Viability of The Federal Government’s Most Recent Foray into Hydraulic Fracturing: The Department of the Interior Issues a Final Rule on Hydraulic Fracturing for Federal and Tribal Lands
By LISA RUSHTON
As we continue to track the development of regulations at the Federal level on fracing, the Department of the Interior’s Bureau of Land Management (“BLM”) has taken the next step in regulating fracturing operations associated with Class II enhanced recovery wells. The new rules are the most comprehensive foray to date by the Federal Government into fracing.
On March 20, 2015, the BLM issued a final rule entitled Oil and Gas: Hydraulic Fracturing on Federal and Indian Lands (80 Fed. Reg. 16,128). While the impact of this rule is limited to wells located on Federal and tribal lands, there are actually more than 100,000 wells currently sited on these lands and the BLM has jurisdiction over 36 million acres of Federal lands that are under lease for potential oil and gas development across 33 states. As such, the implications of the rule have the potential to be far reaching.
Some key components of the final rule include:
Validation of well integrity prior to commencing fracturing operations and monitoring annulus pressure during fracturing operations for all wells, not just a sample well;
More stringent provisions for cement barriers between the wellbore and water zones through which the wellbore passes including, monitoring cementing operations during well construction, cement returns and pressure test for surface casings, cement evaluation logs for intermediate and production casings, and remediation plans and cement evaluation logs for any surface casing that does not meet performance standards;
Increased transparency through public disclosure of chemicals used in the fracturing process to the Bureau of Land Management through the website FracFocus, within 30 after fracturing operations are complete and retention of records regarding chemicals used in the fracturing process for the life of the well;
More stringent standards for interim storage of flowback and produced water to mitigate risks to surface water, land, air and wildlife, including management of recovered fluids in rigid enclosed, covered or netted and screened above-ground storage tanks, with very limited exceptions that must be approved on a case-by-case basis; and
More expansive design information required during the application process relating to geology, well depth, the location of pre-existing wells and their zones of influence, and the location of faults and fractures with additional information provided on the estimated direction and length of all identified fractures.
Technically, operators with leases on Federal or tribal lands must comply with both the BLM’s new and existing regulations for oil and gas wells along with state or tribal regulations that govern oil and gas operations and Class II wells. Because of this conundrum, the American Petroleum Institute has slammed the new rule for creating a duplicative layer of federal regulation that will “do nothing to improve the recent drop off of energy production on federal lands.” Additionally two industry groups filed a challenge to the new rule in Federal Court the same day the rule was finalized on a theory that the rulemaking was procedurally deficient and imposes “arbitrary and unnecessary burdens that either duplicate state law requirements or improperly curtail primary jurisdiction of state governments.” Only time will tell whether the challenge will prevail, but it’s odds do not look good.
The new rule was initially proposed on May 11, 2012. Because of the significant interest generated by the draft, the BLM issued a supplemental draft rule on May 24, 2013. Ultimately, over 1.5 million comments from industry, environmentalists, and state and local government agencies were received on the rule. The BLM also conducted stakeholder meetings throughout the country during its notice and comment period.
In developing the provisions for the rule, the BLM looked, in part, to states with primacy over the regulation of Class II enhanced recovery wells pursuant to Section 1425 of the Safe Drinking Water Act (SDWA). Section 1425, provides a mechanism for states to regulate and enforce their own underground injection control programs independent of the Federal program, provided the state demonstrates that its regulations are “as effective in preventing endangerment” of underground sources of drinking water as the Federal program. The programs reviewed provided examples of tried and tested alternatives for regulating the drilling and operation of oil and gas wells and protecting our natural resources beyond those previously contained in either the BLM’s existing regulations set out in 43 CFR 3162.3-1 and its Onshore Oil and Gas Orders 1, 2 and 7 or in EPA’s federal regulations for Class II wells under the SDWA found in 40 CFR Section 146 and 148. States that otherwise have primacy over the regulation of these wells under the SDWA, sought that authority under Section 1422 of the Act, which requires generally that the state program be at least as stringent as the federal program. These state programs either adopt the Federal Program by reference or enhance the requirements that already exist.
In situations where a state has primacy and its regulations are as effective or more stringent than the federal regulations, the new rule states BLM has included a provision in the new rule that grants states the authority to make a demonstration that its regulations are “equal to or more protective than the BLM’s rules” and in such a case the BLM may grant a variance for compliance with the federal program. The variance would allow for compliance with the state or tribal requirements rather than the federal requirements and thus appears to eliminate concerns about potentially conflicting or duplicative regulations. In such a case, the BLM and the state would be required to enforce the variance and operators required only to comply with the program approved pursuant to that variance.
Based on the extensive public comment period, number of comments filed with the BLM and public hearings on the draft rule, the BLM’s review of existing programs to find tried and true best practices for application across all Federal and tribal lands, and the ability for states or tribes with primacy to seek a variance from enforcing the new rule, the current industry challenge appears to be fight that will be hard to win.