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Hydraulic fracturing and its related operations above and below the ground have been linked to significant environmental, social, and health impacts that not only could have financial implications for the company but are also leading to increased community opposition and regulatory scrutiny which could have significant business implications.
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Ultra Petroleum has failed to provide little if any disclosure of the risks from community concerns, moratoriums, and public impacts despite media reports indicating that Ultra is likely exposed to such risks. Furthermore, there is wide spread evidence that bans, moratoriums, and public opposition have resulted in financial impacts that are being felt industry wide. Ultra’s opposition statement and web site fails to acknowledge the industry-wide environmental impacts from hydraulic fracturing and its related operations and the chemical toxicity of fracking fluids.
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Ultra Petroleum has failed to provide little if any information on fines and enforcement actions despite having more than 200 alleged violations in the last five years in Wyoming and Pennsylvania. The company has one of the highest percentage rates of alleged violations per well in the Pennsylvania Marcellus Shale. In Wyoming, it has already spent tens of millions of dollars in mitigation efforts with several million more still due in response to its air emissions which have contributed to declining regional air quality standards.
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Ultra Petroleum misrepresents the regulatory landscape in both its opposition statement and on its website. Ultra has increased disclosure of regulatory concerns in its 10k and in virtually every case recognizes that regulations “which would result in more rigorous and costly management and disposal requirements,” “could result in increased operating and compliance costs,” “may result in increased costs, significant delays and the imposition of restrictions or obligations on the Company's activities, including but not limited to the restricting or prohibiting of drilling,” “could require us to incur significant costs to monitor, keep records of, and report GHG emissions,” “may adversely impact the value of the affected leases,” “could adversely affect the marketability of the oil and natural gas the Company produces” - or similar language - yet the company claims that these do not pose any material risk to the company. The Bureau of Land Management and state agencies in Wyoming, Pennsylvania, and Colorado – the three states in which Ultra operates - have recently increased regulatory standards, fines or fees which all likely have business implications especially in light of Ultra’s material impacts from previous and still pending violations, fines and mitigation efforts.
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Currently Ultra Petroleum is not providing investors the necessary information to determine if it is successfully managing the associated risks. Furthermore, Ultra Petroleum has not allowed shareholders to present the resolution at the annual meeting despite SEC regulations that require shareholders to attend the meeting to present the resolution, and Ultra management has refused shareholder requests to dialogue on this issue for more than two years despite the fact that many other companies have engaged in dialogue with shareholders over this time.
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1.
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Hydraulic fracturing results in significant environmental, health, and social impacts, which are contributing to increased community opposition including bans and moratoria.
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2.
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Ultra Petroleum’s shareholders face significant financial risks due to tightening state and federal regulations.
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3.
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Expectations around disclosure are shifting rapidly and companies and regulators are responding.
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4.
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Ultra Petroleum’s disclosure does not mitigate the associated risks and does not provide investors with sufficient information.
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1.
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FINANCIAL RISK DUE TO COMMUNITY CONCERNS, BANS, MORATORIUMS, AND PUBLIC OPPOSITION TO HYDRAULIC FRACTURING AND RELATED NATURAL GAS DEVELOPMENT.
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In Pennsylvania over 100 municipalities in the state, including Pittsburgh enacted ordinances to restrict or limit hydraulic fracturing operations between March 2010 and September 2011.2
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At a packed public meeting in Pinedale, Wyoming, residents told regulators about their frustration with reduced air quality and implored state and industry officials to take serious action. According to one resident, “We used to have the best air in the whole damn country, and look at it now. Its gone way downhill, and it didn’t start until industry started here — till you all moved in and started making money, and we’re paying for it now. We’re sick of it.”3 Ultra and other gas drillers have been repeatedly fined for air quality violations in the region.
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Ultra’s recent entry into Colorado’s Niobrara Shale has already been met with a moratorium and negative publicity. In September 2011, El Paso County imposed a four-month moratorium on new drilling permits in an effort to carve out time for officials to sort out land use regulations for the gas industry.
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Both ExxonMobil and Chesapeake Energy were reportedly financially affected by the restrictions in Southlake TX.
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In May 2011 the Dallas Morning News reported that “The anti-drilling movement is beginning to have an effect on the natural gas industry, which has had to slow down and even cancel some projects. XTO Energy, owned by Exxon Mobil Corp., halted plans to drill in Southlake, and after paying millions of dollars to lease city land, now must wait for Dallas to rewrite drilling ordinances.”9
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After the ordinance passed, Chesapeake reportedly sent out a letter to leaseholders stating the following: “The City of Southlake recently approved a new municipal ordinance regulating natural gas operation within the city limits. As a direct result of that ordinance, Chesapeake will not be seeking any permit approvals and will allow the last of our nearly 1,400 leases in Southlake to expire.”10
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Royal Dutch Shell has estimated 40% of its New York acreage could be off-limits because of potential state rules.11
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In late October 2009, in the face of the massive public controversy about its plans to engage in drilling and hydraulic fracturing near the New York City watershed, Chesapeake Energy, reportedly the only company to hold leases within that watershed announced it would “voluntarily” refrain from drilling within the boundary. 12
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Companies in New York State are exercising the “right” of force majeure, or “an unforeseen event that hinders the terms of the contract” to extend leases.13 This is not a popular move with leaseholders and companies are facing two class action lawsuits in federal court representing 300 landowners.14
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Determining the impact of the Delaware River Basin Commission (DRBC) de facto moratorium has been very difficult. According to media reports, two companies operating in the region affected by the moratorium had “put their lease contracts on hold, citing a ‘force majeure’ clause that allows such suspensions because of regulation outside the ‘normal and ordinary course of business.’"15 According to other media reports the companies had invested more than $100 million into the leases before putting them on hold.16
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2.
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ENVIRONMENTAL, SOCIAL AND HEALTH IMPACTS WHICH ARE CONTRIBUTING TO COMMUNITY OPPOSITION
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Has been cited for 203 alleged violations at its Wyoming and Pennsylvania operations in the past five years for environmental and operational infractions dealing with wells, air quality and pollution of wetlands. Allegations included "improperly lined impoundments, lack pollution containing measures for polluting substances," and "no E&S [erosion and sediment control] plan available on site."
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Has spent and will continue to spend tens of millions of dollars in mitigation efforts.
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Ultra will pay, along with Shell, QEP and Encana, up to $72 million to mitigate high ozone levels in Wyoming. Ultra Petroleum, Shell, and QEP Resources paid a total $13 million to an air quality monitoring and mitigation fund in Pinedale, WY and are committed to eventually paying up to $36 million. EnCana has committed to contributing an additional $36 million.17
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In 2009, Ultra paid $200,000 in fines to settle eight air pollution complaints involving more than 100 wells dating to 2000. The settlement stemmed from Wyoming’s allegations that Ultra had discharged hazardous emissions from its production facilities and failed to install the equipment needed to handle the emissions. Ultra was required to install $25 million worth of environmental equipment to prevent future pollution. To assure Ultra complied, the state required the firm to pay $105,417 for each month it was late in completing the installation. Lastly, the state required Ultra to pay $116,250 to the University of Wyoming Environmental Engineering Internship.
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Ultra has racked up 10 additional air quality violation allegations, which are pending.18
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Ultra placed five of its groundwater supply wells into the state's Voluntary Remediation Program, after tests by the Bureau of Land Management found higher-than-allowed levels of benzene, a fluid commonly used in fracking that can cause anemia or an increased risk of cancer.
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Ultra had the highest violations per new well in 2011. Ultra’s 26 violations per well was far beyond the second worst average of 6.09 (XTO – Exxon) and third worst average of 2.13 (Cabot, tied with Rice Drilling). Thirty two operators had less than 1 violation per well and the average for all operators was 0.56 violations per well.
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In 2010, Ultra averaged 1.42 average violations per its 33 new wells that year which is still nearly double the 0.86 average of all 2010 operators.19
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Ultra received one citation for every four inspections — twice the area average.
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Over a four-year period, Ultra's compliance record of violations per well ranked it among the worst 20 percent of Marcellus Shale gas drillers.
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Had its erosion and sedimentation control permits revoked for four sites by the Pennsylvanian Department of Environmental Protection due to "numerous technical deficiencies." 20
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Ultra is being sued by Citizens for Pennsylvania's Future (PennFuture), for air emissions violations. PennFuture alleges Ultra’s facilities are emitting an illegal level of nitrogen oxides, which combine with other elements to form ozone. The PennFuture case could have significant consequences for all shale gas operators in Pennsylvania.21
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Ultra was exposed in a 2011 front page New York Times story about the environmental impacts of fracking. The New York Times reported:
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Ultra Resources sent 155,000 gallons of wastewater with high levels of radioactivity to nine different towns across Pennsylvania to be spread on roads to suppress dust. The water came from two gas wells in Tioga County and contained radium at almost 700 times the levels allowed in drinking water. With rain or the melting of snow or ice, drilling waste spread on roads could potentially wash into rivers and streams. 24
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Ultra’s largest numbers of gas wells are located in Wyoming, including many in Sublette County. The county has a population of less than 10,000 people. Thousands of gas wells have contributed to air quality that is worse than Los Angeles.25 In 2009 the state failed to meet federal air quality standards for the first time in its history partly due to high levels of benzene and toluene from more than 25,000 natural gas wells, mostly drilled in the last five years.
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In Pennsylvania, Ultra is being sued by PennFuture for allegedly emitting large amounts of nitrogen oxides (NOx) into the air, creating serious health risks for anyone living downwind. In addition to being a main precursor for ground-level ozone, NOx is harmful to human health in its own right.
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In Colorado, air emissions from oil and gas operations were found to be contributing as much as 97% of the smog-forming compounds from stationary sources in some Colorado counties.26 A recent report out of the Colorado School of Public Health documented that air emissions near fracking sites could pose health risks to individuals living in the surrounding communities. “According to the lead author of the report, “Our data shows that it is important to include air pollution in the national dialogue on natural gas development that has focused largely on water exposures to hydraulic fracturing.”27
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The Colorado Oil and Gas Conservation Commission projected a 35% increase from 2010 to 2015 in water use for oil and gas exploration and production which translates into roughly 4.5 billion gallons in 2010 increasing to more than 6 billion gallons in 2015.28
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This is in a region that is not expected to have enough water to sustain expected population and agriculture levels. In Colorado, drillers can lease water from municipalities and often have more financial resources to spend than other users.
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Tioga County, Pennsylvania, a primary area of Ultra Petroleum operations, is smack in the middle of the drilling boom, yet homelessness has increased in the region. The vice president of a local shelter program states there has been a dramatic increase in the number of families affected and estimates that 75% of current Tioga residents with nowhere to live were displaced from their homes by gas workers. 29
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3.
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SAFETY CLAIMS
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In March 2010, the EPA launched a study to examine how hydraulic fracturing could impact drinking water; the final report is expected in 2014.30 The EPA has begun testing a few high profile sites. Its preliminary findings from its first test in Wyoming showed a link between hydraulic fracturing operations and groundwater contamination. It currently plans to do additional testing at the site.31
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In most cases, the EPA regulates chemicals used in underground injection under the Safe Drinking Water Act.
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The 2005 Energy Policy Act, allegedly shepherded through Congress by former Vice President Dick Cheney, former CEO of Halliburton, stripped the EPA of its authority to monitor hydraulic fracturing. The New York Times has dubbed this the “Halliburton loophole” and legislators are strongly pushing to reinstate EPA authority. 32
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The 2004 EPA analysis that the industry often refers to as proving that hydraulic fracturing is safe was a literature review and there were no samples taken.33
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According to EPA chief Lisa Jackson "That study is widely cited as saying, 'see, that proves it's safe,' and I don't think that's a fair or accurate summation of that study. I think that's an overbroad reading. We need some data."34
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According to EPA employee and whistleblower Weston Wilson, the EPA’s 2004 report was “scientifically unsound.” He continues, “While EPA’s report concludes this practice poses little or no threat to underground sources of drinking water, based on the available science and literature, EPA’s conclusions are unsupportable.”35
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Others at the EPA contend the report’s conclusions have been over-applied. According to one of the study’s three main authors, Jeffrey Jollie, “It was never intended to be a broad, sweeping study.”36
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·
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Suggested Action 2a: “Comprehensive studies should be undertaken to determine the relative risk to water resources from the practice of shallow hydraulic fracturing.” And “develop additional state regulations relative to the practice.”
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·
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Suggested Action 2b: “….states should consider requiring companies to submit a list of additives used in formation fracturing and their concentration within the fracture fluid matrix. Further, states that do not currently regulate handling and disposal of fracture fluid additives and constituents recovered during recycling operations should consider the need to develop such regulations.
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Suggested Action 2d: “Hydraulic fracturing in oil or gas bearing zones that occur in non-exempt USDW [Underground Sources of Drinking Water] should be either stopped, or restricted to the use of materials that do not pose a risk of endangering ground water and do not have the potential to cause human health effects (e.g. fresh water, sand etc...).37
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·
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The process was developed in the late 1940’s but only recently became widely used. Like all technology, it has changed dramatically since then, such as the new types of chemicals now used.
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These new innovations now require that millions of gallons of toxic laced water are now used per frack instead of tens of thousands of gallons that were required in older, smaller operations.
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According to the industry, fracturing is used in 90 percent of operational wells today.38
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4.
|
REGULATORY RISK
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·
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The Safe Drinking Water Act - designed to protect drinking water sources including above ground and below ground water. In most cases, the EPA regulates chemicals used in underground injection, however the 2005 Energy Policy Act stripped the EPA of its authority to monitor hydraulic fracturing (with the exception of the use of diesel in fracking fluids). The New York Times dubbed this the “Halliburton loophole,” alleging that then Vice President Dick Cheney, formerly CEO of Halliburton (the largest maker of fracking fluid), shepherded this provision through Congress.39
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The Clean Water Act - regulates the release of pollutants into waterways. Amendments exempted oil and gas production from stormwater runoff permits and redefined sediment as a non-pollutant. Consequently, sediment run-off from well and infrastructure construction and operation into streams and rivers are not covered by the Act.
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The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), better known as the Superfund law - makes companies liable for clean-up costs from releasing hazardous materials into the environment, yet several toxic chemicals on the Superfund list are exempted if used for oil and gas production, and natural gas itself is excluded as a hazardous substance.40
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The Clean Air Act - sets limits for major pollution sources including aggregates from multiple smaller sources from one operator. Oil and gas wells are exempt from this aggregation which in essence eliminates reporting from fracking operations.
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The Toxic Release Inventory (TRI) requires most industries to report releases of toxic substances to the EPA, including chemical use, point and fugitive onsite air releases, water releases, on and off-site land releases, underground injection, transfers to a treatment, and waste management facilities. Despite their use of toxic chemicals throughout production, oil and gas facilities are not required to report to the TRI.
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The Resource Conservation and Recovery Act - governs the disposal of solid and hazardous wastes from the point of creation to transport to disposal. In 1980, Congress exempted oil field and natural gas production wastes and EPA eventually ceded authority to state regulation leaving fracking fluid and produced water unregulated under the nation’s premier hazardous waste law.
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The National Environmental Policy Act (NEPA) ensures the federal government considers environmental impacts before undertaking any major federal action (such as oil and gas wells on BLM and public lands). The Energy Policy Act of 2005 stripped NEPA’s strong requirements and replaced it with much narrower and weaker process for several oil and gas related activities. 41
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·
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FRAC Act: In June 2009, the Fracturing Responsibility and Awareness of Chemicals Act—or FRAC Act—was introduced in Congress to reinstate the EPA’s authority to regulate hydraulic fracturing under the Safe Drinking Water Act.42 In March 2011, it was reintroduced in the House and Senate. Although it is not expected to move in the current congress, companies should acknowledge the potential for its future enactment.
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Congressional Committee Review: In February and May 2010 the U.S House Subcommittee on Energy and the Environment sent letters to 14 companies involved in hydraulic fracturing asking for increased disclosure on the chemicals used in the fracturing process and their potential impacts on human health or the environment. In July 2010, the committee sent letters to ten oil and gas producers to obtain additional information. According to the committee, “[t]his investigation will help us better understand the potential risks this technology poses to drinking water supplies and the environment, and whether Congress needs to act to minimize those risks.”43
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Department of the Interior requirements: In February 2012, the Department of the Interior announced draft rules that would require natural gas companies to disclose the chemicals used in all fracturing operations on public lands. According to media reports the rules would require companies to disclose the “complete chemical makeup of all materials used.”44 According to the Secretary of the Interior, “those rules are common sense and if we do not move forward with that kind of program from the Department of the Interior, my own view is that the failure of disclosure and failure of giving the American people confidence that hydraulic fracturing will in fact work will end up being the Achilles heel of the energy promise of America.”45 This would particularly affect companies operating on the vast amount of public lands in the American West such as Ultra and other gas companies in Wyoming and Colorado.
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Environmental Protection Agency: Currently, the EPA is taking a close look at fracturing and plans to draft rules requiring increased disclosure of the chemicals used in the process. In 2009, Congress requested that the EPA carry out a study on the “relationship between hydraulic fracturing and drinking water” and the Agency’s Science Advisory Board encouraged the use of a “life cycle approach.” In late 2011 the EPA announced its final research plan and confirmed that the initial research results and study findings will be released to the public in 2012 and the final report will be available in 2014.46 At the same time, in response to a petition filed by Earthjustice, the agency will use its authority under the Toxic Substance Control Act to require companies to provide increased disclosure on the chemicals used in the fracturing process.47
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21 of 31 drilling states surveyed have no regulations specific to hydraulic fracturing,
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4 of 31 drilling states surveyed have detailed regulations guiding hydraulic fracturing,
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10 drilling states surveyed require that fracturing chemicals be disclosed, and
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No states surveyed require that the volume of fluid left underground after fracturing be recorded.
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Pennsylvania imposed more stringent standards for total dissolved solids meaning that companies are no longer able to dispose of the millions of gallons of waste water produced in fracturing operations at water treatment plants that discharge into rivers and streams.49 This raises serious questions as to how companies like Ultra, will dispose of wastewater.
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Insufficient capacity for waste water disposal could potentially limit the development of fracking, especially in Pennsylvania which has few disposal wells. Of the almost 22 million gallons of wastewater that Pennsylvania’s Marcellus shale operators sent to disposal wells in the first six months of 2011, nearly 99 percent went to Ohio.50 This included 93% of the water sent to the Youngstown, Ohio well that had to be closed after 11 nearby earthquakes that are linked to the disposal of waste water. Citizen and regulatory efforts are now being made to prevent Ohio from becoming a dumping ground. 51
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Both Philadelphia and Pittsburgh have banned drilling within the boundaries of their drinking watersheds, sending a clear message of community concern.
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Impact Fees: In February 2012, Pennsylvania passed a bill imposing an impact fee on gas drilling companies to help cover the cost of fixing bridges and water and sewer plants, among other projects.52
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The Wyoming Oil and Gas Conservation Commission was the first to pass new rules requiring companies to disclose chemicals used in the fracturing process.53
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Colorado’s new chemical disclosure regulations, which go into effect in April 2012, will require more disclosure than other states. 54
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An April 2011 report by the U.S. House Committee on Energy and Commerce on the chemicals used in hydraulic fracturing found that, “between 2005 and 2009, the 14 leading hydraulic fracturing companies in the United States used over 2,500 hydraulic fracturing products containing 750 compounds. More than 650 of these products contained chemicals that are known or possible human carcinogens, regulated under the Safe Drinking Water Act, or listed as hazardous air pollutants.”59 Naphthalene, xylene, toluene, ethylbenzene, and formaldehyde, for example, each used in a number of proprietary fracking solutions, are known or suspected human carcinogens. 60
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A 2010 study by the Endocrine Disruption Exchange found 942 products containing 632 chemicals are used in natural gas operations. Further research on 353 chemicals found that at least 75% could have affect the skin, eyes, and other sensory organs, and the respiratory and gastrointestinal systems. Approximately 40–50% could affect the brain/nervous system, immune and cardiovascular systems, and the kidneys; 37% could affect the endocrine system; and 25% could cause cancer and mutations.61
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In 2008 a study in Colorado found at least 65 chemicals used by natural gas companies were defined as hazardous under the major federal statutes designed to protect against toxic contamination. If these chemicals were released from an industrial facility, reporting to the Environmental Protection Agency (EPA) would be required, and specific clean-up protocols prescribed.62
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In April 2011 a Congressional investigation reported that oil and gas companies, as part of their fracking process, injected hundreds of millions of gallons of hazardous or carcinogenic chemicals into wells in more than 13 states from 2005 to 2009 (fracking has grown exponentially since then).64
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The Environmental Working Group estimates the amount of diesel and petroleum distillates used in a single well is enough to contaminate 650 million gallons of drinking water.65
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5.
|
RESPONSE TO SHAREHOLDERS
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Shareholders first approached the company on this issue in 2009. The company held one dialogue with shareholders at which time both the CEO and legal counsel agreed to post information on its web site regarding four topics of Safety, Fracking Fluids, Risk Assessment and Current Job Locations. The company failed to do so.
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Since that time Ultra management has refused all shareholder requests to dialogue for more than two years.
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Ultra management has not allowed shareholders to present the resolution at the annual meeting despite SEC regulations that shareholders must attend the annual meeting to move the resolution.
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Ultra management has refused to announce the vote results at the meeting despite (or because of) a 42% vote for the resolution - one of the highest votes ever for an environmental resolution.
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By comparison, around 20 companies have held dialogues with shareholders, 19 have faced resolutions and most have provided shareholders with enough information to have the resolutions withdrawn or not filed in the first place. In 2012, Ultra is just one of three companies where the resolution will go to a vote and is also one of only two companies (Exxon being the other) to face a resolution for three consecutive years.
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Shareholder concern about regulatory, legal, reputational and financial risks associated with the environmental, health, and social impacts of fracturing operations is obvious for all the reasons described in this paper, yet the Company has opposed all shareholder resolutions requesting information on these risks.
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·
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Ultra stock, as of April 30, 2012, is about $19 a share – down 63% from $51/share a year ago and far below its $102 share price four years ago.
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·
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Last Fall Forbes listed Ultra CEO Mike Watford as 10th among America's 25 Highest-Paid CEOs; his $43.7 million compensation toped that of the CEOs of ExxonMobil, Chevron, JPMorgan Chase and Goldman Sachs.66
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6.
|
CONCLUSION
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7.
|
INDUSTY-WIDE EXAMPLES OF FINANCIAL RISK DUE TO COMMUNITY CONCERNS, BANS, MORATORIUMS, AND PUBLIC OPPOSITION TO HYDRAULIC FRACTURING AND RELATED NATURAL GAS DEVELOPMENT
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·
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New York: New York State is revising its guidelines related to hydraulic fracturing and vocal and politically well-connected support for increased protections has emerged. New York City’s drinking watershed lies under a portion of the Marcellus shale. Currently, the state is under a defacto moratorium while regulations are finalized.
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o
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Updated draft regulations were issued in September 2011 and the public comment period closed in January 2012, after an “unprecedented turnout” at hearings; final rules are expected soon.67 While regulations are winding through the state process, more than 100 cities, towns and counties in New York have enacted various rules and restrictions, and in some cases bans.68
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o
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In February 2012, the New York State Supreme Court affirmed that two local governments had the authority to prohibit natural gas drilling within their borders.69
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Maryland: In June 2011, the state announced it would conduct a comprehensive study on the implications of natural gas drilling. Permits will not be approved before the completion of the study in 2014.
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Pennsylvania: Between March 2010 and September 2011 over 100 municipalities in the state, including Pittsburgh enacted ordinances to restrict or limit hydraulic fracturing operations.70
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New Jersey: The state has a one-year ban on drilling, though this action is largely symbolic since there are not significant quantities of gas in New Jersey, it is a voting member of the Delaware River Basin Commission discussed below.71
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Texas:
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o
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In Flower Mound, citizen pressure resulted in a 6-month moratorium (effective in June 2010) on pipelines and centralized waste facilities, and a 90-day ban on drilling permits and gas production. Moratoriums were repeatedly extended until July 2011, when a new ordinance took effect. The new oil and gas rules required 1,500-foot setbacks from residences, monitoring requirements such as water well testing, pre- and post-drilling soil sampling, air quality monitoring, the establishment of noise limits, and numerous other stipulations to reduce the impact on Flower Mound residents during gas drilling, hydraulic fracturing and production.72
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o
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The city of Southlake adopted a 180-day moratorium on new gas drilling permits73 and extended the moratorium for another 120 days74 while a new gas ordinance was created. The city now requires an 1000-foot setback from habitable structures and from the property line of schools and hospitals, prohibits earthen drilling pits, requires low toxicity drilling fluids, bans fracturing fluid waste ponds within city limits, bans drilling in environmentally sensitive areas,75 and the ordinance was later amended to prohibit hydraulic fracturing during the summer months.76 Southlake’s restrictions on fracking operations have had a significant impact on companies operating in the region.
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Two companies operating in the region affected by the moratorium had “put their lease contracts on hold, citing a ‘force majeure’ clause that allows such suspensions because of regulation outside the ‘normal and ordinary course of business.’"78 The companies had invested more than $100 million into the leases before putting them on hold.79
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In response to the commission’s draft regulations, Chris Tucker, a spokesperson for Energy In Depth, a pro-drilling association said, “Unfortunately, while a lot of the words in here sound good, a lot of the numbers sounds like a swift kick to the stomach. I’ve never seen bonding and fee requirements this high. They very well might prove prohibitive.”80
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Canada: In March 2011, the Province of Quebec instituted a de facto ban on hydraulic fracturing pending review by a committee appointed by the Province’s Environmental Minister to determine if shale gas could be extracted in the region without impacting the environment. In April 2012, the committee recommended that the minister should not allow hydraulic fracturing even for research purposes.81
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France: In response to the potential environmental damage the process poses, the country has a nationwide ban in place. In October, President Sarkozy stated that “Development of hydrocarbon resources underground is strategic for our country but not at any price. This won’t be done until it has been shown that technologies used for development respect the environment…”82
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Bulgaria: In January 2012, Bulgaria banned hydraulic fracturing and suspended Chevron’s license to explore for shale gas in the country.83
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Germany: In March 2011, North Rhine-Westphalia’s state government imposed a moratorium on shale gas drilling following pressure from environmental activists. In the Lower Saxony town of Lünne, there have been protests against hydraulic fracturing and calls for a moratorium on drilling activities there, too. Lünne’s mayor, Franz Schoppe, has responded to the protests insisting there must be a thorough review of the shale gas extraction process.”84 On the national level, following large-scale protests against shale gas pilot projects in North Rhine-Westphalia and Lower Saxony Environment Minister Norbert Röttgen ordered a review into the environmental impact of shale gas production in Germany.85 These developments are particularly impactful on ExxonMobil which holds major leases in the area.
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South Africa: The Government has stopped licensing fracking permits in the Karoo region while it reviews the potential impacts on the issue.86
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Ireland: In January 2012, the Clare County Council became the first local authority to ban fracking in the country. 87
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8.
|
ENVIRONMENTAL, SOCIAL AND HEALTH IMPACTS WHICH ARE CONTRIBUTING TO COMMUNITY OPPOSITION
|
A.
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Environmental Impacts
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·
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According to analysis done by Sedgwick LLP in September 2011, over three dozen fracking-related lawsuits had been filed, and ten of which were class action suits.91
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In December 2010, two lawsuits were filed in federal court alleging that Chesapeake Energy and Encana Oil & Gas operations contaminated property owners’ water wells.92
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In September 2010, 13 families in Pennsylvania sued Southwestern Energy alleging that their drinking water was contaminated by the company’s drilling operations.93
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In Colorado several years ago, EnCana reached a reportedly multi-million dollar settlement with a private landowner and was fined $266,000 by regulators for release of gas production waste and failure to protect water bearing formations.94
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In April 2011, a Chesapeake Energy well in rural northern Pennsylvania spilled thousands of gallons of drilling fluid, contaminating a stream and leading officials to ask seven families who live nearby to evacuate as crews struggled to stop the gusher. 96
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That same month, a federal judge issued a temporary restraining order against Chesapeake Energy in one of three pending cases that challenge widespread waste-dumping practices in northern West Virginia.97
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In September 2010, a Chesapeake Energy well caught fire and the company was issued a violation for “failing to prevent the release of natural gas and the potential pollution of waters of the state.” The company’s operations at the site were shut down temporarily.98
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In June 2010, a blowout at an EOG well reportedly spewed gas and wastewater for 16 hours and was described by the Pennsylvania DEP as an event that posed “a serious threat to life and property.”99 In response, the company was forced to shut down its operations in Pennsylvania for 40 days and pay $353,400 in fines.100
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Data from the Pennsylvania Department of Environmental Protection (DEP) shows that from January 1, 2009 to December 31, 2011 there were 1,927 violations against Marcellus Shale-related companies for a total of $3.5 million in fines.101 (The DEP posts this information on its web site but does not inform the landowners of violations.)
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A June 2010 explosion at a well in West Virginia owned by Chief Oil and Gas injured seven workers. The West Virginia Department of Environmental Protection issued two notices of violation for improper well casing, as well as an order to cease operations until the company reviewed casing depths, instituted personnel trained in blowout prevention to oversee drilling at all times, and demonstrated an understanding of the causes of the blowout.102
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Blowouts are a rare occurrence, but subsurface blowouts appear to be under-reported.103
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Rural Wyoming known for its breathtaking vistas now has worse smog than Los Angeles because of its boom in natural gas drilling.113
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Utah had a similar experience as 2011 wintertime levels of ozone in sparsely-populated eastern Utah were higher than in New York City. The Utah Department of Environmental Quality is studying if there is a link to the 10,000 oil and gas wells in that area. The peak ozone value was 139 parts per billion, which is 85% higher than the federal health standard.
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In Denver, air samples of what was expected to be urban smog, turned out to include methane from nearby gas fields. Natural gas wells in the area are losing about 4% of their gas to the atmosphere (not including additional losses in the pipeline and distribution system) according to the National Oceanic and Atmospheric Administration (NOAA) and the University of Colorado, Boulder. NOAA also found high concentrations of butane, ethane and propane in Erie, east of Boulder, where hundreds of natural-gas wells are operating.114
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Dallas-Fort Worth is the largest urban center in the Barnett Shale, and a report by Southern Methodist University found daily air pollution emissions from local natural gas drilling surpassed that of all motor vehicles operating in the nine-county Dallas-Fort Worth metropolitan area115
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A May 2011 report concluded that by installing equipment to recover emissions in the area, natural gas companies could save up to $52 million annually.116
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Dish, TX has been called the Grand Central Station of the Barnett Shale. Town officials arranged for the Texas Department of State Health Services to come investigate effects the gas industry’s emissions could be having on the residents’ health.
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In 2009, town officials spent 15% of the town’s annual budget on an independent air quality test that found benzene, xylene, naphthalene, carbon disulfide, and other chemicals at elevated levels.
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In Northwest New Mexico, the switch from drilling for oil to drilling for natural gas has brought more severe and more frequent odor incidents causing health effects in communities. Residents commonly report headaches, nausea, dizziness, and nose, eye and throat irritation during odor events.118
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Alberta is the heart of Canada’s oil and gas region and many farmers there report problems with their water. Few of these become public as companies make farmers sign confidentiality agreements in return for replacement of their water wells. In February 2012 the National Farmers Union in Canada called for a fracking moratorium.126
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An investigation of 24 cases in five states where ranchers linked hundreds of dead cows to fracking described a Louisiana farmer with two herds of cows, one with access to a creek where fracking wastewater was allegedly dumped reported 21 cows died from the herd with creek access while none of the other herd became ill or died. The study also cites problems collecting evidence due to incomplete testing, lack of full disclosure of chemicals, and nondisclosure agreements when settlements have been reached between the companies and farmers.127
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A study on behalf of the American College of Veterinary Pathologists found that 30 sheep died or were euthanatized during a 21-day period following a 1-day accidental exposure to natural gas condensate. 128
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Kansas has proposed legislation allowing fracking solid waste to be spread on fields without requiring a solid waste permit.129 A surge in fracking in southern Kansas has led companies to look for cheaper ways to get rid of large quantities of waste. The alternative is hauling it to landfills and there is only one in the county that will accept fracking waste. The state has put a limit on spreading waste on fields that have chloride levels higher than 900 parts per million, or about two inches of material atop the soil, as high levels of chloride can damage plants, affect the taste of drinking water, and make it more corrosive to water pipes.130
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New York City food professionals have formed groups such as Chefs for Marcellus and are banding together to protect the city’s foodshed.131 This is complimented by Farmers Against Fracking which is organizing across the state. These are typical of the hundreds of grassroots efforts raising concern about hydraulic fracturing.
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Politically active membership organizations such as Trout Unlimited and National Wildlife Federation have opposed hydraulic fracturing due to reports of animals found dead near fracking operations or in nearby waterways, habitat fragmentation from well site and infrastructure construction, and gas drilling in protected areas such as state forests or federal lands (particularly out west).
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Biocides, used to control bacterial growth in drill pipes, have raised concern about impacts on aquatic life and oyster beds in Chesapeake Bay.132
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B.
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Social Impacts
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Higher wages also results in higher costs of living including inflation and, in particular, skyrocketing housing costs (fixed income residents such as the elderly are hit the hardest).133
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In 2005, the average rent for a one-bedroom apartment in Willison, North Dakota was less than $500. In February 2012 it is more than $2,000.134
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Natural gas related businesses flourish while non-gas related business lose employees and struggle with higher costs. 135
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Marketed as a job creator for decades to come, over-production has led to a 10-year low in gas prices forcing companies to cut back drilling operations. Residents and townships are weary of embracing a boom-bust economy for their community.
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Homeowners near drilling operations are concerned about falling home values and difficulties with mortgages. Law firms and NGOs have sprung up to help a growing number of landowners who are trying to get out of their drilling lease.136 137
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The impact of tens of thousands of trucks and tankers on these roads is predictable - extensive road damage, a surge in traffic accidents, increased traffic noise, and pollution.
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One media report sums up the new situation in many communities as follows: “It’s possible to travel through gas country without seeing many wells, which often are set back in fields and woods. It is not possible, however, to travel any distance at all without encountering the tankers, dump trucks, and pickups that make the natural gas industry go. Used to haul in water, supplies, and workers and haul our drilling wastes, the trucks are a constant reminder of new prosperity and a constant annoyance to locals. Work goes on around the clock, year-round.”138
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Construction of processing and storage facilities and pipelines all add to an altered landscape and a changing feel for agricultural, rural, or suburban communities.
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This has led to an increase in crime, drugs, and sexually transmitted diseases among other social ills.
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“county and local governments have to cope with the cost of dealing with more people, more social service referrals and more crime—the latter due to the presence of hundreds of young, unattached men with money to burn. Police calls for service in Bradford County [PA], which has more Marcellus wells than any other in the state, are up 25 percent this year, the Associated Press reported.”139
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“In Pennsylvania’s Bradford County, DUI arrests by state troopers are on track to rise 40 percent this year after climbing 60 percent last year…the number of sentences handed out for criminal offenses was up 35 percent in 2010…Sheriff Clinton Walters said his officers are handling about a 25 percent increase from last year in everything from warrants for people who fail to appear in court to protection-from-abuse orders. This flood of arrests is such that his office’s van is no longer big enough to transport all the inmates at once from jail to court…”140
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“In Sweetwater County, Wyo., where natural gas exploration boomed about a decade ago, the population increased from 37,600 in 2000 to 43,800 in 2010, and arrests for drunkenness, drugs and DUI more than doubled from 603 in 2000 to a peak of 1,535 in 2008, according to state figures.”141
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A large population of temporary workers can raise tensions between existing residents and those they view as ‘outsiders’. Communities are further split between those supporting fracking and those that don’t.
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This sudden increase in population strains existing social services such as police, hospitals, and schools – often with corresponding financial burdens. 142
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Health Impacts
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Many chemicals used by natural gas companies are defined as hazardous under the major federal statutes designed to protect against toxic contamination (as noted previously, gas drilling is currently largely exempt from these laws).
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These include known carcinogens such as benzene; possible carcinogens including ethylbenzene, acetaldehyde, and formaldehyde; and other compounds such as toluene and xylene that can cause other serious health effects.
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Chemical and natural contaminates are known to leak from a wide array of gas drilling operations including gas wells, impoundment ponds, condensate tanks, compressor stations, pipelines, and processing plants, as well as the exhaust of thousands of vehicles.
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Evidence in Texas, Wyoming, Louisiana, North Dakota, and Pennsylvania increasingly finds an alignment between worsening health metrics among neighbors of gas wells and related infrastructure. The onset of symptoms and drilling frequently coincided.143
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A Texas hospital system in six counties with some of the heaviest drilling (93,000 natural gas wells) said in 2010 that it found a 25% asthma rate for young children, more than three times the state rate of about 7 percent.144
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More than 250 New York doctors, health care professionals, and medical societies warned New York Governor Cuomo that the state failed to analyze public health impacts of hydraulic fracturing in its rush to approve permits for drilling. The Medical Society of the State of New York has called for a moratorium on natural gas extraction using hydraulic fracturing until scientific information on health impacts is available.145
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One of the nation’s top scientists, Dr. Christopher Portier, director of the National Center for Environmental Health at the federal Centers for Disease Control and Prevention in Atlanta, called for more research to determine the possible impacts of shale gas drilling on human health and the environment. "Studies should include all the ways people can be exposed, such as through air, water, soil, plants and animals," according to Portier.146
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In a January 2012 conference on hydraulic fracturing, leading doctors called for a moratorium on drilling in populated areas until the health impacts of such operations were better understood.147
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In April 2012 the Institute of Medicine, a branch of the National Academy of Sciences, announced it will examine whether the process of hydraulic fracturing to extract natural gas from rock “poses potential health challenges,”148
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Radium has been shown to cause liver, bone and breast cancers.149
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Health problems can arise if it enters a persons’ body by eating, drinking or breathing.150
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Exposure can come from leaks, illegal dumping, and when wastewater is been sold as a deicer and dust suppressant on roads, which can potentially run off and contaminate water and enter the food supply.151
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In Pennsylvania, Ultra sent 155,000 gallons of wastewater (with levels of radioactivity almost 700 times the levels allowed in drinking water) to nine different towns to be spread on roads to suppress dust.
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