final hearing officers' report

Report of Proceedings on Proposed Rules to

Regulate the Management of Oil or Gas

Exploration and Development

For the November 6, 2014 Meeting of the North Carolina Mining

and Energy Commission

Prepared by the Oil and Gas Program of the Division of Energy, Mineral, and Land

Resources and the Appointed Hearing Officers

TABLE OF CONTENTS Introduction…………………………………………………………………………………..........1

Summary of Comments and Responses…………………………………………………………...3

General Comments on the Rules…………………………………………………………….3

Ban or Moratorium on Hydraulic Fracturing……………………………………………......3

Opposition to Compulsory Pooling…………………………………………………………4

Air Emission Regulations Missing from the Rules………………………………………….5

Road and Infrastructure……………………………………………………………………...6

Geology……………………………………………………………………………………...7

Terms of Reference………………………………………………………………………….8

Administrative Rules………………………………………………………………………..8

Variances…………………………………………………………………………………….9

Declaratory Ruling…………………………………………………………………………10

Petition for Rulemaking……………………………………………………………………10

Rulemaking Hearings………………………………………………………………………11

Hearings for Drilling Units, Variances, and Confidential Information……………………11

Preemption Hearing Procedure…………………………………………………………….12

Enforcement………………………………………………………………………………..13

Civil Penalties……………………………………………………………………………...14

Exploration and Geophysical Surveys……………………………………………………..14

Drilling Units and Well Spacing…………………………………………………………...15

Permitting…………………………………………………………………………………..16

Financial Assurance………………………………………………………………………..19

Site Infrastructure and Construction……………………………………………………….21

Well Construction and Completion………………………………………………………..24

Chemical Disclosure……………………………………………………………………….33

Environmental Testing……………………………………………………………………..34

Water Acquisition and Management………………………………………………………36

Oil and Gas Site Exploration and Production Waste Management………………………..36

Reclamation………………………………………………………………………………..39

Operation and Production………………………………………………………………….39

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Introduction

Session Law 2012-143 reconstituted the Mining Commission as the Mining and Energy

Commission (MEC) and directed the MEC to develop and adopt a modern regulatory

program for the management of oil and gas exploration and development activities in the

State, including the use of horizontal drilling and hydraulic fracturing. As part of that

directive, the MEC was charged with adopting rules that would protect public health and

safety; protect public and private property; protect and conserve the State’s air, water,

and other natural resources; promote economic development and expand employment

opportunities; and provide for the productive and efficient development of the State’s oil

and gas resources. After reviewing the current regulations of the State, the mandate in

SL 2012-143, and information from studies on the operation and potential impacts of

modern oil and gas exploration and production activities, the MEC proposed to adopt 124

new rules and to repeal 10 other rules in order to appropriately regulate the oil and gas

industry for the purpose of oil and gas exploration and development.

This document responds to public comments on the MEC’s proposed rules implementing

SL 2012-143, SL 2013-365, SL 2014-4, and proposes changes to the draft rules for

consideration by the MEC. This document serves to summarize and respond to the

criticisms, suggestions, and comments raised by interested persons while proposing

amendments to the draft rules in consideration of those comments. The actual comments

will be posted to the MEC website as soon as possible.

The MEC and DEMLR anticipated a high level of public interest in the proposed rules.

To facilitate public communication, DEMLR provided multiple channels for receiving

public comments, including: four public hearings across the state, an online comment

submission platform, traditional U.S. mail, and in person delivery. The comments vary

considerably in format, ranging from handwritten letters to petitions, studies, and reports.

The comment period began July 15, 2014 and was extended to September 30, 2014. The

Mining and Energy Commission held four public hearings to receive oral and written

comments on the draft rules. Hearing dates and locations were as follows:

August 20, 2014: Raleigh, NC from 10:00 am to 2:00 pm;

August 22, 2014: Sanford, NC from 5:00 pm to 9:00 pm;

August 25, 2014: Wentworth, NC from 5:00 pm to 9:00 pm; and

September 12, 2014: Cullowhee, NC from 5:00 pm to 9:00 pm.

A total of 341 people spoke at the hearings. Additionally, 1,416 hard-copy written

comments were submitted for commissioner consideration. In order to give fair and

thorough consideration of each comment, DEMLR staff sorted all comments based on

areas of concern and rules. For example, if a comment pertained to the use of pits for

exploration and production waste, it was grouped with the other comments on the same

issue. Most letters, emails, and public hearing comments addressed several issues. Each

individual comment was copied and sorted into a file containing like comments. Some

comments were broader and addressed many or all of the proposed rule sections. A

general category was created to group these comments. The total number of comments

received was 217,285. This number reflects each individual comment, but does not

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represent the number of citizens or organizations that submitted comments. DEMLR

staff’s best estimate is that 30,029 individuals and entities submitted comments. The

hearing officers were given access to all original comments and the spreadsheets that

organized the comments in order to complete their analysis. Copies of the spreadsheets

containing all comments organized by topic were also sent to each member of the MEC

for their review.

Through sorting and analyzing, the hearing officers and DEMLR staff found that most of

the comments in an issue area made similar points, and thus could be grouped into sub-

groups. This report summarizes the essence of these sub-groups, so that responses are

concise and useful to the MEC and the public. These summaries will inevitably leave out

some of the detail made in the comments, but the hearing officers did review and did

consider all comments when reevaluating the proposed rules. Because of the volume of

comments, the number of issues presented by individuals and entities, and the inevitable

duplication, individual responses are impossible. The report follows the organization of

comments, provides a summary of the comments, and a discussion of the hearing

officers’ recommendations with respect to the proposed rules.

Please note: this document is a limited document arising from the N.C. Administrative

Procedure Act and is not an environmental impact study, a comprehensive report, or a

scholarly treatise, all of which would have taken a different approach. This document

was created to facilitate a conversation about the proposed rules and represents the

hearing officers’ answers to comments and questions from the public. The hearing

officers and DEMLR truly value the input from the organizations and individuals who

commented. The input was heard, was considered, and in many cases resulted in

recommended rule amendments. The MEC and the DENR would like to thank all those

who participated in this public comment process.

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Summary of Comments and Responses

General Comments on the Rules

Ban or Moratorium on Hydraulic Fracturing

Comment: Many comments stated that there should be a moratorium on natural gas

exploration, development, and production in North Carolina. Many of those comments

expressed concern that there was not enough yet known on the long-term health and

environmental threats of hydraulic fracturing. There were also comments in support of a

permanent ban on hydraulic fracturing in the state based on the assumption that it cannot

be done in a safe and environmentally responsible manner, regardless of the regulations

in place.

Response: In 2012, the General Assembly passed the Clean Energy and Economic

Security Act and stated its intent to authorize oil and gas exploration and development

activities using horizontal drilling and hydraulic fracturing treatments. The law

recognized that the Department of Environment and Natural Resources completed a

comprehensive study of the issue and concluded that information available to date

suggests that production of natural gas by hydraulic fracturing can be done safely as long

as the right protections are in place. See North Carolina Oil and Gas Study under Session

Law 2011-276, N.C. Department of Environment and Natural Resources, April 30, 2012,

available at http://portal.ncdenr.org/web/guest/denr-study.

The Clean Energy and Economic Security Act also created a de facto moratorium in 2012

by prohibiting the issuance of permits until the General Assembly determined that the

proper protections were in place. Session Law 2012-2014, Section 3.(d). In 2014, the

Energy Modernization Act lifted that prohibition effective after review of the rules by the

General Assembly in the 2015 legislative session. Session Law 2014-4, Section 3(b).

The 2012 Clean Energy and Economic Security Act, the 2013 Domestic Energy Jobs Act,

and the 2014 Energy Modernization Act all express the intention of the General

Assembly to allow the practice of horizontal drilling and hydraulic fracturing after the

development of a modern regulatory program for the management of oil and gas

exploration and development in the state. See S.L. 2012-143, Part I and § 3.(d); S.L.

2013-365, § 1.(c); S.L 2014-4, § 3.(b).

The Mining and Energy Commission is not given the authority by any of the above

legislation to ban or place a moratorium on horizontal drilling or hydraulic fracturing in

the state. A formal ban or moratorium would be in contravention of the stated intent of

the Clean Energy and Economic Security Act.

A ban or a moratorium is a subject more appropriately addressed by the General

Assembly upon review of the rules to ensure the rules as developed by the Mining and

Energy Commission satisfy the intent of the General Assembly to develop a modern

http://portal.ncdenr.org/web/guest/denr-study

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regulatory program for oil and gas exploration that ensures that proper protections are in

place for protection of public health and the environment.

Opposition to Compulsory Pooling

Comment: The Commission received 8,235 comments on compulsory pooling, 412 of

which directly expressed opposition to compulsory pooling. A number of comments

stated that compulsory pooling is a violation of their private property rights. Commenters

further argued that if compulsory pooling orders are issued by the Mining and Energy

Commission, there should be a requirement for a high amount of voluntary agreement

and protections put in place to limit the liability of landowners compelled into a pool.

Response: Pooling is “the joining together of small tracts or portions of tracts for the

purpose of having sufficient acreage to receive a well drilling permit under the state or

local spacing laws and regulations.” Bruce M. Kramer & Patrick H. Martin, The Law of

Pooling and Unitization § 1.02 (LexisNexis Matthew Bender 2011). Under certain

circumstances, pooling is a mechanism used to compel landowners, who have not elected

to participate in a pool or drilling unit voluntarily through private contract, to join the

pool. Compulsory pooling is also referred to as integration, forced pooling, or statutory

pooling.

In the process of modernizing existing state oil and gas law, the General Assembly

directed the Mining and Energy Commission to study current North Carolina law on the

issue of integration or compulsory pooling and other states’ laws on this same issue in

conjunction with the Department of Environment and Natural Resources and the

Consumer Protection Division of the North Carolina Department of Justice. The Clean

Energy and Economic Security Act, S.L. 2012-143, § 2.(l). To fulfill the legislative

mandate, the Mining and Energy Commission formed the Compulsory Pooling Study

Group to research the issues and make recommendations regarding compulsory pooling

in the context of a modern oil and gas regulatory program. The Study Group was

comprised of four commissioners and developed recommendations to the General

Assembly for statutory changes on compulsory pooling and related landowner

protections.

The North Carolina Oil and Gas Conservation Act currently authorizes the use of

voluntary and compulsory pooling under G.S. § 113-393. In addition to recommending

the continued authorization of compulsory pooling, the Compulsory Pooling Study Group

recommended that any applicant for a pooling order obtain 90% voluntary agreement

based on surface acreage within a proposed drilling unit. The report to the General

Assembly made additional cost sharing recommendations that would require statutory

changes. See Final Report of the Compulsory Pooling Study Group of the Mining and

Energy Commission under S.L. 2912-143, September 2013, available at

http://portal.ncdenr.org/web/mining-and-energy-commission/compulsory-pooling-

agendas.

http://portal.ncdenr.org/web/mining-and-energy-commission/compulsory-pooling-agendas

http://portal.ncdenr.org/web/mining-and-energy-commission/compulsory-pooling-agendas

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The General Assembly did not act on the Study Group’s recommendations during the

2014 legislative session and directed the Department of Environment and Natural

Resources to continue to study the issue. The Department of Environment and Natural

Resources’ report on specific recommendations for legislative action related to

compulsory pooling and dormant minerals statutes is due to the General Assembly on or

before October 1, 2015. Energy Modernization Act, S.L. 2014-4, § 25.(c).

The Mining and Energy Commission is not currently proposing rules on compulsory

pooling as it anticipates the Department of Environment and Natural Resources will make

recommendations to the General Assembly and the General Assembly may choose to

enact specific proposals for legislative action at that time.

Air Emission Regulations Missing from the Rules

Comment: Some comments argued that the Commission should develop rules specific to

air quality impacts created by oil and gas development. Some of those commenters argue

that current air quality rules are insufficient to protect the public from emissions on-site

including from engines, open pits, and venting and flaring. Some commenters request

that permitting of oil and gas operations include emissions limitations and fence line

monitoring of well pads

Response: The Mining and Energy Commission recognizes the importance of concerns

for air quality and the potential impact of oil and gas operations. The United States

Environmental Protection Agency (EPA) and the Department of Environment and

Natural Resources, Division of Air Quality acknowledges that there are air quality

impacts including increases in emissions of methane, volatile organic compounds

(VOCs), and hazardous air pollutants (HAPs) in areas with oil and gas development. In

2012, the EPA issued regulations to reduce emissions from the oil and natural gas

industry including for wells that are hydraulically fractured. Those regulations are NSPS

OOOO for the control of VOC and SO2 emissions and NESHAP HH/HHH for the

control of HAPs. Those regulations are incorporated by reference into state rules at 15A

NCAC 02D .0524 and 15A NCAC 02D .1111, respectively.

In reconstituting the Mining and Energy Commission, the Clean Energy and Economic

Security Act reserves certain powers and duties to remain with the EMC with respect to

developing a modern regulatory program for oil and gas exploration and development,

including regulation of air emissions. S.L. 2012-143, § 2.(c).

G.S. § 113-391(a) states: “The Mining and Energy Commission, created by G.S. 143B-

293.1, in conjunction with rule-making authority specifically reserved to the

Environmental Management Commission under subsection (a3) of this section, shall

establish a modern regulatory program for the management of oil and gas exploration and

development in the State and the use of horizontal drilling and hydraulic fracturing

treatments for that purpose.” S.L. 2012-143, § 2.(c).

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Section (a)(3) provides that the EMC shall adopt rules for the regulation of toxic air

emissions from drilling operations. S.L. 2012-143, § 2.(c), amending G.S. § 113-

391(a)(3). The law also provides a new section to the powers and duties of the EMC to

adopt rules “[f]or matters within its jurisdiction that allow for and regulate horizontal

drilling and hydraulic fracturing for the purpose of oil and gas exploration and

development.” S.L. 2012-143, § 2.(h) amending G.S. § 143B-282.

On August 8, 2014, The Blue Ridge Environmental Defense League, Inc. (BREDL) filed

a Petition for Rulemaking, asking the Commission to develop rules for air quality

monitoring. On October 17, 2014, the MEC’s Petition Committee heard presentations

from BREDL, DEMLR, and the Division of Air Quality on the petition. BREDL’s

Petition for Rulemaking is currently under consideration at this time.

Road and Infrastructure Damage

Comment: Some comments, most notably from the North Carolina Department of

Transportation, expressed concern over high volume heavy truck traffic associated with

oil and gas development.

Response: As oil and gas wells are completed, many heavy truck trips occur over a short

period of time and sometimes over rural roads and secondary roads not originally

designed to handle such traffic. These issues tend to be at their height during drilling and

fracturing activities rather than during the production phase. See North Carolina Oil and

Gas Study under Session Law 2011-276, N.C. Department of Environment and Natural

Resources, April 30, 2012, available at http://portal.ncdenr.org/web/guest/denr-study.

The Coordinated Permitting Study Group of the Mining and Energy Commission

discussed this issue as it pertains to the permitting authority of the Commission and the

Department of Environment and Natural Resources. With the participation of the North

Carolina Department of Transportation as stakeholders, it was decided that the

Commission would develop rules and a coordinated permitting process for environmental

permits only. Report of the Coordinated Permitting Study Group, North Carolina Mining

and Energy Commission, February 28, 2014, available at

http://portal.ncdenr.org/web/mining-and-energy-commission/study-group-reports.

In response to concerns about heavy truck traffic, the Department of Transportation has

been tasked to study whether additional statutory authority may be necessary or

recommended for the Department of Transportation to regulate energy-related traffic,

including authority that relates to permitting and assessment of fees. Energy

Modernization Act, S.L. 2014-4, Section 23(a). The Department of Transportation shall

also study whether there should be a coordinated permit with the Department of

Environment and Natural Resources and whether performance bonding or other surety

mechanisms, including road use agreements, to repair roads that are damaged due to

heavy vehicle traffic is necessary or recommended. Id.

The Department of Transportation will report on whether additional statutory authority is

necessary or recommended to the General Assembly on or before January 1, 2015.

http://portal.ncdenr.org/web/guest/denr-study

http://portal.ncdenr.org/web/mining-and-energy-commission/study-group-reports

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Geology

Comment: There were 135 comments that expressed issues related to geology. In

descending order by size, the largest number of comments -- 63, thirty-eight percent, was

the concern for the potential to trigger or induce earthquakes from the hydraulic

fracturing process. The next largest number was 14 comments, ten percent, which

expressed concerns about the size of the shale gas resource. The third group of

12comments addressed concerns with the existing faults located within the Mesozoic

basins. Next were nine comments on the shallow depth of the shale resource, which was

followed with seven comments on two topics, the distance of separation between the

shale resource / water table and the need for further studies. There were four comments

on two issues, the landslide potential in the western portion of the state and the hydraulic

fracturing process, two comments each on deep well injection and earthquakes, the

potential for problems from diabase dikes, need for higher pressures to fracture the source

rocks, and eight single comments on aquifers, Radium, unique geology, roads, lack of

jobs, broken-up basin, coal removal, and new job opportunities.

Response: From the largest number on concerns, the potential to trigger or induce

earthquakes from the hydraulic fracturing process has been reported in the media in Ohio,

Oklahoma, Texas, Arkansas and Kansas. Studies are ongoing and suggest a strong

correlation with the large volume injection of flowback and formation in deep wells for

disposal. Issues with the volume of the disposal water and the rates of injection have

resulted in both temporary closures of disposal wells and reductions in the injection rates.

The geology in North Carolina is not suitable for deep well injection.

The size of the shale gas resources was calculated by the U.S. Geological Survey

quantitatively assessed the technically recoverable, undiscovered resources within five of

the total petroleum systems and associated assessment units that demonstrated the most

potential for generating and accumulating hydrocarbons (Fact Sheet 2012-3075, issued

June 2012). The data for the Deep River basin and Dan River-Danville basin were based

on the information provided to the USGS in July 2011. As additional data are gathered,

the need for a re-evaluation may be warranted.

The existing faults in the Deep River and Dan River basins have been geologically

mapped. In addition, two large studies, the safety analysis of the proposed Harris

Nuclear Power Station and the Proposed Low-level Radioactive Waste Disposal Site in

Chatham County provided tens of thousands of pages of reports on the geology, structure

and hydrology of those two sites, both located in the Mesozoic basin. The N.C.

Geological Survey is the repository for some of this extensive research material. This

information can also be accessed by the companies that may explore in the basins.

The depth of the potential shale gas resource is addressed in the Mining and Energy

Commission (MEC) draft rules. Multiple layers of steel and cement are required to

protect the environment from the shale gas resource.

The MEC did not receive funding for further studies into the issues raised by the

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comments received on geology during the rule comment period.

Section .0100 Terms of Reference

Comment: 717 comments were received asking to add terms that were not currently

defined or to edit definitions of existing terms. The most frequently received comment

asked to define “barrel”.

Response: The hearing officers read each comment and made many edits to existing

terms as well as added 2 new terms, all of which are reflected in the new draft Rule

.0102. “Barrel” was defined in the rule set that was published for public comment and is

included in the current rule at .0102(9).

Section .0200 Administrative Rules

Rule .0201 – Forms

Comment: Several commenters requested that the forms be available for review during

the public comment period.

Response: The N.C. Administrative Procedure Act (N.C. Gen. Stat.§ 150B) requires that

the contents of each form be described in the rule. All information that will be requested

on each form is stated in the draft rules or in statute.

Rule .0202 – Record Keeping and Reporting

Comment: 134 commenters disagreed with the requirement that permittees maintain

records for 5 years after the release of the permit. Commenters requested that all records

and documents be retained by the permittee for 50 years. In addition, commenters

requested that permitees file both electronic and hard copies for all required

documentation and that the documents be posted on the Department website. In addition,

many commenters requested that the Department retain the records in perpetuity.

Response: Rule .202 states that “[t]he permittee shall retain all data, records, logs, and

smaples associated with oil or gas well drilling, completion, production, and plugging

and abandonment for a period of five years following the release of an oil or gas permit.”

The timeline provided in the rule requires the permittee to retain all records for 5 years

after the life of the well, not five years from the start of drilling. DENR will also post

non-confidential information to its website and will retain all records it receives in

perpetuity. The hearing officers agree that long-term retention of records is essential.

Considering the public’s concern and the intent of the rule, the hearing officers

recommend one change to this rule.

Hearing Officers’ Recommendation: Amend Rule .202 to include permanent archiving of

all records with the State Geologist.

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Rule .0203 – Inspections

Comment: 237 individuals and organizations commented on this rule. Many commenters

stated that there is too much reliance on self-inspection and self-reporting by the industry

and that announced inspections are not sufficient to regulate this industry. Commenters

stated that only certified DENR staff or contractors, with proper safety equipment and no

conflicts of interest should conduct inspections. In addition, commenters noted that

DENR inspectors should be present for drilling, casing, and well stimulation and should

verify all pressure tests. Lastly, commenters suggested that inspectors speak to citizens in

the vicinity of the well site to ensure that regulations are being followed on a consistent

basis.

Response: The hearing officers agree that inspections are a critical component of a

regulatory program and that unannounced inspections must be allowed.

Hearing Officers’ Recommendation: Remove the language “upon notice” from the rule,

to allow unannounced inspections.

Section .0300 Variances

Comment: Many commenters requested that the option of variances be removed from the

proposed rules as variance should not be granted in under any circumstance. Others

requested that variances be limited to rare circumstances where the landowner consents to

the request. Others requested that the variance rule be amended to require a substantial

demonstration of the need for a variance and a showing that the variance will provide

equal or greater protections for public health, safety or the environment. Commenters

disagreed with the proposed rule language that a “good faith effort to comply” or

economic hardship should be factors for consideration in granting a variance. Lastly,

other commenters were concerned about the process for granting a variance and

requested more public involvement and the opportunity to challenge a variance.

Response: Rule .301 outlines the procedures for granting a variance and provides the

generally applicable standards that should be applied by the MEC when it considers

whether to approve or deny a variance. Consideration of additional factors may be

required by specific rules that allow variances. Variances are only permitted from the

following rules: Rules .1205 and .1206, which allow a variance of the drilling unit

boundary; Rule.1504 for pit or tank construction standards; Rule .1603, which provides a

limited variance for some setbacks; and Rules .1608, .1609, .1610, or .1610, which

pertain to well installation. The MEC will consider variance requests as a public body

and its deliberations will be public. When the MEC drafted the proposed rules, it

considered the ability to grant site-specific variances critical to account for unanticipated

conditions. The MEC limited the circumstances pursuant to which a variance could be

granted. The hearing officers agree, however, that the variance language was not clear

with respect to the fundamental criteria for granting a variance—that the variance provide

equal or greater protection for public health, safety, and the environment.

10

Hearing Officer’s Recommendation: Amend Rule .301 and other variance rules to clarify

that no variance will be granted unless the variance or conditions on the variance provide

equal or greater protection of public health, safety, and the environment as the original

rule.

Section .0400 Declaratory Ruling

Comment: All declaratory ruling requests should be available to the public once received

by the MEC and all declaratory ruling hearings should be noticed and open to the public.

Further, a local government should be notified if a declaratory ruling affects property

within its jurisdiction and given the address of the affected land. Lastly, the MEC’s

rationale and decision should be available to the public.

In addition, a few commenters requested that the full MEC, rather than the Chair,

determine whether a request for a declaratory ruling is complete and whether to issue or

decline to issue a declaratory ruling. Lastly, commenters requested the full MEC, rather

than the Chair, determine whether other parties may intervene.

Response: A declaratory ruling interprets the application of either statutes or rules to a

specific set of facts and is authorized by N.C. Gen. Stat. 150B-4. Declaratory ruling

petitions, hearings, and final decisions are all open to the public in the same manner as all

other MEC meetings and decisions. Once a decision is made, all MEC decisions,

including any legally required rationale, will be posted to the MEC website.

The proposed rules largely mirror the statute (N.C. Gen. Stat. 150B-4) and the

declaratory ruling rules used by the Environmental Management Commission. The Chair

of the MEC is granted the authority to establish the basic procedural components

including making a determination whether the petition is complete and whether

interveners meet the legal standard for intervention. The full MEC makes a decision on

the merits.

Hearing Officers’ Recommendations: The hearing officers recommend one change in

Rule .0402(c)(3) to clarify that interveners are able to give oral arguments in the

declaratory ruling hearing.

Section .0500 Petition for Rulemaking

Comment: The three commenters that responded to this rule identified the following

concerns: (1) the procedures do not allow for a petition to strengthen the rules; (2) the

Director of DEMLR should not decide if a petition is complete; (3) the MEC Chair

should not be able to limit the number of opponents to a single speaker; (4) there is no

recourse for those other than the petitioner to oppose the MEC’s decision; (5) the rules

should identify criteria for denial of a party wishing to speak against the petition; and (6)

the rules should allow interested parties to speak to the full MEC during its deliberations

on the petition.

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Response: Petitions for rulemaking are intended to provide an opportunity for interested

parties to initiate rulemaking to adopt new rules, amend existing rules, or repeal existing

rules. Petitions for rulemaking are governed by the N.C. Administrative Procedure Act,

N.C. Gen. Stat. 150B-20. Rule .0501 explains the minimum information needed within a

petition and additional information that would be helpful in deciding a petition for

rulemaking. Rule .0502 assigns the task of hearing a presentation on the petition to a

committee. The committee then presents its recommendations to the full MEC. The MEC

makes a determination whether to grant a petition for rulemaking.

Hearing Officers’ Recommendations: The hearing officers recommend one change to

Rule 0.501 (b)(2) in order to clarify that these procedures are to be used for adopting new

rules or amending or repealing existing rules.

Section .0600 Rulemaking Hearings

Comment: A few comments were received about rulemaking hearings and most were

focused on ensuring that the MEC conducted rulemaking hearings in an open and public

manner. One commenter expressed that delegating to the Director of DEMLR the ability

to conduct rulemaking hearings meant that the MEC doesn’t have to “face the public”

before voting on rules.

Response: Rulemaking hearings are public hearings that are designed to provide

opportunity for public comment on proposed rules. MEC deliberations are also public

meetings and conducted pursuant to the open meetings law pursuant to N.C. Gen. Stat.

143-318.10.

Section .0700 Hearings for Drilling Units, Variances, and Confidential Information

Comment: Several commenters questioned whether Rules .0701, .0702, .0703, .0704,

.0705, and .0706 excluded interested persons from participating in drilling unit or

variance hearings and requested direct engagement with surface owners, lease owners,

and others with an interest in the drilling unit or variance.

Response: These rules use the legal standard for intervention as the criteria for

determining whether an interested person can intervene in the proceeding. Both variance

requests and drilling unit requests will be heard at scheduled MEC meetings, which are

required to be held in accordance with the North Carolina public meetings laws. In

addition, the drilling unit rules (Rule .1202) require notice to surface owners and mineral

rights owners, as well as copies of surface use agreements. All of which provide

potentially interested persons with notice of the hearings.

Comment: Many comments focused Rules .0707, .0708, and .0709, which explain the

procedure by which information is granted confidential status, and most were in

opposition to any confidential status being granted for this industry. Some comments

requested a time at which confidential status would expire or directed the MEC to deny

12

confidential status if denied by another state. Others requested criteria for the award or

denial of confidential information status, a procedure for challenging the MEC’s

determination, and a penalty for falsely obtaining confidential information status.

Additionally, commenters requested that confidential information be released

immediately to a health care provider, fireman, policeman, EMT, or other first responder

during an emergency. One commenter asserted that the proposed rules exceeded the

MEC’s statutory authority.

Response: Session law 2014-4 establishes the procedure by which trade secrets and

confidential information are protected and disclosed. S.L. 2014-4 states that information

submitted to the MEC and the Department will be considered public information, unless

the holder of that information has satisfied the MEC that the information is entitled to be

protected as confidential information. Rules .0707, .0708, .0709 establish the procedure

and the information needed to make a showing to the MEC to protect information as

confidential. S.L. 2014-4 sets the procedure for appeal of the MEC’s decision with

respect to confidential information with the Business Court.

Section .0800 Preemption Hearing Procedure

Comment: Over 6,900 comments were received in opposition to any interference with

local government authority and in strong support of the preservation of local autonomy

and the need for local governments to address concerns that are specific to their

jurisdiction. Many of those comments were objections to preemption of local authority.

Others expressed support for local enforcement actions without violation of trespassing

laws. Commenters also expressed some confusion about the preemption hearing

procedure.

Response: The Local Government Regulations Study Group submitted its findings to the

N.C. General Assembly on Oct. 1, 2013. Among its recommendations, were several

recommendations in support of local government’s existing authority, including existing

zoning and land use authority. S.L. 2014-4 created new statutory authority for the MEC.

The new law prohibits local governments from exercising its authority in a manner that

prohibits the siting of wells, prohibits the use of horizontal drilling or hydraulic

fracturing, places restrictions on oil and gas exploration beyond those placed by statute,

or is in conflict with the oil and gas statutes. N.C. Gen. Stat. 113-415.1 (a) (2014). In

addition, S.L. 2014-4 grants the MEC the authority to determine whether to or to what

extent local government ordinances are preempted.

The proposed rules establish the procedure by which the MEC will implement its

mandate from S.L. 2014-4. Rule .0802 lists the minimum requirements for a complete

petition to preempt a local government ordinance. Rule .0803 explains how notice of the

preemption petition and public hearing will be given to the local government. The MEC

will conduct a special public hearing in the affected locality, including the opportunity for

citizens to comment. Rule .0808 sets the criteria that the MEC will use to make its

determination of whether an ordinance is preempted and, if so, to what extent.

13

Hearing Officers’ Recommendations: The hearing officers recommend several wording

changes in Rule .0802 and .0808. In Rule .0802, the hearing officers recommend

deleting the word “unreasonable” to ensure that health and environmental risks are fully

considered. In addition, the hearing officers recommend that all information that the

permittee has submitted to obtain federal or state permits be submitted, not merely

described, to the Commission in support of its compliance with federal and state law. In

Rule .0808, the hearing officers recommend a slight wording change to clarify that the

MEC also has the authority to determine that a local ordinance is not preempted and will

continue in effect.

Section .0900 Enforcement

Comments: Over 14,100 comments were received emphasizing the need for strong

enforcement and requesting stronger enforcement rules. Comments stated that the rules

are too reliant on self-inspection and self-correction. Other comments requested a defined

ratio of Department inspection staff to number of wells. Many comments requested joint

enforcement authority for local authorities and the Department.

Many of these comments focused on the violations and expressed concern that the rules

give too much discretion to the Department in issuing notice of violations, setting a

timeline for corrective action, and fail to provide adequate public notice for violations.

Many comments also identified stop work orders as a critical enforcement tool.

Response: The hearing officers agree that enforcement is a critical component of a

modern regulatory system. An effective enforcement program has sufficient staff and

funding. The Funding Levels and Potential Funding Sources Study Group presented its

recommendations to the N.C. General Assembly Oct. 1, 2013. In its report, the Funding

Study Group analyzed and recommended staffing levels for DEMLR and identified

specific personnel, equipment and training expenses. The report can be found at:

http://portal.ncdenr.org/c/document_library/get_file?uuid=f7ff4382-fe0a-4308-8a97-

82875f7dcb9e&groupId=8198095. The hearing officers support the Department’s fiscal

analysis and need for full staffing to implement this regulatory program.

As stated in N.C. Gen. Stat. 113-391 (a4), enforcement of violations is largely in the

Department’s discretion. The rules support the Department’s discretion in issuing notices

of violation in order to account for site-specific concerns and to allow the Department to

exercise its best professional judgment. The hearing officers agree that the authority to

stop work on a drill site is critical. The draft rules do provide a mechanism for getting an

injunction to stop work on a site. The rules do not, however, have an explicit stop work

mechanism. The Department has explicit statutory authority to issue stop work orders for

violations of the Sedimentation Pollution Control Act. No comparable authority has been

granted to the MEC or the Department for the regulation of oil or gas exploration or

development. N.C. Gen. Stat. 113-391 (a4) does provide that the MEC and the

Department may “issue orders as may be necessary [for the] enforcement of this Article.”

http://portal.ncdenr.org/c/document_library/get_file?uuid=f7ff4382-fe0a-4308-8a97-82875f7dcb9e&groupId=8198095


14

Hearing Officers’ Recommendation: The hearing officers agree that stop work authority

is a critical component of enforcement. In the absence of explicit statutory authority, it is

unclear that the MEC can propose rules to establish a stop work procedure. The hearing

officers recommend that stop work authority be added to the proposed rules as

subparagraph .901(g).

Section .1000 Civil Penalties

Comment: Over 6,900 comments were received on the civil penalties rules. Most of the

comments focused on the amount of penalties and recommended a consistent penalty

schedule, with a minimum penalty, to deter violations. Some comments emphasized the

need for the ability to impose criminal sanctions, including incarceration, on violators.

Others stated that remission of penalties is inappropriate for this industry and requested

that remissions be disallowed. A few commenters asked that notices of violations only be

sent via certified mail.

Response: N.C. Gen. Stat. 113-410 sets the penalty amounts for oil and gas exploration

and development. The maximum penalty is $25,000 per day per violation. The

Department may reduce the penalty amount in consideration of six factors explained in

N.C. Gen. Stat. 113-410 (c)(1). Because the penalty statue sets both the amount and the

factors to be considered in reducing a penalty, the proposed rules do not repeat the

statute.

The proposed rules do establish the process by which civil penalties can be remitted. Rule

.1004 creates the process for requesting penalty remission, but the remission factors and

the authority for remissions is set by N.C. Gen. Stat. 143B-293.6. The proposed rules do

not repeat the statutory provisions.

Section .1100 Exploration and Geophysical Surveys

Comment: There were 27 comments on this rule, with more than half writing that they

were unable to view the 15A NCAC 05C rule which is referenced in this new rule. The

remaining comments addressed the need for notification to surface landowners and local

governments.

Response: The North Carolina Administrative Code is available on-line at the N.C.

Office of Administrative Hearings website where the NCAC can be viewed be chapter

and section. Notification of surface owners, local governments, and state agencies is set

in state statute.

Hearing Officers’ Recommendation: Amend Rule .1100 to add the language “shall be

made”, therefore making all notifications as required by G.S. 113-420(b2).

15

Section .1200 Drilling Units and Well Spacing

Rule .1202 – Application for Drilling Unit Requirements

Comment: There were 87 comments on this rule, with concerns about forced pooling, the

need for a surface use agreement, additional geological and engineering data to

accompany the drilling unit application, defining the term “optimal and efficient

recovery”, notification, and the need for some of the required information to be prepared

by a licensed geologist or professional engineer.

Response: The hearing officers agree that including one or more surface use

agreement(s) in the required material for an application should be required. In addition,

information prepared by the applicant would likely be prepared by an officer or employee

of a petroleum company and would be exempt from the licensure for engineers or

geologists.

Hearing Officers’ Recommendation: Amend Rule .1202 to remove language “or pooling

orders” and add an additional subparagraph(10) which states “copies of surface use

agreement(s) or equivalent documentation.” to the list of required documents on an

application for the creation of a drilling unit or modification of an existing drilling unit.

Rule .1203 – Drilling Unit Public Notification Requirements

Comment: There were 22 comments on this rule, with most questioning the geographic

area in which the notification must be made.

Response: Additional language has been proposed to clarify those that are required to

receive direct notice.

Hearing Officers’ Recommendation: Amend Rule .1203 to add language to provide

direct notice to (1) all surface owners, (2) all local governments with the proposed

drilling unit, and (3) state, federal, or tribal agencies owning land with the area of the

proposed or existing drilling unit.

Rule .1204 – Denial or Modification of Drilling Unit Application

Comment: There were 23 comments on this rule, with ninety percent urging the factors

to modify a drilling unit be spelled out.

Response: Since all applications for a drilling unit or modification of an existing drilling

unit are brought before the full Commission, that body has the latitude to require

additional information from the applicant to use in their deliberations on the application.

Hearing Officers’ Recommendation: Amend Rule .1204 to add a third criterion “(3) the

surface use agreement or equivalent documentation fails to meet the requirements of the

rules in this subchapter”.

16

Rule .1205 – Well Spacing Requirements for Resources in Unconventional

Reservoirs

Rule .1206 – Well Spacing Requirements for Resources in Conventional Reservoirs

Comment: There were a combined 1,223 comments on these two rules. Over ninety

percent of the comments addressed the need to increase the well spacing from the drilling

unit boundary. The remaining nine percent addressed the variance to reduce the distance.

Response: The distance of 500 horizontal feet for unconventional and 200 horizontal feet

for conventional is consistent with the horizontal distance used by other states. In

addition, the requirements to reduce the distance by variance must meet or exceed the

existing protection of health, safety and the environment.

Hearing Officers’ Recommendation: Added “The variance, if granted, shall provide

equal or greater protection of public health, safety, and the environment” to both Rule

.1205(c) and .1206(c).

Section .1300 Permitting

Rule .1301 – Scope

Rule .1302 – Oil and Gas Operations Financial Responsibility Ownership

Comment: There were 5,183 comments addressing permitting overall. Some comments

are asking for a delay in issuing permits due to health and safety concerns. Others are

asking that requirements for road use maintenance agreements be required as part of the

permitting process. Some other comments question the ability of DENR to maintain

permitting records and to make those records available to the public. Comments

requested stricter permitting conditions numbered more than 95 percent of those

addressing permitting overall.

Response: In other rules in this section, thousands of comments were received which

were in favor of the draft permitting rules.

Rule .1303 – Oil and Gas Well Permit Application

Comment: There were 15,902 comments on this rule of which 15,888 (99.9%) were in

favor of the draft rule. Some commenters recommended that all compliance reviews be

limited to final determinations regarding exploration and production operations in the

United States within the past three (3) years. Different commenters suggested longer

periods of compliance history (i.e. 10 years) and that history should extend to

subcontractors working for industry (i.e. truck drivers). Other commenters asked for local

municipalities to be notified when permits were modified and still others opined that

foreign companies should not be allowed to operate in NC.

Response: N.C. Gen. Stat. 113-395.3 proscribes the five year time period for which an

applicant must provide its environmental compliance history. The MEC cannot change

that time period.

17

Rule .1304 – Contents of Oil and Gas Well Permit Application

Comment: Specific to this rule, only a handful of comments were received.

Response: During a review of the rules, the hearing officers reviewed letters from both

industry and environmental organizations. These detailed rule-by-rule proposed changes

were reviewed by the hearing officers and from that discussion over several days, the

issue of proppant dust management and mitigation, technical amendments to the well

construction design, and a road impact plan were discussed.

Hearing Officers’ Recommendation: Amend Rule .1304 to include a new item (a)(14) in

the list of permit application contents, which provides “an indication that the applicant or

permittee has a proppant dust management and mitigation plan.” In addition, under

(c)(1)(E) change the word “anticipated” to “planned”; insert a new (c)(1)(F) which reads

“the main design parameters for each casing string including the maximum anticipated

pressures, compressive and tensile loads and drilling or completion fluid density;”;

(c)(1)(new J) add the following phrase “and the pressure rating of each that is to be

installed before drilling out each casing string;”; (c)(8) insert “road impact” so that (8)

reads “ a road impact plan . . .”; and add a new (c)(13) which reads “(13) a plan that

manages and mitigates proppant dust.”.

Rule .1305 – Emergency Response Planning

Comment: Several of the general comments on this Section urged all chemicals to be

disclosed.

Response: In coordination with state emergency management and first responder

agencies, the MEC has briefed the leadership of those agencies on the draft rules. All of

these briefings occurred after the rule comment period. Those organizations are fine with

the requirements in this rule.

Hearing Officers’ Recommendation: To improve the grammar of Rule .1305, change (2)

from reading “the nearby location of occupied dwellings . . .” to “the location of nearby

occupied dwellings . . .”

Rule .1306 Fees

Comment: Over 4,980 comments were received that request the addition of impact fees to

allow for cost recovery for local communities. Commenters noted that impacts to roads

and infrastructure, the need for special training for emergency responders, and other

community impacts create a strong need for cost recovery by local governments. Many

commenters noted that the Potential Funding and Funding Sources Study Group

recommended a cost recovery mechanism and asked for that recommendation to be

implemented.

18

Response: The MEC does not have the authority to set impact fees. All fees are set by

statute. The Potential Funding and Funding Sources Study Group report sets out

recommendations for impact fee amount and a mechanism for disbursement. The report

can be accessed at: http://portal.ncdenr.org/c/document_library/get_file?uuid=f7ff4382-

fe0a-4308-8a97-82875f7dcb9e&groupId=8198095

Rule .1307 – Application Review Process



industry and environmental organizations. In order to comply with SL 2014-4, the

hearing officers added in language requiring that each permit application be reviewed by

the county and municipality in which the proposed permit is located. The permit

application will also be subject to a 30-day public comment period. Due to these

additional requirements, the hearing officers also recommend that the permit review

period be extended from 60 days to 90 days.

Hearing Officers’ Recommendation: Amend Rule .1307 to add a new (b)(10) to read

“The county and municipality in which the permit application is located”.

A new paragraph (c) states “(c) Public Notice. Public notice of receipt of a complete oil

or gas well application(s) submitted pursuant to this rule shall be given prior to permit

issuance.

(1) Such notice shall:

(A) be posted on the Division website;

(B) provide 30 days for public comments to be submitted to the Director;

and

(C) include the permit applicant;

(2) After the public comment period has ended the Director shall:

(A) consider the comments submitted; and

(B) post notice on the Division website as of the final permitting action.”

In addition, in new (e) 60 calendar days is to change to 90 days and the phrase “and

public comment received pursuant to paragraph (c) of this rule” inserted before the

existing text “. . . when approving, approving with conditions, or denying any

application.”

In the new (g) strike “On approval of an application, the” and replace with “The”.

Further in the new (g) strike “the performance bond” and replace with “the bond” and

strike “that is to be”, so that the new (g) reads “The Department shall set the amount of

the bond or other security required pursuant . . .”.

In the next sentence, strike “deposit” and substitute “provide”, strike “with” and insert

“instrument to”. That sentence would now read in part, “. . . notice to provide the

required bond or security instrument to the Department.”



19

In the last sentence of the new (g) strike the word “deposit” and substitute the word

“instrument”.

In the new (i) delete the word “approved”.

Rule .1310 – Permit Modifications




were reviewed by the hearing officers and from that discussion over several days, the

hearing officers recommend clarifying the rule.

Hearing Officers’ Recommendation: Amend Rule .1310 to add a third sentence under (a)

to read “The Department may review, approve, approve with conditions, or deny the

application for modification in accordance with the rules of this Section.”

Section .1400 Financial Assurance

General Section Comments:

Comments: Over 15,800 comments were received that generally supported the financial

assurance section and specifically supported the disturbed land bond and the well

plugging and abandonment bond. Approximately 300 comments were received in

opposition to the financial assurances rules. Many commenters expressed general

opposition to the financial assurances rule and recommended that operators be

responsible for the actual cost and for correcting any damage they cause. Most

commenters who expressed general opposition, however, commented on specific rules.

Those comments are summarized for each rule below.

Rule .1401 – Scope and .1402 – Bonding Requirements and Rule

Comments: Many comments recommended stronger standards for surety bonds and

letters of credit. In addition, many comments suggested that bonding should be done

largely in a cash deposit. Other comments suggested that a savings account should not be

allowed. Many commenters requested clarity about the Department’s internal procedures

for handling bonding.

Response: Rule .1401 and .1402 set out the bonding requirements, including the

acceptable instruments for any bond required by statute. The MEC does not have the

authority to require additional bonding outside that required by statute. The financial

assurance instruments allowed by the proposed rules are in keeping with instruments

required for other bonded industries in this state.

20

Rule .1403 – Oil or Gas Well Plugging And Abandonment Bond

Comments: Comments generally stated that the plugging and abandonment bond is

insufficient. Many commenters requested that the method for determining the bond

amount of $5,000 plus $1.00 per linear foot be put out for public comment. Other

comments asked the rules to set the bond amount at $50,000.00 plus $10.00 per linear

foot. Other comments noted that the current statutory requirement of $5,000 plus $1.00

per linear foot for well plugging is far less than many state programs or industry

estimates of ($80,000 or more) for routine closure assuming no well failure has occurred.

Response: The plugging and abandonment bond amount is set by N.C. Gen. Stat. 113-

378. The MEC does not have the authority to set the bond amount in the proposed rules.

Rule .1404 Disturbed Land Bond

Comments: Many comments noted that the disturbed land bond amount will not be set

until the “Reclamation Cost Table” is approved by the MEC. These comments opposed

the proposed rules because this cost table was not provided for public review. In addition,

many comments opposed the Department setting the amount of the disturbed land bond.

Other comments disagreed with a partial release of the disturbed land bond,

recommending instead that the entire bond be retained until the reclamation is complete.

One commenter, generally in favor of the rules, suggested a blanket bond to cover

multiple sites and the ability to combine all the bonds into a single bond.

Response: N.C. Gen. Stat. 113-421 (a3) requires the permittee to reclaim all surface areas

and to provide a bond sufficient to cover the reclamation of the surface owner’s property.

Bonding costs to reclaim all surface areas will vary by site and the statute authorizes the

MEC to set the amount of the bond. Further, the statute authorizes the MEC to request

information about the oil or gas exploration and development activities in order to set the

bond on a site-by-site basis. The MEC considered the most efficient method for setting

reclamation costs and determined that a cost recovery table would enable the MEC to

modify the table in response to rising remediation costs without amending the rule.

Rule .1405 Environmental Damage Bond

Comments: Most comments were supportive of this type of bond, but expressed that

$1,000,000 was insufficient to address the environmental damage associated with this

industry. Many comments also requested that the rules define “environmentally sensitive

area.”

Response: S.L. 2014-4 created the requirement for an environmental damage bond and

sets the amount. The MEC may increase, but not decrease the amount, for

environmentally sensitive areas. The proposed rules do not define environmentally

sensitive areas so that unique characteristics of an area can be considered in the

definition. Instead, the proposed rules identify factors that will aid the MEC in making a

21

determination of an environmentally sensitive area and setting an appropriate

environmental bond amount.

Rule .1406 Inspection and Approval of Reclamation or Bond Release or Forfeiture

Comments: Many comments opposed partial release of the disturbed land bond. Some

comments requested that local government staff be allowed to inspect the property prior

to release of the bond. Other comments requested that the surface owner approve the final

reclamation prior to release of the bond.

Response: This proposed rule establishes the procedure by which the reclamation plan

will be enforced and the circumstances pursuant to which the disturbed land bond will be

forfeited. During the development of the proposed rules, the MEC considered how to

connect the bond to the implementation of the reclamation plan.

Rule .1407 Bond Forfeiture

Comments: Many comments stated that the permittee should have less than 60 days to

take corrective action prior to bond forfeiture. Some comments requested that local

governments be included in the site reclamation process prior to release of the bond.

Response: The proposed bond forfeiture rules are substantially similar to those used by

the Department to enforce bonds for similarly situated industries.

Comments Requesting Other Bonds

Comments: Many comments requested additional bonds, including a worker safety bond

and bonding to address legacy issues.

Response: The MEC may only establish bonds for which it has been given explicit

statutory authority. The proposed rules have a bond for all categories identified by

statute.

Section .1500 Site Infrastructure and Construction Standards

Rule .1502 – Well Site Construction Standards

Comment: There were 45 general comments on site infrastructure and construction

standards. Comments agree with stock piling and re-using of topsoil. Other comments

recommended that DENR staff perform frequent and unannounced inspection of site

liners and that more specificity is needed with respect to inspections. Other comments

provided suggestions to include locations of occupied buildings, water wells, etc. on

plats. Others noted that either a Professional Geologist or a Professional Engineer should

be required to identify the seasonal high groundwater table and bedrock.

22

Response: During our review of the rules with the public comments, the hearing officers

also reviewed several letters from both industry and environmental organizations which

provided detailed rule-by-rule comment and proposed changes. During a series of day-

long group discussions, the hearing officers examined each of the proposed changes.

From a consensus, one of the proposed changes to the rule was made to make the rule

easier to understand.

Hearing Officers’ Recommendation: Amend Rule .1502 in (a)(10) by striking the word

“the” and substituting the word “proposed”. The revision reads “(10) a description of

proposed well site construction sequence and stabilization techniques”.

Rule .1503 – Access Road Construction Standards

Comment: There were 24 comments specific to access roads. Some commenters stated

that, “Since you are proposing that existing roads be used when feasible, you should

require the permittee to submit plans regarding how they will provide upkeep and

maintenance for these roads. It is one thing to keep them clear of mud and debris (and

that is appreciated), but it is quite another to have them repair pot holes caused by heavy

machinery and increased truck traffic, and those explicit plans should be required.”

Other commenters suggested verbiage requiring turn-around or pull-off sections within

access roads. Finally, one commenter stated, “The rule should be amended to add that

neither flowback water nor produced water should be used for dust suppression on dirt

access roads or other dirt roads, regardless of any surface use agreement to the contrary.”

Response: During our review of the rules with the public comments, the hearing officers

also reviewed several letters from both industry and environmental organizations which

provided detailed rule-by-rule comment and proposed changes. During a series of day-

long group discussions, the hearing officers examined each of the proposed changes.

From a consensus, one of the proposed changes to the rule, the elimination of the use of

existing roads for access put a potential hardship on a surface rights owner who does not

want to participate in oil and gas exploration or production being forced to share a private

driveway or unimproved road with heavy trucks without a surface use agreement with the

applicant or permitee.

Hearing Officers’ Recommendation: Amend Rule .1503 by striking (b)(1) which said

“(1) Existing roads shall be used as access routes when feasible”.

Rule .1504 Pit and Tank Construction Standards

Comments: Over 2,380 comments strongly requested that open pit storage be banned.

Many comments cited to the recent coal ash spill and flooding of waste storage pits used

for swine waste. Many comments proposed that pits only store water, rather than waste.

Many comments requested that waste storage be restricted to closed tanks and that tanks

have an interior liner for additional protection. Some comments suggested changes to the

proposed pit and tank construction rule to strengthen the standards if the MEC maintains

pits as storage containment in the proposed rules.

23

Response: Open pits can fail in a number of ways. Open pits are susceptible to flooding,

faulty construction, leaking liners or liner failure. The storage of exploration and

production waste in open pits can lead to air emissions adversely affecting air quality in

the surrounding area. In addition, pits can be a hazard to wildlife and migratory birds.

Other states, including Illinois, have restricted the storage of flowback waters to closed

tanks. Other states have restricted the use of pits. Additional examples of state regulation

of pits include:

Michigan allows pits to be used only for drilling fluids, muds, and cuttings; tanks

must be used for produced water, completion fluids, and other liquid wastes, and

in all areas zoned residential.

Mississippi allows temporary brine storage pits only if “no other means of storing

or disposing of salt water is available.”

Kentucky (among other states) distinguishes between the type of pit that may be

used to store flowback and produced fluids (holding pits) versus that which may

be used for other drill fluids, such as drilling muds (drilling pits).1

Many states allow the use of modular tanks, which is an aboveground tank that is field

assembled and used to support a synthetic liner for containment of fluids. The MEC had

extensive discussions about pits and modular tanks, ultimately deciding to propose liquid

containment be in either pits or permanent tanks. The proposed rules require all liquid

containment to be in either lined pits and tanks constructed to API permanent tank

standards. The hearing officers, however, agree that regulation is moving towards

differentiating containment based on the source, i.e., that different types of vessels should

be designed and regulated for specific liquid containment. For example, it may be

environmentally protective to store fresh water in lined pits. Flowback water, however,

may need to be contained in a closed tank with secondary containment. The hearing

officers recognize that significant research and restructuring of this rule is necessary in

order to develop a new standard. In addition, the hearing officers agree that strengthening

the existing rule is necessary to address concerns specific to North Carolina.

Hearing Officers’ Recommendation: The hearing officers recommend two changes to the

pit construction standards: (1) Freeboard is recommended to be three feet (2) Increased

monitoring of the liner and leak detection system. The hearing officers recommend three

changes to the tank construction standards: (1) the addition of a fiberglass tank standard

(2) additional construction standards to more easily detect leaks in tanks (3) requiring an

impermeable material below tanks to decrease impact if leaks occur. Finally, the hearing

officers recommend clarifying the variance standard to require that, at a minimum,

variances to pit and construction standards, provide equal or greater protection of the

environment.

1 Richardson, Nathan, et.al., The State of State Shale Gas Regulation, (Washington, DC:

Resources for the Future, 2013)

24

Section .1600 Well Construction and Completion

Rule .1601 Setback Distances

Comments: Approximately 2500 comments were received that disagree with the

proposed setbacks. Most of the comments proposed alternative distances, although some

noted that no setback would be completely safe. Most comments proposed setbacks that

would increase the setbacks to 1,000 feet. Many comments also noted additional setbacks

that should be required. For example, some comments noted that the proposed rules

failed to establish a setback from Sherron Harris nuclear plant, landslide prone areas,

geologic faults, agricultural buildings, and livestock areas. Some commenters requested

that the setbacks be measured from the edge of pad disturbance rather than from the

production facility, pit, tank, or tank battery. Some comments noted that the rules do not

address vertical separation distances and recommended that a vertical setback

requirement be established.

15,889 comments that generally support the setbacks were also received.

Response: The proposed rule sets a series of setbacks from five categories of features: (1)

occupied dwellings; (2) edge of public roads or right-of-ways; (3) streams and other

surface waters; (4) intermittent streams; (5) public or private water wells. In developing

the proposed rules, the MEC considered a variety of features and the likely risk from oil

or gas exploration and development. As the MEC noted, any setback distance is

somewhat imprecise; current science does not support specific setbacks. Many

commenters included scientific, peer-reviewed studies or media reports that identify risks

to public health from air emissions, groundwater contamination, and explosive risk at

distances beyond the setbacks established by the proposed rules.

The proposed setbacks are within the midrange of setback provisions that other states

have adopted. For example, Illinois,2 Michigan,

3 North Dakota,

4 and Wyoming

5 have

minimum setbacks of 500 feet from occupied dwellings. Maryland6 and Colorado,

7

however, have 1,000 feet setbacks, which is greater than the proposed 650 feet. States

also have wide ranges of setbacks from water supplies, including Michigan, which varies

its setbacks between 800 and 2,000 feet depending on the type of water supply.8

Hearing Officers’ Recommendations: The comments identify significant public concern

about the sufficiency of the setbacks. The hearing officers considered the significance of

2 225 ILCS 725 and 62 Ill. Adm. Code 240

3 Mich. Admin. Cd. § 324.201.

4 N.D. Cen. Cd. 38-08-05(2).

5 3 Wyoming Cd. §22(b).

6 Maryland C.O.M.A.R. § 26.19.01.09(g)

7 Col. O.G.C.C.R. § 604(a).

8 Mich. Admin. Code r. 324.301(b)(5).

25

the public concern, the proposed setbacks, and the current range of setbacks applied in

other states. The hearing officers acknowledge that a great deal of uncertainty underpins

the policy decisions in setting setbacks. The hearing officers agree that additional

research is necessary to identify environmental and public health impacts and determine

whether setbacks or other regulatory mechanisms are effective in addressing those

impacts. The hearing officers are recommending only one amendment of the proposed

rules at this time. The hearing officers recognize that the surface water category does not

distinguish surface waters that serve as drinking water supplies from other surface waters.

Many comments identified a concern about protecting drinking water supplies, in

particular. The hearing officers agree that municipal drinking water supplies warrant

additional protection and propose amending the proposed rule to include the following

language:

The permittee shall ensure a minimum setback of 1500 feet downgrade from each

oil or gas well, tank, tank battery, pit, or production facility to the edge of any surface

water impoundment that serves as a municipal drinking water supply or to the edge of

any river upstream of a municipal drinking water supply point having a drainage area

greater than 140 square miles.

The hearing officers also propose to amend the setback rules to clarify that measurement

points for surface water features should be from “nearest point of the most landward limit

of the normal water level or the rooted herbaceous vegetation.”

The hearing officers recommend two changes for clarity to ensure that production

facilities are appropriately considered in establishing setbacks and to emphasize that local

authority is not preempted by this rule, subject to the new preemption statute.

Rule .1602 Production Facility Safety Setback Distances

Comments: Two comments expressed concern that the facility setbacks and setbacks

between tanks were insufficient.

Response: The production facility setback distances are based on best practices.

Rule .1603 Variances for Setbacks

Comments: Comments generally opposed the use of variances for setbacks. Some

comments noted that some surface users, such as renters, would not have sufficient notice

and would be unable to oppose shorter setbacks for occupied dwellings.

Response: The hearing officers recommend changes to clarify that all variances must

provide equal or greater protection of public health, safety, and the environment.

26

Rule .1604 Diesel Fuel Use

Comments: Comments across the rule set identify BTEX contamination of surface and

ground water as one of the most significant public concern. Comments on Rule .1604

recommend clarifying the proposed rule to ensure that BTEX chemicals are prohibited

rather than just diesel fuels. Some commenters noted that confusion may arise from

incorporating the EPA guidance by reference.

Response: The proposed rule relies on EPA’s document “Permitting Guidance for Oil and

Gas Hydraulic Fracturing Activities Using Diesel Fuels,” which was finalized February

5, 2014. The memorandum attached to the guidance document explains that by

prohibiting the five CASRN associated with diesel fuels, the EPA is addressing concerns

about benzene, toluene, ethylbenzene, and xylene (BTEX) compounds in hydraulic

fracturing fluid. The hearing officers agree that additional wording is necessary to clarify

the MEC’s intent to prohibit BTEX in hydraulic fracturing fluids drilling fluids.

Hearing Officers’ Recommendation: The hearing officers recommend that a new

paragraph (c) be added to Rule .1604 that prohibits any BTEX constituent from being

used in the formulation of fracturing fluids and drilling muds. In addition, the hearing

officers recommend changing the title to “Prohibited Chemicals.”

Rule .1605 – Casing and Equipment Requirements

Comment: Specific to this rule, only a handful of comments were received. Some

comments expressed concern that oil or gas wells will fail. Other comments were

technical in nature and suggested specifics for casing off corrosive zones, pricing of API

documents, and recommendations for modifying well integrity testing. 15,888 comments

expressed support for the current (draft) rules related to well construction and

completion.

Response: During a review of the rules, the hearing officers reviewed several letters

from both industry and environmental organizations. These detailed rule-by-rule

proposed changes were reviewed by the hearing officers. Following a group discussion,

over several days, of each proposed change were examined. From a consensus, a

proposed change to the rule was made.

Hearing Officers’ Recommendation: Amend Rule .1605 and insert the phrase “or exceed”

after the word “meet” in (a). The revision reads (a) “All casing and tubing installed in oil

or gas wells shall be steel, steel alloy, or other material that has been manufactured to

meet or exceed the American Petroleum Institute (API) standards.”

Rule .1609 – Well Installation for Surface Casing

Comment: One comment stated that requirements for inspection and testing of well

casings did not exist in the rules. Other comments addressed technical aspects of casing

cementing, with recommendations for “bottom to top” cementing and requests for the

27

rule section to be re-written to reflect Pennsylvania’s rules. Comments mostly expressed

concern about wells lacking construction integrity, leaking casing, and groundwater

contamination due to oil or gas wells.



proposed changes were reviewed by the hearing officers. During a series of group

discussion over several days, the hearing officers examined each of the proposed

changes. From a consensus, several proposed changes to the rule were made.

Hearing Officers’ Recommendation: Amend Rule .1609 to strike the word “uniform” and

insert the phrase “with return to surface” in paragraph (b). The revision reads “(b)

Surface casing shall be cemented from bottom to top with return to surface.”

In (c)(3) strike the phrase “. . . , completion, and production” and insert the phrase “to the

next planned casing setting point” after the word “operations”. The revision reads “(3)

contain pressures and fluids from subsequent drilling operations to the next planned

casing setting point.”

Rule .1610 – Well Installation for Intermediate Casing

Comment: Some commenters suggested that intermediate casing be mandated for all

wells. Other commenters expressed concern about leaking of contaminants due to

insufficient casing practices. Still other comments provide information for proposed

technical language for rule updating.






Hearing Officers’ Recommendation: Amend Rule .1610 to strike the word

“unanticipated” in paragraph (2) so that the revised phrase reads “if used to mitigate

geologic hazards, such as heaving shale . . .”

In addition, insert the phrase “across such hazards and from” between the phrases

“cemented from” and “the bottom to” in paragraph (2).

In (8) change the word “operation” to “operational” and add the word “parameters” after

“operational”.

28

Rule .1613 – Well Stimulation Requirements

Comment: Most comments propose technical corrections to the rule text. Other

comments express concern about notifying residents of groundwater contamination

caused by stimulation, resulting remedial action, and silica dust.





changes. From a consensus, two proposed changes to the rule were made.

Hearing Officers’ Recommendation: Amend Rule .1613 to insert the word

“immediately” in paragraph (f) and the phrase “and the Department shall be notified

within 24 hours of the occurrence of an excess pressure”. The revision reads “The well

stimulation treatment shall be immediately terminated if the pressure exceeds the limits

set in Subparagraphs (f)(1) through (f)(3) of this Rule and the Department shall be

notified within 24 hours of the occurrence of an excess pressure.”

In (g)(2) strike the word “slurry” and insert the word “fluid”. In addition, insert the word

“/injection” after the word “pumping” and change the word “rate” to “rates”. The

revision reads “(2) fluid pumping/injection rates in barrels per minute (BPM);”.

Rule .1614 – Wellhead Requirements

Comment: Comments address suggestions for performing site inspections, as well as

recommendations for check valve requirements. Other comments suggest requirements

for vapor recovery, as opposed to flaring.






Hearing Officers’ Recommendation: Amend Rule .1614 to insert the word “production”

in (a) so that the line reads “(a) All production wellhead assemblies . . .”

In (b) insert the word “other” so that the line reads “(b) All other wellhead assemblies

shall be . . .”

In (c) strike the word “no” and the phrase “is able to” and insert the words “does not”

before the word “leak”. The revision reads “(c) All oil and gas wells shall be equipped so

that oil, gas, or condensate does not leak.”

29

In (d) insert the sentence “The Christmas tree shall also be similarly equipped to allow

pressure monitoring of the production tubing.” at the end of the paragraph.

In (g) insert the phrase “in the flowline downstream of the Christmas tree” after the word

“install”. The revision reads “(g) A check valve shall be installed in the flowline

downstream of the Christmas tree to prevent the return of fluids into the oil or gas well.”

Rule .1615 – Well Site Maintenance and Security

Comment: Most commenters stated that variances for well site security and maintenance

should not be allowed. Others expressed concern about noise levels, fencing

requirements, and locking requirements.





changes. From a consensus, two proposed changes to the rule were made.

Hearing Officers’ Recommendation: Amend Rule .1615 in paragraph (i) by inserting the

phrase “of this Subchapter” after the phrase “in accordance with Rule .0301”. The

revision reads “. . . may grant a variance to the permanent fencing requirements in

accordance with Rule .0301 of this Subchapter.”

In (j) strike the word “valves” and insert the phrase “valves controlling the flow of

production”. The revision reads “(j) All gates, electrical boxes, and valves controlling the

flow of production fluid for a site under production shall be locked unless in use, under

repair, or if the permittee . . .”

Rule .1616 – Well-Control and Blowout Prevention

Comment: Comments expressed concern over proper notification of emergency

management officials. Additionally, one comment suggested the following rule text,

“The permittee will provide a detailed description of any oil or gas blowout event and

emergency measures taken, including timelines.






Hearing Officers’ Recommendation: Amend Rule .1616 add a new paragraph (e), revise

paragraph (old e) to (new f), add a new paragraph (g), and reordering the other two

paragraphs in the Rule to the letter (h) and (i).

30

The new paragraphs are:

“(e) A diverter system will be installed while drilling the surface casing wellbore in

geographic areas that have not yet been drilled unless waived by the Department based on

prior drilling data that confirms shallow gas and other drilling hazards are not present.”

“(f) If drilling with air or drilling to formations where the expected reservoir pressure

exceeds the weight of the drilling fluid column, a rotating diverter system shall be

installed to divert any wellbore fluids away from the rig floor to a pit or tank at least 80

feet from the wellbore.”

“(g) All diverter systems shall be maintained in effective working condition and shall be

function tested when installed and at regular intervals during drilling operations. There

must be two diverter control stations, one on the drilling floor and one located at a safe

distance and readily accessible from the drilling floor. No well shall continue drilling

operations if a test or other information indicates the diverter system is unable to function

or operate as designed.”

In addition (a)(3) has the phrase “as required in (1) above” inserted after the word

“tested” and a new sentence “The BOP shall be retested as required in (1) above prior to

drilling the cement plug in each subsequent casing string” added to the end of that

subparagraph.

Finally, in (a)(4) the word “daily” is changed to “weekly”.

The revision of the two subparagraphs reads as:

“(3) the BOP shall be installed and tested as required in (1) above prior to

drilling the surface-casing cement plug. The BOP shall be retested as

required in (1) above prior to drilling the cement plug in each subsequent

casing string;”

“(4) during drilling operations, the shear-ram BOP shall be tested by closing

the BOP at least once weekly in open hole conditions; the annular BOP

shall be tested by closing on the drill pipe at least once each week;”

Rule .1617 – Visual Impact Mitigation

Comment: One comment asked about standards for noise, traffic, and odor.





changes. From a consensus, one proposed change to the rule was made.

Hearing Officers’ Recommendation: Amend Rule .1617 paragraph (a) insert the word

“or” between the words “berm” and “tree” in paragraph (a). The revised sentence reads

“(a) The permittee shall mitigate visual impacts using visual screening. Visual screening

shall include existing natural vegetation, vegetated earthen berms, or tree plantings at

staggered spacing to be installed and . . .”

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Rule .1618 – Requirements for Permanent Closure of Oil and Gas Wells

Comment: Multiple commenters noted that .1618 seems to require a drilling rig on

location until a non-producing well bore has been plugged and abandoned. These

comments noted that doing so is impractical. Other commenters expressed concern with

methane leaking from abandoned wells. Still another commenter noted, “15A NCAC

05H .1618 (h): Cutting off well casing three feet below ground elevation seems very lax.

Subsequent land users or their equipment could easily be injured/damaged by

steel/concrete well casings left in the ground.”






Hearing Officers’ Recommendation: Amend Rule .1618 by inserting the word “Parts” in

(g)(5) before the phrase “(g)(4)(A) through (g)(4)(D)”and the word “Part” before the

phrase “(g)(4)(A) of this Rule”. In addition in (g)(6) by inserting the word “Parts”

before the phrase “(g)(4)(A) through (g)(4)(D)”.

In (h) insert the phrase “a minimum of” between the words “off” and “three”. The

revision reads “(h) All casing remaining in the wellbore shall be cut off a minimum of

three feet below ground surface.”

In (k) strike the phrase “wellheads shall be disconnected from gathering lines” and insert

the phrase “flowlines shall be flushed with freshwater and the ends of the lines shall be

capped and buried at least three feet below the ground surface.” The revision reads: “(k)

All flowlines shall be flushed with freshwater and the ends of the lines shall be capped

and buried at least three feet below the ground surface”.

Rule .1619 – Notification and Reporting Requirements for Permanent Closure of Oil

or Gas Wells

Comment: Comments included suggestions of notifying local governments when a well

is permanently closed, identify other abandoned wells, and confusion over the submission

of Form 11.






32

Hearing Officers’ Recommendation: Amend Rule .1619 in (a)(6) insert the word “that”

after the word “casing” and insert the phrase “and depth below ground surface at which it

will be cut” after the word “wellbore”.

The revision reads “(6) identification of casing that will be removed from wellbore and

depth at which it will be cut;”.

In (d)(g) insert the word “the” after the phrase “was removed from” and insert the phrase

“and the top of each casing string remaining in the wellbore”.

The revision reads “(6) the length and type of casing that was removed from the wellbore

and the top of each casing string remaining in the wellbore”.

Rule .1620 – Requirements for Shutting-In Oil or Gas Wells

Comment: No comment was received specific to this rule.

Response: During the rule by rule review of Chapter, the hearing officers identified

places where the rules reference other rules. One such change was need in this Rule.

Hearing Officers’ Recommendation: Amend Rule .1621 paragraph (f) insert the phrase

“Rule .2201(j), (k) and (l) of this Subchapter” between the phrases “in accordance with”

and “and submit the test”.

Rule .1621 – Requirements for Temporary Abandonment of Oil or Gas Wells

Comment: Only a handful of comments were made on this Rule.






Hearing Officers’ Recommendation: Amend Rule .1621 by striking the word

“completed” and substituting the word “constructed”. Also amend by striking the phrase

“equipped with a wellhead according Rule .1614 of this Section and are”. Insert the

phrase “completed immediately after being drilled but may be” before the phrase

“capable of production”.

The revision reads “(a) Oil or gas wells that are constructed according to Rule .1607 of

this Section, but are not completed immediately after being drilled but may be capable of

production may be temporarily abandoned in accordance with this Rule.”

Paragraph (c) “(c) Oil and gas wells shall be temporary abandoned according to Rule

.1618(g)(4)(A) – (D) of this Section for vertical wellbores and Rule .1618(g)(5) of this

33

Section for horizontal wellbores” is proposed to be deleted since Rule .1618 is for

permanent closure.

Rule .1624 – Well Stimulation Report

Comment: Specific to this rule, only a handful of comments were received. Comments

expressed concern over the timing of well stimulation reports, the reporting of annulus

pressures, and the calibration of stimulation models.



proposed changes were reviewed by the hearing officers and from the discussion of each

proposed change over several days; proposed changes to the rule were made.

Hearing Officers’ Recommendation: Amend Rule .1624 by striking the word

“stimulating” and inserting the phrase “the conclusion of stimulation operations on” in

(a). the revision reads (a) “Within 30 calendar days after the conclusion of stimulation

operations on an oil or gas well, the permittee shall submit Form 18 – Well Stimulation

Report . . .”.

Section .1700 Chemical Disclosure

Comments: Over 15,880 comments were received supporting the chemical disclosure

rules, including using the FracFocus website, the confidential information protection

provision and the statutory process for disclosing confidential information to state

agencies and emergency personnel.

Over 940 comments in opposition to the chemical disclosure provisions were received.

Many of these comments strongly requested that North Carolina require full disclosure,

with no trade secret protections, of all chemicals in the fracking fluid and drilling mud.

Many comments also disagreed with the use of FracFocus as a disclosure database and

cited to the studies finding that FracFocus is does not provide consistent reporting, it does

not aggregate data, and that the records can be amended multiple times without oversight.

Many comments also addressed disclosure to emergency or health personnel. Many

comments recommended removing the confidentiality agreement for health care

providers and emergency responders. Many comments also opposed the criminal penalty

for disclosure.

Response: The MEC is prohibited from requiring disclosure of confidential information.

The exemption for confidential information is statutory and the proposed rules comply

with all relevant statutes. Elimination of the confidential information provisions would

need to occur legislatively, and not through rules. In addition, the disclosure of

confidential information, including the requirement for confidentiality agreement, to the

Department, Division of Emergency Management, treating health care providers, and

Fire Chief is also established by statute. The proposed rules describe the procedure for

34

disclosing all non-confidential chemicals in hydraulic fracturing fluid. The proposed rules

require disclosure both to FracFocus and identical disclosure to the Department.

Hearing Officers’ Recommendations: The hearing officers recommend using its previous

definition for health professional to define “treating health care provider.” The hearing

officers also recommend adding a requirement to submit a copy of the FracFocus

submittal to the Department as part of the chemical disclosure requirements.

Section .1800 Environmental Testing

General Comments on Section

Comments: Many comments focused on the burden to water supply owners of the testing.

Comments noted that water supply owners should not have to contact a certified

laboratory to schedule testing. Other comments expressed confusion about whether the

operator was responsible for paying for the testing. Some comments recommended that

groundwater-monitoring wells be installed at no greater than 50% of the setback distance

from the gas wellhead to water wells.

Over 15,880 comments generally supporting the environmental testing rules were

received.

Response: The environmental testing requirements, including the testing frequency,

testing distance are set by statute.

Rule .1802 – Water Supply Testing Notifications

Comments: Many comments were received that indicated a lack of clarity as to whether

the operator is required to pay for the testing and whether the water supply owner was

responsible for contacting a certified laboratory to arrange the testing.

Response: The proposed rule did not clearly set forth the statutory requirements for the

process and payment of costs.

Hearing Officers’ Recommendations: The hearing officers are recommending language

changes that reflect the statutory requirement that operators pay for the costs of testing

and that water supply owners only waive the presumptive liability provisions by refusing

access to the contract water supply tester. In addition, the hearing officers recommend

that the statement that water supply owners contact the certified laboratory be removed.

To address concerns about test results that indicate an immediate hazard, the hearing

officers are recommending language that requires immediate notification of the

Department, local health director, surface owner, and owner of the water supply if

methane, BTEX, or TPH is found.

35

Rule .1803 – Water Supply Testing Procedures

Comments: Many comments in opposition to the proposed rules stated that the testing

frequency should address the possibility of long-term contamination. Many comments

also requested that all underground water sources be tested. Many comments also

proposed expanding the testing distance from within one-half mile to five miles of the

proposed wellhead and along the proposed horizontal wellbore.

Response: The testing distance is set by statute and the MEC does not have the authority

to alter that distance by rule. Also, the revised statute requires testing “within 30 days

after completion of production activities at the site,” which should include testing after

the well is removed from production.

Rule .1804 – Request for Investigation of Water Supply

Comments: Many comments noted that the permittee should be responsible for all

expenses and coordination of water supply testing. Other comments requested that Rule

.1804 be clarified to require a replacement water supply to be of the same quantity as the

previous water supply and to require replacement in perpetuity.

Response: Please see the response for Rule .1802 to see the recommended changes for

clarity. N.C. Gen. Stat. 113-421 (a5) requires replacement water supplies to “be adequate

in quantity and quality.” The MEC does not have the authority to change this standard.

Rule .1805 – Reporting of Test Results

Comment: Some comments requested that all hydraulic fracturing wells within 2000 feet

of a contaminated well stop operations immediately and permanently if any exceedance

of the maximum contamination levels are reported. Other comments requested that the

timeframe for reporting be reduced from 30 days to 15 days.

Response: Please see the response and recommended changes for Rule .1802.

Rule .1806 – Record Keeping and Reporting

Comment: Some comments requested that all records be available for public review and

that test results be submitted within 15 days of sampling.

Response: The proposed rules require the Department to make the results available to the

public within 30 days of the Department’s receipt of the results. Results will be submitted

directly to the surface owner and the owner of the water supply.

Rule .1807 – Tracer Technology

Comment: Some comments noted that tracers may give a false sense of security and

recommend that tracers not substitute for groundwater monitoring.

36

Response: The proposed rule limits the use of tracers to providing evidence that a

particular well caused or contributed to an exceedance of water quality standards. It is not

proposed to be used as a substitute for the environmental testing required by this Section.

Section .1900 Water Acquisition and Management

Comment: Over 1300 comments requested more stringent water management rules that

limit water withdrawals and mandate coordinated plans for the industry. A representative

comment states, “Fracking uses an incredible amount of water and poisons habitats,

making it one of the greatest threats to animal and plant life. But the proposed rules allow

groundwater withdrawal to dangerous levels and don’t require gas developers to provide

an accounting of water being withdrawn.” Many comments also stated that the rules do

not require reporting of total water being withdrawn from groundwater and surface water.

In addition, many comment identified cumulative withdrawals as a significant concern.

Response: The proposed rules require the permittee to develop a water management plan.

The water management plan includes identification of all surface, ground or reuse water

supplies, including the proposed total withdrawals. The permittee must work with the

Department to document the surface and ground water sources. Withdrawals from surface

water sources are prohibited if the affected reach flows are at 7Q10 levels. Withdrawals

from ground water sources are prohibited during droughts designated as D3. The

permittee is required to report all water use annually, in addition to the water use that is

required by other reporting requirements in this rule. Rule .1906(a) and (b) require the

permittee to monitor and record daily usage by requiring the permittee to report the

monthly totals (daily average, daily max, and number of days). The hearing officers do

not recommend changes to this rule at this time.

Section .2000 Oil and Gas Site Exploration and Production Waste Management

General Comments on Section

Comments: Over 2000 comments were received requesting the MEC ban the surface

discharge of treated wastewater. The comments noted that North Carolina lacks water

quality standards for most of the contaminants found in flowback fluid. Most of these

comments also requested that the Department decline to issue permits until an existing

facility that can process the waste is up and running. Many comments requested that

waste be prohibited from being transported to any facility that will discharge a

contaminant listed by the federal government as a known or suspected carcinogen,

teratogen, toxicant, or endocrine disrupter. In addition to the concerns about the adequacy

of existing E&P waste facilities, many comments also requested stronger record keeping

or manifest provisions to more accurately track the waste generated and its treatment and

disposal. Some comment identified challenges with disposal of radioactive waste and

requested that all waste be tested for levels of radioactivity. Many comments also

requested an explicit ban on importing waste from other states.

37

Response: Effective treatment and disposal of waste is an essential component of a

regulatory framework. Across the country, waste is treated, disposed of, or reused. The

proposed rules encourage reuse through both the water management plan and the E &P

waste rule. For treatment and disposal, one method commonly used in other states is deep

well injection. Deep well injection of waste is prohibited in NC and the MEC supports

this ban. The remaining treatment facilities are regulated by the Environmental

Management Commission pursuant to federal statutes including the Clean Water Act.

Direct discharges of untreated waste to surface waters from oil and gas exploration and

development must have an NPDES permit, which is issued by the Division of Water

Resources. If wastewater or flowback fluids are taken to treatment facilities, the waste is

subject to the general pretreatment regulations (40 CFR Part 403). All NPDES permits

must include technology based effluent limitations, which are set by EPA. EPA prohibits

any user of a POTW to introduce a pollutant that will cause pass through or interference,

which are defined by EPA. In addition, no facility may discharge in violation of any

pretreatment standard. Wastewater may also be disposed of at centralized waste treatment

facilities. The technology-based standards for centralized waste treatment are set by EPA

at 40 CFR Part 437. EPA has developed a guidance document that explains the federal

regulation. It is titled “Attachment to memorandum from James Hanlon, Director

of EPA’s Office of Wastewater Management to the EPA Regions titled, “Natural Gas

Drilling in the Marcellus Shale under the NPDES Program” and can be found at

http://www.epa.gov/npdes/pubs/hydrofracturing_faq.pdf EPA is currently revising the

effluent limit guidelines for onshore oil and gas. The revised regulations are expected in

2015.

The hearing officers share the commenters concerns that effective treatment is necessary

for proper disposal of E &P waste.

Rule .2002 – Exploration and Production Waste Management Plan Requirements

Comments: Most comments on this rule requested a full description of the waste stream

onsite and the transportation plan for offsite transport, including types of containers and

decontamination processes. Comments on this rule also requested that this plan be

available for public comment and posted for public viewing.

Response: The hearing officers recommend clarifying language to request the

methodology for reusing or pretreating E&P wastewater onsite.

Rule .2003 – Exploration and Production Waste Disposal

Comments: The comments received for this rule request that a full waste characterization

be performed on all wastes that disposed of off-site. Most comments also requested that

the shipping manifests of the wastes be maintained and made available to audits by the

state. Comments also addressed transportation of the waste and requested that during

http://www.epa.gov/npdes/pubs/hydrofracturing_faq.pdf

38

transport of waste that all waste containers are clearly labeled. Other comments requested

explicit allowance of facilities to reject the waste and not be forced to receive it.

Response: The hearing officers recommend a minimum testing frequency for the waste

characterization. At a minimum the waste shall be tested before leaving the site for

treatment. The hearing officers also agree that a few key constituents are missing from

the waste characterization list and recommend adding total organic carbon, volatile

organic carbon, and semi-volatile organic carbon.

The hearing officers also recommend language that requires a facility to have treatment

technology that has demonstrated effectiveness for treating the constituents of the waste

stream as determined by the waste characterization.

Rule .2004 – Pit Closure Requirements

Comments: Most of the comments on this rule requested additional monitoring of the

reclaimed area to ensure that the vegetation survived. Other comments identified changes

to the technical standards related to the removal of the liner, location of the liner and soil

to be disposed of, and the concentrations of contaminants.

Response: The hearing officers recommend that the language is clarified that all

freestanding liquids must be removed and properly disposed of prior to closing the pit.

Rule .2005 – Spills and Releases of E & P Waste

Comments: Approximately 645 comments were received on this rule. Most comments

requested that all spills regardless of size be reported and the cause of the spill

determined and corrected. Many comments also requested public and emergency

notification of any spills.

Response: The hearing officers are not recommending any changes to this rule. The spill

reporting requirements in this Rule have a smaller quantity threshold that requires

reporting than the federal Emergency Planning and Community Right-to-Know Act, the

Comprehensive Environmental Response, Compensation, and Liability Act, the Resource

Conservation and Recovery Act. Under the federal Clean Water Act, the State can set

lower reporting thresholds.

Rule .2006 – Safety and Security at Pits and Tanks

Comments: Comments on this rule focused on the procedure to protect birds and wildlife

from open pits. Some comments noted that pits should be banned if they pose a hazard to

wildlife.

Response: The hearing officers recommend clarifying the language so that netting is

required for E &P waste pits and open tanks. Also, inspections are required regardless of

the type of netting or screening used.

39

Rule .2007 – Monitoring and Reporting

Comments: Comments requested that any impairment of a pit or tank be reported to the

Department within 12 hours and that all reports should be made available to the public.

Also comments recommended requiring the permittee and the Department to retain all

records for 25 years.

Section .2100 Reclamation

Comments: Over 15,880 comments in support of the reclamation rules were received. A

small number of comments in opposition were also received. The comments in

opposition expressed concerns about how and when reclamation is required, the potential

loss of property value, and the potential impact to adjacent property. Many comments

included recommendations such as the implementation of surface use agreements,

increasing the length of time for the Department to monitor the site, and addition soil and

water testing requirements prior to release of the site.

Response: The reclamation rules, as currently written, are in line with the best practices

of industry in other oil and gas producing states and other industries in this state. The

rules leave room for the permittee and the landowner to negotiate how the land will be

returned to the landowner once production ceases. The landowner has the option to have

their land returned to the original condition, or to have the permittee leave certain

items/structures for use. In many other states the landowners retain the haul roads and

well pad areas for their own use

Section .2200 Operation and Production

Rule .2201 – Operations and Production Requirements for Oil and Gas Wells

Comment: There were 35 comments on this rule, including the frequency of meter

calibration testing and site inspections be increased, department staff should complete

required inspection and not the permittee, clarification on diagnostic testing and failed

mechanical integrity testing, and hydrogen sulfide is not addressed.

Response: The required annual meter calibration testing is from the American Petroleum

Institute (API) national standard. Increasing the testing to quarterly increases the number

of calibration test by four-fold. Self-inspection is the cornerstone of safe oil and gas

operations. Requirements from state and federal occupational safety agencies require site

and safety inspections in addition to those required under this rule. Testing for hydrogen

sulfide at a worksite is addressed more adequately by the state occupational safety

agency.

During a review of the rules, the hearing officers reviewed several letters from both


were reviewed by the hearing officers and from that discussion over several days,

proposed changes in the rule were made.

40

Hearing Officers’ Recommendation: Amend Rule .2201 in paragraph (i) by inserting the

phrase “adjust, repair, or” after the word “shall”. In addition, strike the word

“appropriately” and insert after the word “test” the following phrase “with a calibrated

meter.” Paragraph (i) should now read “The permittee shall adjust, repair, or replace any

meter that fails an annual meter calibration test with a calibrated meter.”

In paragraph (o) insert the phrase “of the cessation of production.” after the phrase

“within 30 calendar days”. Further, in (o)(1) insert the phrase “the production packer or”

after the phrase “set at 100 feet or less above” and insert the phrase “if the production

tubing has been removed;” after the phrase “the highest perforations”. The revision now

reads “(1) isolate the wellbore with a bridge plug, set at 100 feet or less above the

production packer or the highest perforations if the production tubing has been

removed;”.

In (o)(2) insert the phrase “production tubing, or casing if the tubing has been removed”

after the phrase “pressure test the”, strike the word “casing” before that phrase “with inert

or nonreactive liquid” and insert the phrase “or 110 percent of the shut in tubing pressure,

whichever is greater;”. The revision now reads “(2) pressure test the production tubing,

or casing if the tubing has been removed with inert or nonreactive liquid or gas at a

minimum of 300 pounds per square inch (psi) surface pressure or 110 percent of the shut

in tubing pressure, whichever is greater; and”.

final hearing officers' report

Government & Nonprofit

public comments

public hearing comments

written comments

general comments

original comments

summary of comments

actual comments

total number of comments