Hydraulic Fracturing

Hydraulic fracturing, or hydro-fracking, is the process of drilling into the shale and fracturing it. A mixture of water, sand, and chemicals are injected at high pressure, fracturing the rock and allowing gas to flow up and out of the well. Hydro-fracking is a common, yet controversial, practice. There is disagreement among many interested parties, including scientists, legislators and members of the oil and gas industry about whether or not hydro-fracking has led to water contamination and increased seismic activity. Insurers are following the many issues as they arise.

Background

Fracking has been practiced for some time, however, it became widely controversial when it was combined with the extraction technique of horizontal drilling in which drill pipes are extended to an oil or gas deposit then turned horizontally to allow access to more of that deposit. There is concern that fracking can cause, or has caused, contamination to water supplies, but investigators have been hampered by the technical and scientific difficulties in assessing the precise impact of fracking on water resources. In 2016, an EPA Deputy Administrator concluded that there were uncertainties and gaps in the data that prevented arriving at a national conclusion about the impact of fracking on drinking water. Fracking critics point out that environmental costs of fracking must include the operational requirement for a huge amount of water and transportation of that water. There is also concern that fracking may cause an increase in earthquake activity. Fracking advocates, however, cite the lack of proof of aquifer contamination or increased seismic activity.

There are some advantages to the process of extraction by hydraulic fracking. Fracking allows energy and drilling companies to access hard-to-reach supplies of oil and shale gas. Hydro-fracking has significantly boosted domestic oil production. It has been estimated by the U.S. Energy Information Administration (EIA) that the U.S. has 323 trillion cubic feet of natural gas reserves: enough to potentially last a century; either way, this new extraction process has offered the U.S. and Canada a significant measure of gas security for many decades. Hydro-fracking is expected to generate electricity at half the carbon dioxide emissions of coal.

Injuries and Damages

Hydro-fracking has been identified as causing a variety of injuries and damages.

Drought
The fact that significant amounts of water are required for hydraulic fracturing practices can place a strain on water supplies, particularly in regions prone to experience drought.

Pollution
The release of methane gas during the drilling process poses potential air pollution and drinking water contamination risks. The improper disposal of large volumes of chemically treated fracking water has caused surface water contamination. Some experts allege that well-water contamination from hydro-fracking has been tied to a number of health problems, such as infertility, birth defects, and cancer.

Earthquakes
In recent years, earthquake activity has increased in parts of the U.S. that engage in large-scale oil and gas extraction. The United States Geological Survey (USGS) has linked some of the increase in earthquake activity in these regions not to hydro-fracking itself, but to waste and water disposal from hydro-fracking operations.

Legislation and Regulation

While the federal government is the source of most of the regulations governing hydro-fracking, the industry has gained many exemptions over time.

Environmental Protection Agency (EPA) Regulations
The Clean Water Act of 1972, enforced by the EPA, is the primary federal law governing water pollution, intended to provide assistance for the improved treatment of wastewater and the prevention of pollution and contamination. Under federal law, however, the process of hydro-fracking is the subject of many exemptions from federal laws and regulations, including the Clean Water Act. The hydraulic drilling process is not subject to a number of environmental acts, including the Clean Air Act, Safe Drinking Water Act, National Environmental Policy Act, Resource Conservation and Recovery Act, Emergency Planning and Community Right-to-Know Act, and Comprehensive Environmental Response, Compensation, and Liability Act.

In 2015, the EPA published a report, based on a six-year $29 million study, stating that there was little evidence to support the allegations that hydro-fracking had led to widespread adverse impacts on drinking water. In December 2016, however, the EPA issued a final version of that report concluding that fracking could affect drinking water under some circumstances. Industry observers suggested that the EPA’s shift highlighted the uncertainty among government officials about the safety of hydro-fracking.

Liability and Insurance

Several types of coverage are important in the industry.

Comprehensive General Liability
Comprehensive General Liability (CGL) policies will generally be expected to provide liability coverage for bodily injury, property damage to a third party and possible allegations of negligence and water contamination.

Environmental/Pollution Claims
It is likely that in the future hydro-fracking will bring about a variety of environmental and pollution claims. In the case of water supply contamination, environmental and pollution liability coverage would address the losses and damages from lawsuits.

Earthquake Insurance
The evidence that the management of fluids in hydro-fracking has led to an increase in small earthquakes suggests that individual property owners should purchase specialized earthquake coverage.

D&O Coverage
Directors and Officers (D&O) liability insurance is probably essential in the hydro-fracking industry. D&O claims have been presented in cases of groundwater contamination and associated losses. For example, Cabot Oil and Gas was sued for errors resulting from “hydro-fracking business decisions."

Litigation

The likely outcomes of hydro-fracking litigations are uncertain. Most lawsuits to date have resulted in settlements.

Oklahoma Litigation
Since 2015, a series of lawsuits have been filed against the fracking industry for damages resulting from increased earthquake activity in Oklahoma. In 2014, plaintiff Sandra Ladra filed a personal injury suit against multiple oil and gas companies for causing a string of earthquakes, one of which allegedly sent Ladra’s chimney tumbling down and left her with a severe leg injury. The Oklahoma Supreme Court allowed her personal injury claim to proceed in the district court, but the case settled in 2017.

Future Outlook

As hydro-fracking becomes a more common technique for the extraction of natural gas, it creates a new set of insurance-related issues. Claims addressing earthquakes, pollution, CGL coverage, workers’ compensation, and D&O coverage are likely to be pursued, but it is impossible to predict which way they will go in light of current scientific understandings related to hydro-fracking.

In the News

2019

• Could fracking be causing earthquakes throughout the state? Curious Texas digs in. - Simone Carter, Dallas News (12/23/2019)
  North Texas has long been known for its destructive tornadoes and fierce thunderstorms, but earthquakes? Not so much.
  
  In recent years, though, many have noted an uptick in the number of quakes in the Lone Star State. One such person consulted Curious Texas, an ongoing project from The Dallas Morning News. The idea is simple: You have questions, and our journalists are trained to track down answers.
• U.K. Halts Fracking in England, Citing Quake Concerns - Elian Peltier, The New York Times (11/02/2019)
  Prime Minister Boris Johnson once hailed fracking as “glorious news for humanity,” and said the British government should “leave no stone unturned, or unfracked.”
  
  But in a major U-turn, Mr. Johnson’s government announced on Saturday that it would temporarily halt fracking in the only active site in Britain, in northwestern England. The move came after a government agency, the Oil and Gas Authority, concluded this past week that it could not rule out “unacceptable” consequences for people living near fracking sites, including pollution risks and earthquake-related damage.

2018

• Oklahoma earthquakes decline for third year, but state primed to shake another decade - Corey Jones, Tulsa World (12/30/2018)
  State seismologist Jake Walter is optimistic that the downward trajectory of Oklahoma’s earthquake rate will bridge into next year, but he still cautions residents not to expect the shaking to tail off anytime soon. . . . The state’s quake frequency has declined for the third consecutive year, but it remains enormously above its historical average of only two or three magnitude 3.0s per year as scientists work to better understand the phenomenon of induced seismicity. . . . As December comes to an end, Oklahoma recorded 196 earthquakes of at least magnitude 3.0 this year. The peak was 903 in 2015, followed by drops to 623 in 2016 and 302 in 2017. Oklahoma had six quakes in 2018 that were at least 4.0, which was one more than in 2017 but well off the record of 27 in 2015. . . . For the fourth straight year, wastewater injection into deep disposal wells triggering seismicity has declined in the 15,000-square-mile “area of interest.” The AOI, in central and northwestern Oklahoma, is subject to stricter disposal regulations. Annual disposal volumes have fallen off to between 2011 and 2012 levels.
• FRACKING MIGHT HAVE LED TO 5.5 MAGNITUDE EARTHQUAKE THAT INJURED NEARLY 100 PEOPLE: STUDY - KATHERINE HIGNETT, NEWSWEEK (04/26/2018)
  Fracking may have led to one of the most powerful earthquakes to strike South Korea since records began, scientists believe. On November 15, 2017, a 5.5 magnitude earthquake rocked the city of Pohang. The quake and its aftershocks injured at least 82 people and damaged thousands of buildings at a cost in the tens of millions of dollars. . . . If this link is borne out by further research, researchers write in a paper published this week in Science, the earthquake could be a “game-changer” for the geothermal energy industry.
• Oklahoma orders cut in water injection after earthquakes - AP (ABC News) (04/09/2018)
  The Oklahoma Corporation Commission has directed a wastewater disposal well to reduce its volume of injection after more than a dozen earthquakes rattled part of northwest Oklahoma since Friday. . . . The U.S. Geological Survey recorded three quakes Monday, including one near Covington now rated magnitude 4.5 after a preliminary rating of 4.3. Magnitude 3.3 and 2.8 quakes were also recorded Monday in the area about 55 miles (90 kilometers) north of Oklahoma City.
• SMU Study Finds Earthquakes Continue for Years After Gas Field Wastewater Injection Stops - Southern Methodist University, Science Newsline (02/14/2018)
  Efforts to stop human-caused earthquakes by shutting down wastewater injection wells that serve adjacent oil and gas fields may oversimplify the challenge, according to a new study from seismologists at Southern Methodist University, Dallas. . . . The seismologists analyzed a sequence of earthquakes at Dallas Fort Worth International Airport and found that even though wastewater injection was halted after a year, the earthquakes continued. . . . The sequence of quakes began in 2008, and wastewater injection was halted in 2009. But earthquakes continued for at least seven more years. . . . "This tells us that high-volume injection, even if it's just for a short time, when it's near a critically stressed fault, can induce long-lasting seismicity," said SMU seismologist Paul O. Ogwari, who developed a unique method of data analysis that yielded the study results.
• Oklahoma quakes tied to how deep wastewater is injected - SETH BORENSTEIN , AP (02/01/2018)
  A new study finds that a major trigger of man-made earthquakes rattling Oklahoma is how deep — not just how much — fracking wastewater is injected into the ground. . . . Scientists analyzed more than 10,000 wastewater injection wells where 96 billion gallons of fluid — leftover from hydraulic fracturing — are pumped yearly. The amount of wastewater injected and the depth are key to understanding the quake outbreak since 2009, they reported in Thursday's journal Science . The quakes included a damaging magnitude 5.8 in 2016, the strongest in state history. . . . State regulators could cut about in half the number of man-made quakes by restricting deep injections in the ground, said lead author Thea Hincks, an earth scientist at the University of Bristol in the United Kingdom. Companies drilling for oil and gas should not inject waste within 600 to 1500 feet (200 to 500 meters) of the geologic basement. That's the stable harder rock deep underground usually made of metamorphic and igneous rocks.

2017

• Frackers Collide With Traditional Oil Drillers - Erin Ailworth, The Wall Street Journal (06/20/2017)
  Supersized new oil wells are sometimes running into existing wells, a little-noticed consequence of the shale boom that has started to trigger complaints and lawsuits.
• Top Texas scientists to release fracking impact study - David Hunn, The Houston Chronicle (06/19/2017)
  A respected state research cooperative will release on Monday a report on the effects of hydraulic fracturing on communities in Texas.

2016

• Oklahoma regulators release 'fracking' plan for induced earthquakes - Paul Monies, The Oklahoman (12/20/2016)
  Oklahoma regulators released details Tuesday of new guidelines to deal with the risks of earthquakes induced from hydraulic fracturing operations in oil and gas development, an expansion of their previous responses to earthquakes linked to wastewater disposal wells.
• EPA: ‘Data gaps’ block verdict on fracking, drinking water - Matthew Daly, AP, (Powersource) (12/13/2016)
  Is hydraulic fracturing — better known as fracking — safe, as the oil and gas industry claims? Or does the controversial drilling technique that has spurred a domestic energy boom contaminate drinking water, as environmental groups and other critics charge? . . . .After six years and more than $29 million, the Environmental Protection Agency says it doesn’t know. . . . A new report issued Tuesday said fracking poses a risk to drinking water in some circumstances, but a lack of information precludes a definitive statement on how severe the risk is. . . . “Because of the significant data gaps and uncertainties in the available data, it was not possible to fully characterize the severity of impacts, nor was it possible to calculate or estimate the national frequency of impacts on drinking water resources” from fracking activities, the EPA said in a report that raises more questions than answers. . . .The report removes a finding from a draft issued last year indicating that fracking has not caused “widespread, systemic” harm to drinking water in the United States. Industry groups had hailed the draft EPA study as proof that fracking is safe, while environmentalists seized on the report’s identification of cases where fracking-related activities polluted drinking water.
• Kansas panel tightens fracking waste limits in effort to prevent earthquakes - DION LEFLER , Wichita Eagle (08/09/2016)
  

  In its continuing effort to settle the shaky ground, a divided Kansas Corporation Commission on Tuesday expanded restrictions on underground injection of oilfield wastewater linked to the spate of earthquakes over the past four years . . . . The new rules put stricter limits on the volume of wastewater that can be dumped down disposal wells around the most seismically sensitive areas of Harper and Sumner counties. Tuesday’s order also expands the area where underground disposal is restricted. . . . Reduced injection rates are being credited with a reduction in the magnitude and frequency of human-perceptible quakes on the Kansas side of the Oklahoma border. Most of the quakes now being felt in the Wichita area are originating in Oklahoma.

• Asthma risk up to 4x higher near fracking sites: US study - AFP (07/18/2016)
  

  Living near sites that extract natural gas by hydraulic fracturing, also known as fracking, may increase the risk of asthma up to four times, a US study said Monday.

• Colorado Court Strikes Down Local Bans on Fracking - Michael Wines, NY Times (05/02/2016)
  Colorado’s Supreme Court on Monday struck down local government prohibitions on hydraulic fracturing, or fracking, handing oil and gas companies a victory in a lengthy battle over energy production in the environmentally conscious state.
• Edmond residents file earthquake lawsuit against 12 oil companies - Paul Monies, NewsOK (01/11/2016)
  A group of Edmond residents filed a lawsuit Monday against a dozen energy companies, claiming their saltwater disposal wells were in part to blame for earthquakes that hit central Oklahoma in recent weeks.

2015

• How one US state went from two quakes a year to 585 - Juliana Keeping, Yahoo News (09/20/2015)
  The central US state of Oklahoma has gone from registering two earthquakes a year to nearly two a day and scientists point to a controversial culprit: wastewater injection wells used in fracking.
• Dutch Court Says Gas Producer Must Compensate Homeowners in Quake Zone - Reuters (09/02/2015)
  A court in the Netherlands ruled on Wednesday that a natural gas company, a joint venture by Royal Dutch Shell and Exxon Mobil, must compensate homeowners for declines in the value of their properties because of earthquakes linked to production at the Groningen field.
• Fracking poses 'significant' risk to humans and should be temporarily banned across EU, says new report - Andy Rowell, The Independent (07/01/2015)
  A major new scientific study has concluded that the controversial gas extraction technique known as fracking poses a “significant” risk to human health and British wildlife, and that an EU-wide moratorium should be implemented until widespread regulatory reform is undertaken.
• Earthquake spike pushes Oklahoma to consider tighter fracking regulations - Peter Moskowitz , The Guardian (06/25/2015)
  Oklahoma is considering tightening regulations on its oil and gas industry, after a spate of earthquakes which regulators say were probably related to an increase in fracking in the state.
• Study links swarm of quakes in Texas to natural gas drilling - Seth Borenstein, AFP, Examiner (05/23/2015)
  

  With real-time monitors, scientists have linked a swarm of small earthquakes west of Fort Worth, Texas, to nearby natural gas wells and wastewater injection.

• Fracking in Ohio caused a magnitude 3 earthquake in 2014 - Thor Benson, UPI (01/05/2015)
  

  According to a new study, a small town in Ohio that previously didn't experience earthquakes experienced 77 in March of 2014.

2014

• Hydrofracking - Munich Re (12/01/2014)
  New evidence on the risks of hydrofracking emerges as regulators and energy companies grapple with managing the exposures.
• Big secrets can walk out door in departing workers' pockets - Collin Eaton, Houston Chronicle (11/27/2014)
  [T]he petroleum industry's most coveted engineers aren't just taking their skills and know-how with them when they're lured away by rivals or when they strike out on their own. Some are snatching trade secrets - hundreds of documents, technology designs or customer data - on their way out the door.
• Gas drillers draw less water, but concerns linger - Kevin Begos, AP (09/27/2014)
  The gas drilling industry in Pennsylvania is recycling more and more water and one river basin commission now reports drillers there are drawing less freshwater than in the past.
• Fracking boom increases 'triple tragedies' on Texas highways - Lise Olsen, Houston Chronicle (09/16/2014)
  All across Texas, the drilling and fracking boom has boosted fatal accidents for oil and gas workers, and for those who share the urban and rural roads that serve as important oil patch connectors.
• Catlin publishes guide on the risks associated with fracking - catlin.com (08/29/2014)
  With the subject of Fracking receiving much media attention Catlin has produced a guide on the subject for insurance brokers, risk managers and their clients
• Gas drilling gushes revenue, problems - Cathy Dyson, Free Lance-Star (07/06/2014)
  Gas drilling has become a $2 billion-a-year industry that has provided much-needed revenue to Southwest Virginia, but it has also brought conflicts and lawsuits.
• Dakota ranchers see red at flaring gas wells - Chester Dawson, Wall Street Journal (07/02/2014)
  The well is one of thousands dotting the landscape and producing gas as a byproduct of hydraulic fracturing and horizontal drilling for oil in the Bakken Shale. Because North Dakota lacks adequate infrastructure, drillers are forced to burn off whatever they can’t capture and ship to market. 
• Tarrant jury awards $20,000 to homeowners in nuisance suit against Chesapeake - Jim Fuquay, Star-Telegram (05/24/2014)
  In November 2011, Crowder sued Chesapeake Operating, complaining that the noise, odors and truck traffic from the well site were a nuisance. And on Friday, a Tarrant County jury agreed, awarding him $20,000 in damages, a fraction of the approximately $108,000 he had sought.
• U.S. to Map the Risks of Man-Made Earthquakes - Tamara Audi, Wall Street Journal (05/06/2014)
  A rise in the frequency of earthquakes in regions with increasing oil and gas extraction is prompting scientists for the first time to assess risks of man-made quakes and include them on federal maps that influence building codes and public policy.
• Deadly crashes side effect of fracking boom - Jonathan Fahey, Kevin Begos, The Columbus Dispatch, AP (05/06/2014)
  An analysis of traffic deaths and U.S. census data in six drilling states shows that in some places, fatalities have more than quadrupled since 2004 — a period when most American roads have become much safer.
• Lawsuit blames fracking for Arkansas earthquakes - UPI (02/19/2014)
  Two Arkansas couples have sued two companies involved in fracking, blaming the process for a series of earthquakes, including the state's largest in 35 years.

Additional Items

• Extracting Natural Gas from Rock
  This animation illustrates the process of hydro-fracking step-by-step.