United States: EPA Agrees To Modify Pre-Emptive Statements On Its Website Regarding Regulation Of Diesel As A Hydraulic Fracturing Additive

In the Energy Policy Act of 2005 (Pub. L. No. 109-58), Congress exempted hydraulic fracturing from Underground Injection Control (UIC) regulation under the Safe Drinking Water Act (SDWA). The U.S. Environmental Protection Agency (EPA) retained authority, however, to regulate hydraulic fracturing when diesel fuels are injected into the well. In 2010, EPA posted a policy statement on its website requiring that any service company performing hydraulic fracturing using diesel fuel receive prior authorization from the UIC program and further stating that injection wells receiving diesel fuel as a hydraulic fracturing additive be considered Class II wells under the UIC program. Although this statement appeared to be binding and express EPA's interpretation of the UIC regulations under the SDWA, the agency did not, however, follow the notice and comment requirements of the Administrative Procedures Act (APA) before adopting these policies.

The Independent Petroleum Association of America and the U.S. Oil & Gas Associations (Industry Associations) filed an August 2010 petition for review claiming that the statements posted on EPA's website constituted a "final agency action" in which EPA overstepped its authority to regulate the use of diesel fuel as a hydraulic fracturing additive. The Industry Associations and the EPA reached a settlement late last week of this petition. The February 23, 2012 settlement requires EPA to modify the informal policy language posted on its website concerning the need for prior authorization under the UIC program and eliminate entirely the statement that wells receiving diesel as a hydraulic fracturing additive will be considered Class II wells. Although this settlement does not signify that EPA and the Industry Associations have reached agreement on the substantive issues regarding the regulation of hydraulic fracturing under the SDWA, it likely does reflect EPA's reluctance to be found to have again transgressed on its obligations under the APA regarding notice and comment before adopting binding rules.¹

Among the issues left to resolve is how to categorize wells receiving diesel fuel under the UIC program. The policy statements retracted by EPA sought to require that all wells receiving diesel fuel be categorized as Class II wells. The oil and gas industry is concerned that subjecting drillers to the extensive requirements for Class II wells would impose additional costs and potentially unnecessary requirements on hydraulic fracturing operations.

The agency is expected to issue guidance for public comment that will formally articulate how the SWDA applies to the use of diesel as a hydraulic fracturing additive. Nothing in the settlement restricts the ability of the Industry Associations who filed the lawsuit to provide comments in connection with EPA's development of the guidance. The new EPA guidance will hopefully provide the oil and gas industry with some much needed and highly anticipated clarity with respect to the use of diesel, presumably answering important questions such as what EPA considers to be "diesel," and whether EPA will seek to retroactively apply permit requirements in instances where diesel is already being used as a hydraulic fracturing additive. Interested parties should watch for EPA's issuance of the guidance and comment as they deem appropriate.

Footnotes

^{1 See National Mining Ass'n v. Jackson, 2011 WL 4600718, *7–9 (D.D.C. 2011) (invalidating the Multi-Criteria Resource Assessment policy adopted by EPA for failure to follow notice and comment requirements).}

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