On Monday, October 28, 2013, the Clean Water Action national environmental organization (“CWA”) filed a federal civil lawsuit against Waste Treatment Corporation for the alleged illegal disposal of hundreds of thousands of gallons of natural gas drilling waste water into the Allegheny River in Pennsylvania. Claiming that the Pennsylvania Department of Environmental Protection (“PADEP”) had failed to take effective action and was not diligently prosecuting an action against Waste Treatment Corp., CWA took it upon itself to pursue a citizen suit under the federal Clean Water Act and Endangered Species Act. But, companies involved in natural gas and oil production should not rest easy in Pennsylvania, or elsewhere, under the mistaken impression that government action is not being taken to police the handling of waste generated through hydraulic fracturing (“fracking”) during gas and oil production. Just last month, the Pennsylvania Attorney General filed criminal charges against ExxonMobil subsidiary XTO Energy, Inc. (“XTO Energy”) for allegedly “illegally discharging more than 50,000 gallons of toxic waste water from a Marcellus Shale gas well site in Penn Township, Lycoming County” in 2010. The XTO Energy case began with the discovery of gas well waste water discharge during an unannounced visit by a PADEP inspector, leading to investigations by the PADEP and the Attorney General through a grand jury that recommended the filing of criminal charges under the state’s Clean Streams Law and Solid Waste Management Act. The U.S. Department of Justice (“USDOJ”) and U.S. Environmental Protection Agency also conducted investigations into the XTO discharge incident and, although federal criminal charges have not been filed against XTO Energy, other companies and individuals have found themselves facing federal criminal liability due to fracking related waste in recent years.
A Focus on Environmental Crimes
The impact of the extraction of energy resources on the environment has been the subject of attention in the environmental crime arena for the last couple of years. The Environmental Crimes Section of the USDOJ Environment and Natural Resources Division (“DOJ Environmental Crimes Section”) stated that “the first criminal prosecution of a natural gas company in the modern energy extraction era” was in 2011 – United States v. Hawk Field Services, Inc., No. 11-060 (E.D. Ark. Apr. 8, 2011). An article in the July 2012 Environmental Crimes issue of the United States Attorneys’ Bulletin, co-authored by the Assistant Chief of the DOJ Environmental Crimes Section, described concerns raised by the disposal of fracking waste:
Other environmental concerns surround the disposal of the millions of gallons of contaminated wastewater that are produced as a result of oil and gas production. The flowback, or produced water that comes back up from the well, may be re-used for additional fracking, deposited into an underground injection well, land applied, treated onsite and discharged to a surface water, or trucked to a publicly owned treatment work (POTW) or private treatment facility. In the Pennsylvania portion of the Marcellus Shale, for example, 3,012 wells were drilled in 2011 alone. At an average of 5 million gallons of water per well, more than 15 billion gallons of water were used for fracking in Pennsylvania in 2011. Because POTWs in Pennsylvania cannot accept it, approximately 600 million gallons of flowback were treated and disposed of in private or out-of-state treatment facilities. The massive volumes of wastewater and the limited disposal options cause concern that illegal discharges may be made to avoid the expense of the available legal options.
The concerns raised in this article echo the sentiment of statements reported to have been made by Stacey Mitchell, Chief of the USDOJ Environmental Crimes Section, earlier in 2012 at a seminar on “Criminal Enforcement of Environmental Laws”. And we have continued to see federal criminal charges brought against companies and individuals for violations of the Clean Water Act. The charges filed against XTO Energy by the Pennsylvania Attorney General have been reported as the first criminal charges to be filed against a Marcellus Shale energy production company.
Fracking-Related Activities Giving Rise to Criminal Charges
We highlight several cases below to illustrate the types of alleged fracking-related activities that have subjected companies and individuals to criminal prosecution:
* XTO Energy (PA Attorney General): In September 2013, XTO energy was charged with five counts of unlawful conduct under the Pennsylvania Clean Streams Law and three counts of unlawful conduct under the state Solid Waste Management Act for illegally discharging gas well wastewater onto the ground through a rear discharge valve on a storage tank at its facility that had been opened and a drain plug that had been removed. The PA Attorney General alleged that XTO “failed to place a spill containment system under any of the storage tanks at the Marquardt site; failed to lock or otherwise secure any of the storage tanks on site; and failed to utilize any security measures to prevent unauthorized individuals from accessing the Marquardt site.”
* RCA Oil and Gas LLC & Individual Owner (USAO S.D. Ohio): In February 2013, RCA Oil & Gas and its owner pleaded guilty to violating the Clean Water Act in 2010 by using a backhoe to breach the wall of a reservoir that contained nearly 800,000 gallons of oil and gas fracking wastewater, releasing the wastewater into a tributary of the Little Muskingum River in Ohio.
* Hardrock Excavating, LLC, Individual Owner & Individual Employee (USAO N.D. Ohio): In February 2013, Hardrock Excavating, its owner, and an employee were indicted on one count of violating the Clean Water Act by dumping more than 20,000 gallons of fracking waste consisting of salt-water brine, crude oil and benzene into a tributary of the Mahoning River in Ohio. The owner allegedly ordered the company’s employee to pump the fracking waste into a storm drain which eventually empties into the river on several occasions. In August 2013, the employee pleaded guilty to violating the Clean Water Act and will be sentenced November 15th. The owner and company pleaded not guilty. If convicted, the owner faces up to three years in prison and a $250,000 fine.
* Chesapeake Appalachia LLC (USAO N.D. W.Va.): In October 2012, Chesapeake Appalachia pleaded guilty to three counts of violating the Clean Water Act for discharging sixty tons of stone and gravel into a stream and spreading the gravel out to make a roadway to access its gas drilling site in the Marcellus Shale. Chesapeake was sentenced to pay a criminal fine of $600,000 and to two years of probation.
* Integrated Production Services, Inc. & Individual Employee (USAO E.D. Ok): In April 2012, the USDOJ announced that Integrated Production Services Inc. (IPS), a Houston-based natural gas and oil drilling contractor, and one of its employee supervisors were sentenced after pleading guilty to a criminal violation of the Clean Water Act for negligently causing rainwater contaminated with 400-700 gallons of hydrochloric acid used during the fracking process to flow into Dry Creek in Oklahoma in 2007. The company was sentenced to pay a criminal fine of $140,000 and a community service payment of $22,000, two years of probation, and to implement an environmental compliance program for its employees. The individual supervisor was sentenced to two years of probation and a $2,500 fine. At the time of the plea, the prosecutor stated: “Today’s guilty plea demonstrates that those who negligently violate environmental laws will be held accountable for their actions.”
What’s at Stake?
Under the federal Clean Water Act, the statutory maximum sentence is: (1) three years in prison, one year of supervised release and a fine of $50,000 per day of violation or $250,000, whichever is larger, for an individual and (2) for corporations, five years of probation and a fine of $50,000 per day of violation or $500,000, whichever is larger. As illustrated by the Integrated Production Services case discussed above, even negligent violations of the Clean Water Act may subject companies and individuals to criminal liability.
Maximum state penalties will vary depending upon the controlling law. And the XTO Energy matter assures us that resolution of an investigation through civil channels at the federal level does not guarantee that there will be no criminal consequences at the state level. In July 2013, XTO Energy entered into a settlement with the USDOJ and U.S. Environmental Protection Agency to resolve the federal investigation into the same circumstances giving rise to the Pennsylvania criminal charges brought in September 2013. Under the federal XTO Consent Decree, the company agreed to pay a penalty of $100,000 to the United States and spend an estimated $20 million on a wastewater management plan to improve recycling, disposal and spill prevention practices in Pennsylvania and West Virginia. XTO is challenging the “unprecedented” Pennsylvania criminal charges as inappropriate given the lack of any negligent, reckless, or intentional discharge of wastewater.
The XTO Energy case and others we highlight above illustrate that, from an environmental perspective, there is real risk exposure to companies through the disposal and recycling of water and other materials used in the fracking process. In fact, there likely is more exposure presented by fracking wastewater disposal and recycling than that presented by potential contamination from the fracking process itself. We will keep you posted on developments in state and federal enforcement and policy in this area.
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