DISPUTE RESOLUTION: Oil & Gas Litigation: New Decision May Impede Fracking on Federal Land

by King & Spalding

Recently, a California federal court blocked drilling on certain federal land located in California’s Monterey Shale Formation play. In reaching its decision, the court relied heavily on perceived risks of fracking, holding that the Bureau of Land Management (BLM) had failed properly to consider fracking risks before selling leases to the public land. While the decision only directly affects about 2,700 acres of land, it is certain that environmental groups will seize on the ruling and employ it to attempt to hamper drilling on other public lands.

In the case—styled Center for Biological Diversity v. Bureau of Land Management, Case No. 11-06174 (N.D. Cal.)—plaintiff environmental groups claimed that the BLM had violated federal law before it sold the leases in question. They argued that the BLM had not properly conducted environmental studies before allowing the lease auction to go forward, as required by the National Environmental Policy Act. The plaintiffs claimed that the environmental studies relied upon by the BLM were flawed, in chief part because the studies “did not adequately consider the development impact of hydraulic fracturing techniques . . . when used in combination with technologies such a horizontal drilling.” The court agreed. It acknowledged that the BLM had wide discretion in determining when to sell leases for federal land. Nonetheless, the court found that the BLM had acted in an arbitrary and capricious manner in granting the leases.

Central to the court’s decision was the BLM’s reliance on a study that assumed that there would be only one exploratory well drilled upon the 2,700 acres of land. At one time, the court reasoned, that scenario might have made sense given that the leased land was located in the Monterey Shale play. While the formation is estimated to contain over 15 billion barrels of oil, most of that oil is trapped in hard shale and is not easily retrieved. But with the advent of new fracking and horizontal techniques, the notion that the oil was largely unrecoverable no longer held true. Thus, the assumption that only one well would be drilled on the 2,700 acres was not well founded, the court concluded. “Even BLM itself has acknowledged that fracking activity in the United States has increased dramatically in recent years. But rather than engaging in this reality by at least considering what impact might result from fracking on the leased lands, whatever its ultimate conclusion, BLM chose simply to ignore it . . . .”

One can view the decision as rather limited. The allegedly flawed study that the BLM relied upon was conducted in 2006, before the fracking boom had revolutionized the potential for profitable production from shale plays. Indeed, the study did not mention fracking at all. Thus, the lesson of the case may just be that the BLM, in this particular case, relied on a poor, outdated study in reaching its decision to issue the leases.

But the decision may have more far-ranging effects. Activists may well point to the decision to argue that in deciding whether to grant access to drill on federal land, the BLM must consider the most fulsome possibilities of fracking activities that an aggressive leaseholder might undertake before deciding to sell a lease.




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