Background

BLM is the federal agency responsible for regulating oil and gas activities on Federal and Indian land. BLM has long required operators to comply with federal regulations, BLM’s Onshore Orders, and site-specific obligations in an operator’s lease and Application for Permit to Drill, as well as the applicable state, tribal, and local rules in the state or reservation where the land is located.

After studying the existing regulatory requirements, the Obama Administration decided that additional federal regulations were needed for hydraulic fracturing on Federal and Indian land. BLM passed the 2015 Rule, which would have included a comprehensive set of well-bore integrity requirements, the use of tanks for the interim storage of recovered waste fluids, mandatory notifications and waiting periods for key parts of the fracturing process, and chemical disclosures.

The 2015 Rule never went into effect because it was challenged in court and enjoined, or blocked, by a federal district court judge in Wyoming. While that decision was on appeal in the Tenth Circuit, President Trump issued an Executive Order titled “Promoting Energy Independence and Economic Growth” that directed agencies to “immediately review existing regulations that potentially burden the development or use of domestically produced energy resources and appropriately suspend, revise, or rescind those that unduly burden the development of domestic energy resources.”

BLM then proposed to rescind the 2015 Rule because it believed it was “unnecessarily duplicative of state and some tribal regulations and imposes burdensome reporting requirements and other unjustified costs on the oil and gas industry.” BLM then rescinded the 2015 Rule on December 27, 2017, leaving in effect BLM’s hydraulic fracturing regulations (43 CFR Part 3160) that have governed hydraulic fracturing activities on Federal and Indian lands since the 1980s.

The State of California and several environmental groups challenged BLM’s rescission of the 2015 Rule in a federal district court in California under the Administrative Procedure Act (“APA”), National Environmental Policy Act (“NEPA”) and Endangered Species Act (“ESA”). Essentially, these groups argued that BLM did not follow the proper procedures, complete the necessary level of environmental analysis, or sufficiently explain its reason for rescinding the 2015 Rule.

Challenges under the Administrative Procedure Act

In challenging the Rescission under the APA, California argued that the change in policy was an abuse of discretion because the agency failed to offer a reasoned explanation for reversing its policy and that its reasons for the reversal run counter to the evidence before the agency.¹ The Court disagreed and held that while BLM could have provided more detail, its explanation was sufficient and “did enough to clear the low bar of arbitrary and capricious review, and that is all the law requires.”

An agency can change course on policy, so long as it meets four requirements. The agency must: (1) display awareness that it is changing position; (2) show that the new policy is permissible under the statute; (3) believe the new policy is better; and (4) provide good reasons for the new policy. If the “new policy rests upon factual findings that contradict those which underlay its prior policy,” then the agency must include a “reasoned explanation” for “disregarding facts and circumstances that underlay or were engendered by the policy.” Here, the Court held that there was no dispute that the Rescission fulfilled the first three requirements because (1) the Rescission recognized that it was directly reversing the 2015 Rule, (2) the Rescission merely returned the regulatory landscape back to BLM’s preexisting regime, which was permissible under the relevant statutes, and (3) BLM’s decision to implement its new policy demonstrates that it believes the new policy is better.

In holding that BLM fulfilled the fourth requirement, the Court reiterated that the arbitrary and capricious standard of review under the APA is a “low bar” that only requires that an agency adequately explain its reasoning for changing course.

First, California argued that the Rescission did not meet the fourth requirement by pointing out that BLM originally claimed that the 2015 Rule added necessary improvements to existing BLM regulations, yet, in the Rescission, BLM claimed that pre-2015 BLM regulations, combined with state and tribal regulations, are appropriate to mitigate hydraulic fracturing impacts. Challengers argued that referencing these additional state and tribal regulations was not enough to provide a “reasoned explanation for the change.” The Court rejected this argument, stating that BLM did not have to demonstrate that “additional state and tribal regulations completely fill the exact same regulatory gaps as would the 2015 Rule.” BLM provided a requirement-by-requirement explanation for rescinding the 2015 Rule, which constituted a “reasoned explanation.”

Second, California argued that BLM failed to seriously consider benefits that the 2015 Rule would have created when weighing the costs and benefits of the Rescission. The Court also rejected this argument, finding that BLM’s prioritization of costs and benefits “was a policy judgement that was ‘well within the agency’s discretion,” concluding that the record does not compel a conclusion that BLM was arbitrary and capricious. Thus, BLM met the requirement of providing a “reasonable explanation” for changing course.

The Court left open the question of whether BLM had statutory authority to promulgate the 2015 Rule in the first place, merely stating that the issue was not properly before the Court to decide.

Challenges under the National Environmental Policy Act and Endangered Species Act

Challengers also argued that BLM violated NEPA and the ESA by failing to look at the impacts of the Rescission and failing to consult with the Fish and Wildlife Service. In granting summary judgement on these claims, the Court noted that the “benefits” and “protections” of the rule were unrealized at the time of the Rescission because the 2015 Rule never went into effect. Thus, because the Rescission did not change the environmental status quo, there would be no impact to the environment or endangered species and NEPA and the ESA did not apply.

Moving Forward

The Rescission will save oil and gas operators from complying with additional federal requirements. But V&E Environmental & Natural Resources Counsel Corinne Snow, who argued this case on BLM’s behalf during her tenure at the U.S. Department of Justice, notes that as a practical matter, the 2015 Rule requirements are now largely duplicative of regulations in place in many states where hydraulic fracturing occurs on BLM lands, and BLM requires operators to also comply with the laws of the state where Federal or Indian land is located.

The State of California and environmental groups that challenged the Rescission now have the option to appeal the District Court’s decision to the U.S. Court of Appeals for the Ninth Circuit.

_{¹ The Court ruled that environmental groups did not have standing to bring their APA claims, as they could prove no injury caused by the Rescission itself. Environmental groups did have standing to bring their NEPA and ESA claims. California had standing to bring all of its claims.}