, Texas and elsewhere. And of that, Taylor has studied only 59,000 acres. He suspects the coveted shale rock extends beyond that sliver.

"We're excited about it," he said. "I know what I don't know. I know exactly what I need to find out."

Taylor said he would need millions of dollars to carry out the necessary 3-D seismic tests of the rest of the basins. "My job is to find the resources," he said.

To hear to him speak, his other job seems to be aggressively encouraging oil and gas development in the state.

"If I don't give them enough sweet things to say, 'Hey, come on down here to look,' no one's going to come and look," he said.

Taylor told The Charlotte Observer this week that the state likely has 2 trillion cubic feet of accessible natural gas. That's a nearly negligible amount compared to boom areas like the Marcellus Shale, which is estimated to have 250 trillion to 500 trillion cubic feet.

Indeed, North Carolina doesn't have much of a presence on current energy maps of the United States. A shale gas map released last year by the U.S. Department of Energy's Energy Information Administration, for example, does not show any current or prospective plays in the state.

Taylor is realistic about that.

"It's not Marcellus, it's not Fayetteville, it's not Barnett," he said. "It's just not that big."

Still, he said his office cheered when a 2012 American Petroleum Institute map marked an unnamed prospective gas play stretching down North Carolina's midsection.

"We finally made the grade," he said.

Now that the shale gas prospect is beginning to be recognized, he said, the state can focus on studying the rest of the Triassic basins and, in the meantime, set up regulations for when natural gas prices rise and spur more exploration by oil and gas operators.

He wants North Carolina to find what's working best in other states and work toward a business-friendly atmosphere. Drilling should be safe, he said, but it's "not that there's this big hammer, and we're going to take people to jail. We're not crazy."

Water worries

That level of enthusiasm over prospective drilling draws skepticism from Randolph Voller, mayor of Pittsboro, a city near the heart of the Sanford sub-basin.

"I can't just turn a blind eye," he said. "Well, we can go ahead and allow this to happen, but it's going to leave us with a Superfund site."

Major water sources lie in the shale area's path, including the 14,000-acre Jordan Lake. Jobs estimated to result from natural gas development aren't enough to risk the water, Voller said.

A seven-year economic model used in the state's oil and gas report projects that drilling activity in the Sanford sub-basin would sustain an average of 387 jobs a year, starting with 59 jobs the first year and peaking at 858 during a boom year.

"Why is the Legislature all atwitter about an industry coming to the state that essentially is going to create less jobs than three big grocery stores?" he asked. "Something's wrong with this picture."

Voller and Chicurel-Bayard, the state Sierra Club spokesman, said the issue is merely a political football. Lawmakers up for re-election can push the pro-fracking legislation and report back to constituents that they voted for job creation.

"They're pushing this a lot faster than it needs to be," Voller said. "If it were 10,000 jobs, that would be different."

Voller and environmentalists were relieved this week when North Carolina Gov. Bev Perdue (D) emphasized the importance of caution. Perdue issued an executive order to assemble a task force to study environmental effects from fracking and establish rules protecting landowners.

"We're particularly grateful to see that the governor hasn't embraced Sen. Rucho's extreme approach," said Environment North Carolina's Elizabeth Ouzts, "which is to barrel ahead without any evidence that the safety of our drinking water can be guaranteed."

The move to tap open North Carolina's door to drilling comes just as Vermont legislators have firmly shut off their state from hydraulic fracturing. Gov. Peter Shumlin (D) signed a ban on fracking there last week.

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