Hydraulic fracturing or “fracing” is the injection of highly pressurized fluids into shale or other nonporous formations to facilitate the production of oil and natural gas. Although the process has been in use for decades, in recent years it has become highly controversial. And today, the oil and gas industry awaits the outcome of various congressional, regulatory and legal initiatives.

The most recent controversy involves a congressional directive to the Environmental Protection Agency (EPA) to reassess whether fracturing poses a risk to drinking water. While the oil and gas industry maintains that fracing does not pose a risk to drinking water, land owners have filed a number of complaints with the EPA alleging that their water supplies were contaminated because of the technology.

Fracturing discharge has been blamed for water contamination in Pennsylvania, New York, Virginia, Alabama, Wyoming, Montana and Colorado.

Unfortunately, congressional and EPA investigations are not the only controversies currently surrounding hydraulic fracturing. Within the past year, a number of suits have been filed in Pennsylvania involving the use of fracturing to extract gas from the Marcellus shale, which is prevalent throughout most of Pennsylvania.

Congressional Debate

Congressional debate on fracturing centers on the lack of regulation under the Safe Drinking Water Act (SDWA), and the components of fracturing fluids. Under the SDWA, states wanting to create their own drinking-water regulatory scheme must incorporate a plan to regulate underground-injection processes. In 2004, an EPA study found that fracturing of coalbed-methane reservoirs posed “little or no threat” to drinking water. Later, the Energy Policy Act of 2005 granted statutory exemption to fracturing.

In response to criticism of the EPA’s 2004 study and the 2005 fracturing exemption, Congress initiated a two-pronged approach to investigate whether the chemicals used in fracturing cause water contamination. First, Rep. Diana DeGette, vice-chair of the House Energy and Commerce Committee (ECC), introduced legislation, HR 2766 (the “FRAC Act”), on June 9, 2009. It would repeal the SDWA’s fracturing exemption and require that drilling companies disclose the chemicals used in fracturing fluids.

The ECC sent letters to eight oilfield services firms seeking data and documents on the types and quantities of chemicals used in fracturing fluids; the proximity of injections to underground drinking water sources; fracturing’s environmental and health impacts; and the chemical contents of wastewater produced from fracturing operations.

Second, in 2010, Congress directed the EPA to reassess whether fracturing poses a risk to drinking water. The EPA study, which is currently being developed, will focus on fracturing of coalbeds, shale, and other formations. The EPA has developed and publicized its draft approach to gathering existing data and information. This includes a stakeholder input process designed to catalog potential risks to drinking water; identify data gaps; and develop research questions, research needs, and research products.

The Independent Petroleum Association of America (IPAA) and other industry groups plan to actively participate in dialogue on the issue. The IPAA’s website urged participation from industry experts and state regulatory agencies. The organization is also requesting that Congress halt current efforts to give the EPA regulatory authority over fracturing until after the EPA study is completed. The IPAA maintains that hydraulic fracturing is safe and that the materials used in the fracturing process are widely disclosed.

State Investigations

State officials and environmental agencies also are investigating whether fracturing causes water contamination. New York State’s Department of Environmental Conservation is preparing an environmental impact statement to assess environmental issues unique to fracturing of the Marcellus shale and other low-permeability reservoirs. There have also been calls by New York and Pennsylvania officials to ban fracturing in the watersheds of New York City and Philadelphia until the environmental effects of the process have been studied.

Opposition to fracturing is so strong in New York that one oil and gas company, Chesapeake Operating, abandoned plans to drill in New York City’s watershed. The company maintains that fracturing is safe, but stated that it would be a headache to drill in New York City’s watershed, given public opposition.

Pending Legal Disputes

In addition to congressional, EPA, and state investigations, courts are also being asked to determine whether fracturing causes water contamination. Landowners in Pennsylvania have sued certain drilling companies alleging that fracturing of the Marcellus shale formation has contaminated their drinking-water supplies and damaged their properties. The landowners’ causes of action include nuisance, negligence, trespass, strict liability, and breach of contract. One of the complaints alleges violations of Pennsylvania’s state statute on hazardous sites.

The first case, Zimmermann, was filed in Pennsylvania state court on September 21, 2009. The plaintiffs, George and Lisa Zimmermann, sued an oil and gas company alleging that the company used toxic chemicals during the fracturing process and that the use of such chemicals contaminated and polluted their freshwater aquifers and destroyed their previously pristine tomato farmland. The Zimmermans also claim that water tests, conducted by an independent consultant, found seven potentially carcinogenic chemicals above screening levels set by the EPA as warranting further investigation. The company denies the allegations and is defending the suit.

Shortly after Zimmermann was filed, Fiorentino et al was filed in U.S. District Court for the Middle District of Pennsylvania, on November 19, 2009. The plaintiffs, approximately 30 residents of Dimock Township in Susquehanna County, Pennsylvania, sued an oil and gas company for allegedly contaminating their water supplies. Like the Zimmermanns, the Dimock residents allege that the company used toxic chemicals during its hydraulic drilling process and that the use of such toxic chemicals contaminated their water wells.

Additionally, the Dimock residents claim that the company violated various sections of Pennsylvania’s state statute on hazardous sites. Under the statute, it is a public nuisance to release a hazardous substance in a manner that does not comport with the statute. Violators of the statute are liable for response cost and damages to natural resources.

According to residents, the company released hazardous substances in the Dimock area. They claim that the company is strictly liable for the cost they incurred in response to the company’s releases or threatened releases of hazardous substances and contaminants, including the cost of a health assessment or health-effects study, medical monitoring, and interest. The company denies the allegations and has filed a motion to dismiss the suit.

Although not directly alleging water contamination, there are also hydraulic-fracturing cases pending in New York that allege potential adverse impacts from the technology. These cases challenge the issuance or approval of permits by local municipalities to oil and gas companies engaged in fracturing or related activities. The plaintiffs, both environmental groups and landowners, generally allege that the proximity of such operations to drinking-water supplies, homes, and schools is unsafe and/or poses the threat of a public nuisance.

Impact of State Statutes

Supporters of hydraulic fracturing assert that regulation under the SDWA is unnecessary, because fracturing is already closely regulated by the states. However, that fact may prove to be a double-edged sword for purposes of private litigation. Like the Pennsylvania hazardous sites statute, many state environmental statutes include provisions which permit ordinary citizens to sue violators of those statutes. Some statutes permit awards of attorney fees. Civil penalties may also be imposed. Further, a violation of a state statute could be used as evidence to support common law claims.

To establish their common law claims, plaintiffs alleging contamination will have to prove a causal connection between fracturing and their alleged damages. As a result, the findings of state environmental impact assessments and the EPA’s pending study on the health and environmental effects of fracturing, as well as passage of the FRAC Act, could significantly impact pending and future legal disputes.

Specifically, litigants could use the results of the EPA study and state environmental assessments, and the components of fracturing fluids, as evidence to try to establish the existence or nonexistence of a causal connection between fracturing and water contamination. It is important to note that litigants are not waiting on the results of state and EPA studies and congressional investigations to assert claims against oil and gas companies. Further, courts and juries may decide whether a causal connection exists between fracturing and water contamination long before the EPA and Congress do so.

At press time, Congressman Maurice Hinchey (D-NY), who also introduced the FRAC Act and who authored the provision that urged the EPA to conduct the fracturing study, urged House Speaker Nancy Pelosi to bring the FRAC Act up for debate and a vote in the House. The Fracturing Responsibility and Awareness of Chemicals Act of 2009, introduced by Hinchey and two others is “stuck” in the House Energy and Commerce Committee, Hinchey said. He urged Pelosi to get the bill onto the House floor for a vote.

With so many different forums simultaneously examining the issue, companies need to keep abreast of the latest developments in multiple locations. Companies engaged in hydraulic fracturing should assess their rights and potential liability under existing and future oil and gas leases, the common law, and existing state and federal environmental regulations.

Barclay Nicholson is a litigation partner in the Houston office of Fulbright & Jaworski LLP. Also contributing to this article was Kadian Roberts, an associate with the firm.