This spring, the oil industry and environmental groups are expecting the Department of Interior’s Bureau of Land Management (BLM) to issue a revised rule that will regulate hydraulic fracturing (fracking) on federal and tribal lands. Derek Hawkins, “White House Takes Up Review of Fracking Rule Changes,” Law360 – A LexisNexis Company, January 23, 2013 [hereinafter Hawkins, Law360]. The revised rule comes on the heels of a proposed rule that BLM issued back in May 2012, which called for the expansion of fracking on federally protected lands. Upon its release, the rule drew the attention – and ire – of industry and environmental groups. While the industry declared that the proposed rule added unnecessary federal red tape, environmentalists contended that the proposed rule did not do enough to protect public lands and the environment. Because of the outcry, the Obama Administration delayed finalizing the rule in order to undertake revisions of it – a process that will lead to the upcoming revised rule. See Ben Geman, “Interior delays ‘fracking’ rules,” The Hill, December 11, 2012.
Because much of today’s fracking activity is occurring on private and state lands, local and state governments regulate much of the country’s current natural-gas drilling. Shawna Bligh and Chris Wendelbo, “Hydraulic Fracturing: Drilling Into the Issue,” Natural Resources & Environment, ABA Section of Environment, Energy, and Resources, Vol. 27, Number 3, Winter 2013, at 8. In fact, the revised rule will only cover roughly 13 percent of U.S. natural gas production and less than 6 percent of onshore oil production. Ben Geman, “Interior floats new draft rules to regulate oil-and-gas ‘fracking,’” The Hill, May 4, 2012 [hereinafter Geman, May 4, 2012]. That said, considering the revised rule’s potential to influence local, state and federal regulations in the future, it’s important for legal counsel for oil-and-gas companies to be aware of the May 2012 proposed rule and the issues that BLM is now considering as it drafts the revised one.
Summary of Hydraulic Fracturing
Hydraulic fracturing is a well stimulation technique used to produce economically viable quantities of oil and natural gas from unconventional reservoirs, such as shale, tight sands, coal beds and other formations. “Study of the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources: Progress Report,” U.S. Environmental Protection Agency (December 2012), http://www.epa.gov/hfstudy/progressreport12.html, at 5. Operators begin the fracking process by building the necessary site infrastructure, which involves drilling a well vertically thousands of feet into the ground and then horizontally several thousand more feet into the target formation. Clean Water Action, “Fracking: The Process,” http://cleanwater.org/page/fracking-process. Fracking fluid, a mixture of water, sand and various chemicals, is then pumped into the well at high pressures in order to create fissures in the reservoir through which natural gas can escape. Id. Once the fissures are created, the gas leaves the formation and goes up the well to the surface, where operators process, refine and ship the gas to market. Id. After the fracking process is completed, wastewater or recovered fluid, including flow-back water, also returns to the surface, where it must be safely stored away – either to eventually be disposed of or to be treated and reused to frack new wells in the future. See id.
May 2012 Proposed Rule
The proposed rule addressed a number of areas important to ensuring the safety of the fracturing process, including (1) wellbore integrity, (2) management of the process’s wastewater, (3) disclosure of the chemicals used in the fracking fluid (public disclosure requirement), and (4) compliance requirements.
The rule’s regulations regarding wellbore integrity sought to ensure that the constructed well and well casing were able to handle the maximum pressures expected to be used during the fracturing process. Oil and Gas; Well Stimulation, Including Hydraulic Fracturing, on Federal and Indian Land, 77 Fed. Reg. 27,691, 27,697 (proposed May 11, 2012) (to be codified at 43 C.F.R. § 3162.3-3(d)). To do this, the rule required operators to complete a successful mechanical-integrity test before the start of the fracking activity, which would emulate the pressure conditions that were expected. 77 Fed. Reg. 27,697 (to be codified at 43 C.F.R. § 3162.3-3(d)(1)-(2)). A successful test would show that the well’s casing was robust enough to handle the pressures and thus would be able protect the water and other subsurface resources during the process. Id.
The rule also required operators, before fracking activities began, to provide information pertaining to the handling of the recovered fluids, the estimate of the volume of flow-back fluid expected to be recovered, the proposed methods of managing the flow-back fluids, and a description of the proposed disposal method for the recovered fluids. 77 Fed. Reg. 27,696 (to be codified at 43 C.F.R. § 3162.3.3(c)(6)). After the process was completed, operators then needed to provide additional information regarding the handling of the flow-back fluids, the volume of fluid recovered during flow back, the methods used to manage the recovered fluids, and the disposal method for the fluids. 77 Fed. Reg. 27,698 (to be codified at 43 C.F.R. § 3162.3.3(g)(10)). Operators also had to submit documentation explaining if the actual operations deviated from the approved plan. 77 Fed. Reg. 27,698 (to be codified at 43 C.F.R. § 3162.3.3(g)(11)). Also, the rule required operators to store recovered fluids safely in tanks or lined pits. 77 Fed. Reg. 27,697 (to be codified at 43 C.F.R. § 3162.3.3(f)).
Further, the rule’s public disclosure requirement required operators, after the fracturing process was completed, to identify to the BLM all chemical additives used in the fracking fluid. 77 Fed. Reg. 27,698 (to be codified at 43 C.F.R. § 3162.3.3(g)(4)-(5)). The rule authorized operators to submit this information in a manner that minimized the risk of disclosure of any company’s additive formula. BLM would then place this information online for public disclosure. Id.
Also, the rule required operators, before and after fracking operations, to submit certificates of compliance that would require operators to certify in writing that they had complied with all applicable federal, tribal, state and local laws, rules and regulations pertaining to proposed stimulation fluids. 77 Fed. Reg. 27,696 (to be codified at 43 C.F.R. § 3162.3.3(c)(4)). And the rule required operators to certify that they complied with all necessary permit and notice requirements. 77 Fed. Reg. 27,698 (to be codified at 43 C.F.R. § 3162.3.3(g)(8)).
Complaints From Interested Parties
Upon release of the May 2012 rule, industry and environmental groups immediately criticized it. Industry groups alleged that the rule created duplicative reporting requirements that overlapped with existing state regulations. Hawkins, Law360. Groups like the American Petroleum Institute and the Independent Petroleum Association of America (IPAA) were particularly critical, with IPAA contending that the proposed rule would “undoubtedly insert an unnecessary layer of rigidity into the permitting and development process.” Geman, May 4, 2012.
On the other hand, environmentalists argued that the proposed rule didn’t do enough to protect the environment and public safety. These groups were especially upset with the administration’s public disclosure requirement, which allowed companies to disclose the chemicals used in fracturing fluid after the process was completed. Hawkins, Law360. The administration defended this action by contending, first, that requiring disclosure before drilling began might cause needless delay in the fracturing process without it improving public confidence, and second, disclosure after the fact would not make fracturing less safe, as the list of chemicals would be publicly available for investigators who needed to trace the source of contamination if waters were ever polluted. Ben Geman, “House Dems press Interior to toughen gas ‘fracking’ rule,” The Hill, June 20, 2012. This explanation, however, did not satisfy at least one group of U.S. House Democratic lawmakers, who contended that “the public has a right to know [before fracturing operations began] what types of chemicals might be going into the ground near their communities … so that they [can] take … precautions to safeguard their [water] supplies.” Id.
While the revised rule is expected to keep the main components of the proposed rule, for example the well integrity and public disclosure requirements, no one knows whether the details of any of these sections will change significantly. Hawkins, Law360. President Barack Obama has been careful to state that he is supportive of both expanded natural gas production and strong environmental protections. Geman, May 4, 2012. While it’s possible that the administration could, for example, expand the public disclosure requirement to apply before and after fracturing operations were completed, the administration could very well stick with its current proposal. What is certain, however, is that once BLM releases its revised rule, both industry groups and environmentalists will have plenty to say about it. It should all make for an interesting year 2013 in the hydraulic-fracturing regulatory process.
BLM will issue a final rule once all comments have been collected and analyzed. Ben Geman, “Obama officials delay ‘fracking’ rules,” The Hill, January 18, 2013. To date, no timeline has been set for this process. See id.