United States: BLM's Methane And Waste Prevention Rule May Be Repealed

In early February, the U.S. House of Representatives voted in favor of a Congressional Review Act resolution that would repeal the Bureau of Land Management's (BLM's) Methane and Waste Prevention Rule, more commonly referred to as the Venting and Flaring Rule (the Rule). BLM's stated goal for the Rule, which went into effect on Jan. 17, 2017, is to reduce waste from natural gas flaring on federal lands, but many industry observers have criticized the rule as an effort to impose air quality standards in a manner that exceeds BLM's statutory authority. The Rule was implemented despite the fact that, even without a formal rule, methane emissions from domestic oil and gas production facilities have dropped significantly over the past decade, notwithstanding the dramatic spike in production attributable to the shale revolution.

Opponents of the Rule emphasize that, among other flaws, compliance with the Rule will have severe cost consequences to producers that could lead to shut-in wells. Tracee Bentley, the Colorado Petroleum Council's executive director, noted in a Feb. 23 press conference that the added costs of compliance with the Rule could result in 40 percent of the wells on federal lands that are currently being flared to become uneconomical, compelling producers to permanently shut in those wells. The Rule's critics emphasize that instead of increasing royalties paid to the federal government, the Rule could actually cause significant decreases in royalties if producers are forced to shut in wells or if compliance costs discourage operators from drilling wells in areas with less-developed midstream infrastructure.

While the Rule purports to include cost-based exemptions for producers if meeting the Rule requirements would cause a producer to cease production or abandon "significant recoverable oil reserves," many in the energy industry have argued that the uncertainty surrounding how these exemptions will be applied undermines the significance of these exceptions. The Rule does not define "significant recoverable oil reserves," and even if it did, BLM's regulatory preamble acknowledges that the definition does not encompass the thousands of low-producing "stripper wells" located around the country. It is notable that BLM estimates that these stripper wells represent approximately 85 percent of the federal wells in production. Given the limited applicability of supposed exemptions to existing wells, and the fact that the exemptions do not apply to any wells drilled on future leases, critics have argued that the exemptions have little more than symbolic value to the industry.

Not surprisingly, immediately upon the Rule's issuance, a collection of industry trade groups and states immediately filed suit contesting the validity of the Rule under the Administrative Procedure Act. In January, a Wyoming federal judge denied those petitioners' request for a preliminary injunction halting implementation of the Rule pending the resolution of the litigation, observing that the gradual implementation schedule for the Rule's costliest provisions mitigated the possibility that the petitioners would suffer irreparable harm while the case was being litigated. But the court also acknowledged that several aspects of the Rule would be legally vulnerable at the merits phase of the case. The case continues in Wyoming federal court and the parties are expected to present briefings on the merits later this year.

In the interim, industry observers have now turned their attention to the U.S. Senate, which is currently considering a bill to repeal the Rule under the Congressional Review Act, a bill that would complete the revocation process that the House of Representatives began in February. Senate Majority Leader Mitch McConnell has not yet indicated when a vote can be expected, but given the political makeup of the senior chamber, political analysts expect a vote on the bill to be quite close and split largely along party lines. Should a vote fail, or should the Senate decline to vote on the bill, the Trump administration has indicated that it intends to initiate the regulatory process necessary to unwind the existing rule, a process that could achieve the same result as revocation under the Congressional Review Act but that is likely to take months, if not years, and is likely to be subject to litigation that would delay the ultimate resolution of the repeal effort.

For more information on the Rule, go to https://www.blm.gov/programs/energy-and-minerals/oil-and-gas/operations-and-production/methane-and-waste-prevention-rule.

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