Analysis - California oil well acid rules could sway U.S. policy

Thu Oct 3, 2013 9:03pm BST

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(Reuters) - New California regulations on the use of corrosive acids in oil production are sparking debates among federal energy regulators about rules for a technology largely overshadowed by the fracking method of extracting oil.

Signed into law by Governor Jerry Brown two weeks ago, the new rules require companies to disclose the acids and hydraulic fracturing chemicals they use and notify neighbours of plans, as well as launching studies of how both affect the environment.

Other states have made similar moves on fracking, a process of fracturing rocks with high pressured chemically-laced water deep in the earth to draw out hydrocarbons, but California goes further with language on well "acidization," which dissolves rock to make room for oil to flow.

Company executives say the use of hydrofluoric acid in the Monterey shale deposit, the largest in the country, is the key tool in unlocking some of the estimated 15 billion barrels of crude trapped underground, rather than fracking, due to the state's geology.

Despite that, the public knows little about exactly how often and in what quantities acid is used, because the state's Department of Conservation has never regulated it specifically.

Mark Nechodom, director of the department, said the focus on acidization had already prompted interest from the federal Bureau of Land Management, which oversees 247 million acres (100 million hectares) in western states - or about one-eighth of the U.S. land mass.

"BLM is very eager to hear how we do this and we're working with the state director quite closely," Nechodom said. An automated response from the BLM said officials were unavailable for comment because of the federal government shutdown.

California joins a short list of states, including Wyoming and Colorado, that have rules on acidization. Like other states, California focused on fracking for most of its debate on oil production ahead of the new law, known as Senate Bill 4 (SB4).

"I felt in May that we had been set up to focus on fracking when clearly the action is going to be in acidization," said state senator Fran Pavley, SB4's author, noting that a Reuters report on acidization that month motivated her to expand the scope of the bill. "It was extremely helpful."

NATIONAL INFLUENCE

Pavley has a record of setting policy outside California - she is the main author of state auto emissions standards that went on to be adopted by the federal government.

Under SB4, all provisions on fracking will also apply to acidizing wells, including full chemical disclosure, groundwater monitoring and neighbour notification. Acidizing, like fracking, will also be the subject of an independent scientific study to assess its environmental impact, according to the law.

Producers pump at least some acid into wells in many oil basins worldwide, from Ghana to Turkey to Louisiana. But given California's unique geology, it has been particularly effective at stimulating oil production in the Monterey shale.

The method goes back decades. A report in the Oil & Gas Journal in 1994 described acid stimulation on five offshore California wells that boosted production, whereas a previous treatment in 1983 had been a "technical and economic failure."

Bill Allayaud of the Environmental Working Group said he is capitalizing on SB4 to influence the BLM, which is now writing rules for fracking. Allayaud said while BLM's first draft called for oversight of the use of acid, the most recent version struck it out, a move he said "smells of industry influence."

"We are now pointing to the progressive aspects of Senate Bill 4 in our comments to the BLM, who retreated from regulating acidization of wells," he said.

Allayaud and other proponents of disclosure say more research needs to be done on the use of dangerous chemicals below ground and that people living near wells deserve to know if hazardous material is being used.

Angela Johnson Meszaros, general counsel for Physicians for Social Responsibility, said half the wells monitored this summer in Los Angeles County were near residences, including three acidized wells as close as 85 feet (26 meters) from homes. She also highlighted the risk of a crash on the freeway for a truck carrying the chemicals.

The new California law directs its Department of Oil, Gas and Geothermal Resources to draft acidization regulations at the same time as fracking rules, something the regulator had previously resisted, saying that fracking took priority.

The department maintains that as long as the well integrity is sound, acidization poses no below-surface threat, a spokesman said. It is expected to finalize both its fracking and acidization rules, in accordance with SB4, in about 12 months.

"NEGATIVE IMPACT"

Michael Krancer, a former secretary of Pennsylvania's Department of Environmental Protection, and now at Philadelphia law firm Blank Rome, said California needed more oversight of acid than other states because of its extensive use. Moreover, the use of acid in his state was already covered under hazardous materials regulation.

"That's not an issue we face in Pennsylvania," he said.

Industry representatives pushed back against SB4's scrutiny because they felt it went too far, and the head of Los Angeles-based Occidental Petroleum Corp (OXY.N) referred to California legislation having a "negative impact" on the company.

Yet other oil men were largely unconcerned.

"California has got to do what's best for California," said Chris Faulkner, chief executive of Breitling Oil & Gas, which develops fields in Oklahoma and North Dakota. Faulkner lives part-time in Los Angeles, where he runs a Web services firm.

He saw no problem in disclosing chemicals in fracking fluid because he saw them as basically all the same recipes, and that landowners had a right to know what was going into the well.

"Regulation is not a bad thing," he said. "If there was no regulation, it would be the worst thing, because as a company, I don't know what I'm on the hook for."

(Reporting by Rory Carroll and Braden Reddall in San Francisco; Editing by Peter Henderson and Marguerita Choy)

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