On March 20, 2015, the Bureau of Land Management (“BLM”) released its long-awaited final rule for hydraulic fracturing on federal and Indian land. The rule establishes new requirements to ensure wellbore integrity, protect water quality, and enhance public disclosure of chemicals and other details of hydraulic fracturing. Specifically, the rule requires the performance of a well integrity test on every well drilled, along with the implementation of a casing and cementing program that follows best practices performance standards. The rule also requires public disclosure of the chemicals used in hydraulic fracturing within 30 days of completing fracturing operations and requires, except in very limited circumstances, the use of aboveground tanks in place of pits for the interim storage of recovered waste fluids from hydraulic fracturing. Additionally, the rule requires submission to the BLM of detailed information on the geology, depth, and location of preexisting wells. The rule is set to take effect 90 days after publication in the Federal Register which is expected to occur on March 26, 2015.

The final BLM rule comes after the BLM’s receipt of over 1.5 million comments from the public on rules proposed on May 11, 2012, and May 24, 2013. Significant changes to the final rule from the proposals relate to the allowable use of an expanded set of cement evaluation tools to help ensure that usable water zones have been isolated and protected from contamination, replacement of the “type well” concept to demonstrate well integrity with a requirement to demonstrate well integrity for all wells, more stringent requirements related to claims of trade secrets exempt from disclosure, more protective requirements to ensure that fluids recovered during hydraulic fracturing operations are contained, additional disclosure and public availability of information about each hydraulic fracturing operation, and revised records retention requirements to ensure that records of chemicals used in hydraulic fracturing operations are retained for the life of the well.

Specifically, the rule requires operators planning to conduct hydraulic fracturing to:

• Submit detailed information on existing forms about the proposed operation, including such details as wellbore geology, locations of faults and fractures, depths to all usable water, estimated volume of fracking fluid to be used, and estimated direction and length of all fractures.
• Design and implement a casing and cementing program that follows best practices and meets performance standards to protect and isolate usable water (generally defined as water containing less than 10 million ppm of total dissolved solids).
• Monitor cementing operations during well construction.
• Perform a successful mechanical integrity test prior to fracturing the well.
• Monitor annulus pressure during hydraulic fracturing operations.
• Take remedial action upon indication of inadequate cementing and demonstrate the success of the remedial action to BLM.
• Manage recovered fluid in rigid enclosed, covered, or netted and screened above ground storage tanks, with limited exceptions that must be approved on a case-by-case basis.
• Disclose all chemicals used to BLM and the public, with limited exceptions for trade secrets. The FracFocus website database may be used for this purpose, and BLM has signed a Memorandum of Understanding with the Groundwater Protection Council, which manages FracFocus, to ensure that the recommendations of the Secretary of Energy’s Advisory Board for improvement of the database, including easier searching and downloading of data, are implemented.

BLM estimates that the cost to comply with these new regulations will be only approximately $11,400 per well, or about $32 million per year based on 2,800 hydraulic fracturing operations per year.

While BLM calls the rule “a much needed complement to existing regulations,” the rule has already drawn criticism from both industry and environmental groups, with environmentalists arguing that the rule does not go far enough in regulating hydraulic fracturing operations and industry claiming that the rule adds an unnecessary, duplicative layer of regulations. Currently, hydraulic fracturing is primarily regulated at the state level. Companies must obtain state permits and comply with applicable state regulations when operating on federal lands. BLM claims that the rule recognizes state and tribal authorities without imposing undue delays, costs and procedures on operators. Some of the rule’s requirements clearly impose new obligations or restrictions on operators in certain states. For example, many states have no rule against the use of pits, and in 2013, New Mexico withdrew its “pit rule” requiring the use of steel tanks to store produced water from hydraulic fracturing operations. The new BLM rule imposes a near-outright ban on the use of pits for fluid storage, which will require operators to implement new practices to comply with the rule.

Such provisions notwithstanding, many states already impose certain obligations similar to those set forth in the BLM rule. For example, many states already require disclosure of the chemicals used in the hydraulic fracturing process, including through FracFocus. These conflicts with and additions to state requirements are the source of much controversy over the new rule. BLM has sought to minimize the effect of such discrepancies by including a variance process by which states and tribes may obtain a variance from the BLM rule for operations within their jurisdiction if they can demonstrate that their specific regulations are equal to or more protective than the BLM rule. While the BLM touts this variance procedure as a protection against the potential for duplicative regulation, it remains to be seen how useful and effective it will be. It is highly possible, and there is a great deal of concern within the industry, that it will result in an overly burdensome, bureaucratic process.

Immediately after issuance of the rule, two industry groups, the Independent Petroleum Association of America (“IPAA”) and Western Energy Alliance (the “Alliance”) filed a lawsuit in the United States District Court for the District of Wyoming requesting that the federal court set aside the rule. (Independent Petroleum Association and Western Energy Alliance v. Sally Jewell, Case No. 2:15-cv-00041-NDF (filed March 20, 2015)). IPAA and the Alliance argue, among other things, that the rulemaking has been procedurally deficient and that the regulatory conditions the final rule imposes constitute arbitrary and unnecessary burdens that either duplicate state law requirements or improperly curtail the jurisdiction of state governments. This litigation will be closely watched in the months to come, but barring the issuance of a stay, operators will need to begin complying with the rule when it becomes effective, likely in late June or early July 2015.

Please click here to view the rule.