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Increased Federal Criminal Enforcement Against Oil and Gas Fracking Companies

Beveridge & Diamond, P.C., February 19, 2013

While President Obama renewed his support for the “natural gas boom” in his State of the Union address last week, his administration continues to carefully scrutinize the environmental impacts of hydraulic fracturing (or fracking) as a method to access these natural gas reserves.  The federal government has been stepping up criminal enforcement actions against oil and gas drilling companies under existing environmental statutes like the Clean Water Act while state and federal governments are in the process of developing policies and regulations specifically targeted at fracking. 

On February 14, 2013, the U.S. Department of Justice (“DOJ”) charged Ben Lupo, the co-owner of over 20 oil and gas drilling companies, with a criminal violation of the Clean Water Act for the alleged illegal disposal of fracking waste.  The charges state that Lupo ordered his employees to dispose of brine and oil-based drilling mud into storm drains that emptied into the Mahoning River near Youngstown,  Ohio.

In the last two months, DOJ and the U.S. Environmental Protection Agency (“EPA”) have also obtained guilty pleas in three cases concerning drilling or support companies working in the Bakken Shale in North Dakota and the Marcellus Shale in West Virginia. 

This past January, two North Dakota companies that service the Bakken/Three Fork oil and gas drilling operations pled guilty to Clean Water Act violations.   Mon-Dak Water & Septage Service LLC (“Mon-Dak”) admitted dumping untreated domestic sewage onto properties on two separate occasions.  While the Clean Water Act permits land application of domestic septage under certain controlled conditions, the defendant admitted in the plea agreement that its actions were not consistent with those regulations. 

In a separate plea agreement, Hurley Enterprises d/b/a/ Hurley’s Oilfield Services (“Hurley”), a company that pumps domestic wastewater from oil well drilling sites and crew living quarters, admitted dumping domestic sewage onto agricultural land on three occasions, including once after it received a notice of violation from the state government.  Hurley also admitted discharging domestic sewage over a creek bank, an act that was witnessed by a state Department of Health investigator who stopped the discharge.

Mon-Dak and Hurley each agreed to a $50,000 fine and future compliance with the Clean Water Act’s land application regulations.  The North Dakota federal district court hearing the Mon-Dak and Hurley cases has not yet issued a final judgment in either case.

In December 2012, the U.S. District Court for the Northern District of West Virginia entered a criminal judgment against Chesapeake Appalachia, LLC (“Chesapeake Appalachia”) for Clean Water Act violations at its oil and gas drilling site.  Chesapeake Appalachia pled guilty to three counts of discharging stone and gravel into U.S. waters in violation of the Clean Water Act.  On separate occasions, Chesapeake Appalachia placed 60 tons of crushed stone and gravel into a stream for the purpose of creating a roadway and improving access to a drilling site.  The company will pay $600,000 in fines and serve two years of probation.  Chesapeake Appalachia also faces claims for civil violations in another case.

These cases come on the heel of statements made by the U.S. Department of Justice’s Chief of the Environmental Crimes, Stacey Mitchell, in April 2012 that indicated the federal government would be taking a close look at potential violations in the fracking industry, particularly given the remote locations for drilling sites and the lack of access to proper disposal facilities.  While certain fracking activities are not subject to regulation under portions of the Safe Drinking Water Act, RCRA, Clean Air Act and Clean Water Act, applicable sections of these statutes are being used by the federal government and states to regulate fracking activities.  Companies who work in the fracking industry should carefully review management of wastewater, materials, and air emissions to ensure compliance with applicable federal and state laws.  

This alert was prepared with the assistance of Jennifer Abdella.  For more information about Beveridge & Diamond’s experience with fracking issues contact Karen Hansen, who leads the firm’s fracking regulatory practice, at (512) 391-8040.  For more information about these criminal enforcement cases, please contact leaders of the firm’s White Collar and Environmental Crimes Group, Lily Chinn at (415) 262-4012, Nadira Clarke at (202) 789-6069, or Pete Anderson (704) 372-7370. 

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