United States: The Myth Of The Regulatory Gap: BLM’s Proposed Hydraulic Fracturing Rule Compared To Existing State Law

Last Updated: November 22 2014
Article by Mark Barron

For the better part of the last decade, oil and natural gas production from domestic wells has increased steadily. Technical advancements in identifying promising sources of oil and gas and extracting hydrocarbons from previously inaccessible formations has allowed domestic producers to reach production levels once thought impossible. Virtually all of this increased production has come through the application of the innovative but controversial well stimulation technique of hydraulic fracturing – the procedure by which oil and gas producers inject water, sand, and certain chemicals into tight-rock formations (typically shale) to create fissures in the rock and allow oil and gas to escape for collection in a well.

But while overall production growth has been profound, the domestic energy renaissance has left behind one important group of potential beneficiaries: American taxpayers. Because although domestic production continues to grow steadily, the percentage of that production that is extracted from federal lands has declined for most of the last decade. At first glance, this divergence should be surprising given that the federal government controls approximately 650 million surface acres – approximately one-third of the nation's surface area – and over 700 million acres of federal mineral estate, as well as more than 55 million acres of Indian mineral estate. And for oil and gas operators in the western United States, in particular, federal lands are exceedingly difficult to avoid.

Yet notwithstanding the prolific scope of the United States' holdings, a complex network of regulatory requirements – both existing and proposed – as well as logistical inefficiencies inherent in the federal government's management of the nation's public lands represent an enormous incentive for operators to focus their efforts on state and private lands. And now the circumstances creating that incentive are poised to become exacerbated. After a rulemaking process that has lasted almost three years, it is expected that the Bureau of Land Management ("BLM") will issue proposed regulations to govern hydraulic fracturing on federal and Indian lands within the next several weeks. First proposed in May 2012, and then revised and re-issued in May 2013, the agency characterizes the proposal as an effort to create a uniform standard that will ensure that federal public lands are protected. According to the Secretary of the Interior, BLM "want[s] to make sure that on public lands, [BLM has] very good baseline regulations that the public can feel good about."

The agency "acknowledges that many States do have regulations in place," but observes that "not all of the States that contain Federal lands under the BLM's jurisdiction have hydraulic fracturing regulations." The suggestion is that BLM must take some action to ensure environmental health and safety, because existing rules are not sufficient to guarantee environmental health and public safety. BLM's assertion of this "regulatory gap," however, belies the regulatory framework that already applies to oil and gas operations around the country.

According to the Public Lands Statistics, BLM approved 8,026 APDs on public lands during the last two fiscal years, 2012 and 2013. Of that number, almost ninety-eight percent of the wells approved were in just seven states: California, Colorado, Montana, North Dakota, New Mexico, Utah, and Wyoming. Each of these states have regulations to safely manage hydraulic fracturing operations.

The adequacy of the states' regulations is even more apparent when one considers the focus of BLM's proposal. Despite being titled as a rule for "Hydraulic Fracturing on Federal and Indian Lands," BLM's proposal does not attempt to govern any aspect of the hydraulic fracturing process specifically. The proposed rules focus instead on: (i) construction standards to ensure well bore integrity; (ii) public disclosure of chemical additives injected during production operations; and (iii) plans for management of water produced during oil and gas operations. Rather than representing new regulations to govern hydraulic fracturing, the proposed rule would constitute little more than an additional layer of regulation applied to traditional elements of conventional oil and gas development.

More important, these are all items that the states have been regulating successfully for decades. The regulatory preamble to BLM's proposed rule fails to identify a single environmental problem related to hydraulic fracturing that persists under state law but that the proposed rule would remediate; or list a single incident that the new federal rules would have prohibited, but which was not covered under existing state rules.

 The tables that follow compare the regulatory requirements of BLM's proposed rules to those requirements already in place under state law in the seven states where virtually all drilling activity on federal lands occurs. As a review of the tables reveals, the problem with BLM's pending proposal is not simply that states have hydraulic fracturing rules on the books, but rather that the proposed rule does not provide any benefit commensurate with the costs it will impose. BLM has no evidence that its costly proposed rule will be any more effective in practice than existing state regulations protecting water and other environmental values.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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