BLM Announces New Hydraulic Fracturing Rules for Oil and Gas Wells on Federal Lands; Industry Trade Associations and the State of Wyoming Immediately File Challenges

Jackson Walker
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On March 26, 2015, the U.S. Interior Department's Bureau of Land Management (BLM) published its final rule setting new standards for hydraulic fracturing on onshore federal and Indian lands. The final rule, as published in the Federal Register, can be found here. This final rule is the culmination of an extended rulemaking process which began in 2010. During the public comment period, the BLM received 1.5 million comments on its proposed rule.

The new rule only applies to drilling on onshore federal lands, which according to BLM statistics, accounts for 11% of the natural gas and 5% of the oil consumed in the U.S. The new rule sets new standards for well construction and wastewater disposal. Furthermore, the new rule requires disclosure of chemicals used in fracturing fluids. BLM estimates that on average, compliance with the new rule will cost $11,400 per well, which equates to approximately $32 million per year on an industry-wide basis.

Management of Recovered Fluids
The new rule also requires companies to use rigid enclosed, covered, or netted and screened above-ground storage tanks for wastewater storage prior to permanent disposal. While several states allow companies to use open pits dug into the ground near well sites, many companies already implement the BLM's waste water storage methods. The rule provides for very limited exceptions which must be approved on a case-by-case basis.

Chemical Disclosure
Mimicking the requirements already established by 16 states, the new rule requires companies to disclose to "FracFocus" the chemicals used in fracturing fluids within 30 days of drilling completion. FracFocus is a publicly available database which tracks the chemicals used in fracturing fluids, as reported by oil and gas companies. Some in the oil and gas industry have expressed concern that the disclosure requirements may expose confidential operational and design information. The BLM has indicated that it will maintain information as confidential to the extent that the information is considered confidential under federal law.

Enhanced Casing and Cementing Program
Finally, the new rule requires specific well integrity testing, including pressure testing of casing strings, cement evaluation, monitoring of annulus pressure during the fracturing process, and remediation plans for any surface casing that fails to meet the required standards.

Challenges to the Rule
Two prominent trade associations, the Independent Petroleum Association of America and Western Energy Alliance, immediately filed a lawsuit in federal court challenging the new rules, stating that the "arbitrary and unnecessary burdens…either duplicate state law requirements or improperly curtail the primary jurisdiction of state governments." The complaint goes on to note that the new rule is "not properly tailored to achieve a legitimate government purpose" and should be invalidated. Furthermore, the State of Wyoming has also filed a lawsuit challenging the rule, stating that the rule "exceeds the agency's statutory jurisdiction, conflicts with the Safe Drinking Water Act, and unlawfully interferes with the State of Wyoming's hydraulic fracturing regulations."

Conclusion
The rule becomes effective on June 24, 2015, 90 days after its publication in the Federal Register. Whether this new rule will be upheld by the federal courts is yet to be seen, but it is another clear indication that the Obama Administration is increasing the focus of its environmental agenda on the oil and gas industry. For example, in 2014, as part of the Strategy to Reduce Methane Emissions, the White House released whitepapers on methane and VOC emissions from oil and gas activities. The EPA indicated that input from the peer review and general public of the whitepapers will serve as the basis for public policy decisions regarding potential reductions in methane emissions from the oil and natural gas sector. In addition, the EPA anticipates issuing proposed rules regulating emissions from oil and gas activities under the Clean Air Act in the summer of 2015.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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