On May 16, the U.S. Department of the Interior (“DOI”) released new proposed regulations for activities related to hydraulic fracturing (“fracking”) on federal lands, including large areas of Indian lands managed by DOI. The new proposal replaces a 2012 DOI proposal that drew criticism from both industry and environmental groups. In response to comments on the 2012 proposal, the new proposed regulation provides more guidance on how trade secret claims will be handled and includes an expanded set of cement evaluation tools for ensuring the integrity of cement jobs and preventing fracking fluids and recovered fluids from migrating into usable water zones.
The 171-page proposal represents the first significant regulation to be proposed by DOI under its new Secretary, Sally Jewell. If these regulations are issued, they would apply to fracking operations on 700 million acres of public lands under the oversight of the Bureau of Land Management (“BLM”), as well as the 56 million acres of Indian lands that are managed in trust by the BLM.
Fracking on Federal Lands
Approximately 92,000 wells are currently located on federal lands. These wells account for 13 percent of the United States‘ natural gas production, and 5 percent of its oil production. Based on DOI statistics, about 90 percent of oil and gas wells drilled on federal lands are fracked. Fracking has been taking place in the United States since the 1940s, and the current regulations covering fracking activities on federal lands are more than 30 years old. However, recent advancements in fracking technology and horizontal drilling have led to a dramatic increase in the production of gas and oil from shale formations. Given these advancements, DOI has concluded that existing regulations are not adequate. According to DOI, the new proposed regulations are intended to “modernize BLM ‘s management of hydraulic fracturing operations, and help to establish baseline environmental safeguards for these operations across all public and Indian lands.”
The Revised Proposed Regulation
Both the 2012 proposal and the new proposed regulations aim to establish best practices in three areas: (1) well construction standards; (2) public disclosure of chemicals used in fracking operations; and (3) treatment of flowback waters, or waters that are produced from fracking operations. Well construction and public disclosure requirements have been particular sticking points for both industry and environmental groups in the past. The initial regulation mandated wellbore integrity would be verified using a cement bond log (“CBL”) and required operators to disclose to BLM the amount and type of all chemicals used during fracking, while providing justification for applying trade secret protection to certain of those chemicals. The new proposed rule addresses comments in response to DOI ‘s 2012 proposal by clarifying public disclosure requirements, enumerating potential cement evaluation techniques, and requesting comments on the stringency of flowback management requirements.
The revised rule would require operators to submit additional information to BLM as part of the existing Application for Permit to Drill (“APD”) process for operations on public or Indian lands. While the 2012 proposed rule would have required the operator to submit CBLs to indicate adequacy of well cement, the new proposed rule allows the operator to submit more comprehensive logs referred to as cement evaluation logs (“CEL”). The CEL is intended to encompass a variety of methods to verify that the well cementing is sufficient to isolate the well from usable water sources, giving operators the ability to use either a CBL or another accepted evaluation method to verify the integrity of well cementing. Further, a technology designated by a state or Indian tribe as meeting its requirements for fracking may be allowed as a variance from the CEL requirements if that alternate technology is at least as effective in assuring adequate cementing.
Under the new proposed regulations, operators would also be required to disclose chemicals used in a fracking operation to the BLM via FracFocus.org, an online database already utilized by several states for mandatory fracking disclosures, after the operation is completed. This requirement would apply to all operations on federal and Indian lands, including existing operations. In contrast to the 2012 proposed regulation, operators would no longer be required to submit all chemical information to BLM, segregating any trade secret chemicals within the submission and justifying the assertion of trade secret protection. Instead, any operator seeking trade secret protection for chemicals used would not disclose alleged trade secret information to BLM in the first instance, but must submit an affidavit to the BLM attesting that any undisclosed information about chemicals used during the fracking process is entitled to trade secret protection. The BLM then reserves the right to demand specific chemical details regarding any materials proposed for a trade secret exemption. These provisions are based on similar regulations promulgated by the state of Colorado.
The new proposed regulations would allow flowback water to be stored either in lined pits or in closed tanks. These requirements are consistent with the DOI‘s prior proposal. However, in this proposal, DOI is specifically seeking comments regarding the costs and benefits of potentially more stringent provisions that would require flowback to be stored in closed tanks only.
The new rule, if finalized, would affect fracking in wells drilled on federal lands across the country. However, the Obama Administration has also expressed the hope that the rule could provide a blueprint for future federal regulation of fracking outside of federal lands. Since many states now regulate fracking operations and other states are likely to enter this field of regulation as well, the BLM has expressed its intent to work with states in implementing the new rule to minimize conflicts with state laws; the proposed regulation‘s provision enables BLM to grant a variance applying to all lands within the boundaries of a state or tribe when state or tribal regulations meet or exceed federal standards is one example of this effort. The new proposal is subject to a 30-day public comment period, which began on May 24, 2013.
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This article was originally published by Bingham McCutchen LLP.