1. Water Quality Rulemaking in Response to S.L. 2012-143 1

2. Background - Location 2 From Reid and Milici. 2008. “Hydrocarbon Source Rocks in the Deep River and Dan River Triassic Basins, North Carolina”

3. Background - Volume 3 Technically Recoverable Undiscovered Unconventional Resources Assessment Unit Natural Gas (mean, BCFG) Natural Gas Liquids (mean, MMBNGL) NC Triassic Basins 1 1,709 83 Marcellus Shale (PA, NY, WVa, OH) 2 84,1983,379 Barnett Shale (TX) 3 26,2281,049 Sources: (1) USGS Fact Sheet 2012-3075 (2) USGS Fact Sheet 2011-3092 (3) USGS Fact Sheet 2004-3022 BCFG: billion cubic feet of gas MMBNGL: million barrels of natural gas liquids

4. Major Provisions of S.L. 2012- 143 Creates Mining & Energy Commission Authorizes hydraulic fracturing and horizontal drilling Prohibits issuance of drilling permits until legislature acts Updates statutory regulations of oil & gas activities Directs EMC, Commission for Public Health, and Mining & Energy Commission to adopt necessary rules by October 1, 2014 4

5. Mining & Energy Commission Rulemaking Responsibilities Drilling permit application requirements Baseline sampling rules Oil and gas well construction standards Siting standards for oil & gas wells and other production infrastructure Limits on water use and establishment of water management plans Management of wastes 5

6. Mining & Energy Commission Rulemaking Responsibilities (cont’d) Prohibitions on use of certain chemicals Disclosure of chemicals used Blowout and spill prevention and response Well closure and site reclamation 6

7. EMC Rulemaking Responsibilities Stormwater control for oil & gas exploration and development sites; Regulation of toxic air emissions from drilling operations; “…matters within its jurisdiction that allow for and regulate horizontal drilling and hydraulic fracturing for the purpose of oil and gas exploration and development.” 7

8. Water Quality Rule Development Process for SL 2012-143 May 2012 DENR Study Report Staff review of all EMC water quality rules Staff level coordination with DEMLR Energy Program DWR staff coordination with MEC & MEC members Rules presented to MEC Oil & Gas Stakeholder Group DWR & Stormwater participation in the MEC’s Coordinated Permitting Study Group Rule overview presented to MEC’s November 2013 meeting 8

9. Recommended EMC Water Quality Rule Revisions Adopt: 15A NCAC 2H.1030 – New Stormwater rule Amend: 15A NCAC 2T – Wastes not discharged to surface waters ◦2T.0113 – Permitting by Regulation ◦2T.1001 – Closed-loop recycle ◦2T.1501 – Soil Remediation 15A NCAC 2U – Reclaimed Water ◦2U.0113 - Permitting by Regulation 9

10. Stormwater Oil & Gas operations exempt from federal NPDES stormwater requirements until after a release or water quality standard violation State stormwater regulations recommended by STRONGER and DENR study; required by SL 2012-143 10

11. Stormwater Stormwater discharges and major pollutant concerns: ◦Initial grading – sediment ◦Initial drilling – sediment, trace hydrocarbons, brines ◦Production, stimulation, and maintenance – sediment, peak flow, residuals 11

12. Stormwater

13. Stormwater & Spills

15. New Stormwater Rule (15A NCAC 2H.1030) Proposed stormwater rule requirements for O&G: ◦Site stabilization similar to the current NPDES Construction Stormwater permit elements ◦Structural BMPs required: extend existing rules in 15A NCAC 2H.1000 Full pad containment and around battery units: already provided for within the Energy Program rules, but not in 15A NCAC 2H.1030 15

16. New Stormwater Rule (15A NCAC 2H.1030) Design Rainfall criteria (2H.1030(c)(4)): ◦Control and treat runoff from the 1” rainfall OR ◦Control and treat the difference in pre- and post- development runoff for the 90 th percentile storm 16

17. Non-Discharge Rule Amendments (15A NCAC 2T) 2T.0113 – Permitting by Regulation ◦On-site disposal of drilling muds, cuttings and produced water should not be permitted by rule 17

18. 2T.1001 – Closed-loop recycle ◦Clarify that reuse of flowback water or drilling fluids is not a “closed-loop recycle system” 2T.1501 – Soil Remediation ◦Clarify that soil remediation permits are not appropriate for spreading of oil and gas drilling muds and cuttings 18 Non-Discharge Rule Amendments (15A NCAC 2T)

19. Reclaimed Water Rule Amendments (15A NCAC 2U) 2U.0113 – Permitting by Regulation ◦Reuse of flowback water in oil and gas operations should be permitted by rule under conditions approved by DEMLR 19

20. Rulemaking Targets 20 EMC Action - send rules to public comment: May 8, 2014 NC Register filing deadline: May 9, 2014 Start of Comment period: June 2, 2014 Earliest Hearing: June 17, 2014 End Comment period: August 1, 2014

21. For More Information Evan Kane, Groundwater Planning & Environmental Review Branch Supervisor Division of Water Resources 919-807-6461 evan.kane@ncdenr.gov Jon Risgaard, Non-Discharge Unit Supervisor Division of Water Resources 919-807-6458 jon.risgaard@ncdenr.gov Ken Pickle, Stormwater Program Engineer Division of Energy, Mineral, and Land Resources 919-807-6376 ken.pickle@ncdenr.gov 21