Wednesday, October 11, 2017

Shale Law in the Spotlight: Status and Overview of BLM Hydraulic Fracturing Rule

Written by Chloe Marie – Research Fellow

With the dramatic expansion of shale gas production throughout the United States over the past decade, policymakers often have considered the question as to whether existing laws and regulations covering oil and natural gas development are adequate to address the issues raised by modern hydraulic fracturing techniques.  In some cases, new regulations have been developed, while in others, policymakers have determined that the existing regulatory framework sufficiently addresses any risks that are presented by development.  The BLM Hydraulic Fracturing Rule provides an example where a federal government agency decided to develop new regulations to address hydraulic fracturing on federal and Indian lands, but then changed course and ultimately proposed to rescind these regulatory changes.  This article will discuss the background surrounding the development of the BLM Hydraulic Fracturing Rule and its subsequent proposed rescission.

On November 18, 2011, the Shale Gas Subcommittee of the Secretary of Energy Advisory Board published a Final Report supporting the drafting of supporting measures to reduce the environmental impact of hydraulic fracturing.  The report made a number of recommendations for immediate implementation. Among other things, the Subcommittee suggested the following measures: disclosure of hydraulic fracturing fluid chemical additives, reduction of air-pollutant emissions, implementation of best available technologies and management practices, and providing adequate federal funding for the State Review of Oil and Natural Gas Environmental Regulations (STRONGER) and the Ground Water Protection Council.

In line with these recommendations, BLM issued a proposed rule on May 11, 2012, entitled “Oil and Gas; Well Stimulation, Including Hydraulic Fracturing on Federal and Indian Lands” that would amend existing provisions at 43 CFR 3162.3-2 and also add a new section to the regulations. The proposed rule would require operators to follow certain obligations when conducting operations involving hydraulic fracturing. These obligations included the disclosure of the chemicals used in hydraulic fracturing operations on Federal and Indian lands, but also mandated the performance of well integrity tests prior to any well stimulation activities and reporting of the test results, and development of a wastewater management plan. BLM declared that “[it] has developed the draft with an eye toward improving public awareness and oversight without introducing complicated new procedures or delays in the process of developing oil and gas resources on public and Indian lands.”

On May 24, 2013, BLM issued a Supplemental Notice of Proposed Rulemaking and Request for Comment modifying and supplementing the proposed rule, taking into consideration the comments received throughout the consultation process. Interestingly, the proposed rule now limited the scope of regulation to apply only to hydraulic fracturing operations, and not to other well stimulation activities.

BLM published its Final Rule on “Oil and Gas; Hydraulic Fracturing on Federal and Indian Lands” on March 26, 2015.  Significant changes from the proposed rule included the “allowable use of an expanded set of cement evaluation tools to help ensure that usable water zones have been isolated and protected from contamination, replacement of the ‘type well’ concept to demonstrate well integrity with a requirement to demonstrate well integrity for all wells, more stringent requirements related to claims of trade secret exempt from disclosure, more protective requirements to ensure that fluids recovered during hydraulic fracturing operations are contained, additional disclosure and public availability of information about each hydraulic fracturing operation, and revised records retention requirements to ensure that records of chemicals used in hydraulic fracturing operations are retained for the life of the well.” The Final Rule was scheduled to become effective on June 24, 2015, but this never happened amid legal and regulatory challenges.

Indeed, on March 20, 2015, prior to the publication of the final rule, the Independent Petroleum Association of America (IPAA) along with the Western Energy Alliance (WEA) filed a Petition for Review of final agency action before the U.S. District Court for the District of Wyoming (Independent Petroleum Association of America et al. v. Jewell et al., docket no. 2:15-cv-00041). The two industry associations alleged that “the regulatory conditions the final rule imposes constitute arbitrary and unnecessary burdens that either duplicate state law requirements or improperly curtail the primary jurisdiction of state governments” before adding that “the regulations are not properly tailored to achieve a legitimate government purpose.”

In the meantime, the states of Wyoming and Colorado also filed a Petition for Review on March 26, 2015, before the same U.S. District Court (State of Wyoming v. U.S. Department the Interior Secretary et al, docket no. 2:15-cv-00043) claiming that “BLM’s hydraulic fracturing rule exceeds the statutory jurisdiction Congress granted to the BLM in the [Federal Land Policy and Management Act] and the [Mineral Leasing Act] and is contrary to the Safe Drinking Water Act, and should therefore be set aside in accordance with [the Administrative Procedure Act], 5 U.S.C. § 706(2).” The states of Colorado, North Dakota and Utah as well as the Southern Ute Indian Tribe later joined the lawsuit.

Plaintiffs in both lawsuits filed a Motion for Preliminary Injunction in May 2015 seeking to prevent the BLM rule from taking effect. The U.S. District Court for the District of Wyoming agreed to consolidate both cases on June 4, 2015 under docket no. 2:15-cv-00043. On June 24, 2015, the U.S. District Court issued a temporary order delaying the effective date of the final rule. The court granted plaintiffs’ preliminary injunction request on September 30, 2015, barring enforcement of the final rule as long as the lawsuit was pending. The court found that BLM invaded Congressional authority in regulating hydraulic fracturing and that all petitioners were likely to suffer irreparable harm in the absence of a preliminary injunction. Later, on June 21, 2016, the U.S. District Court ordered that BLM’s Hydraulic Fracturing Rule was set aside.  On June 24, 2016, BLM appealed the District Court order to the U.S. Court of Appeals for the Tenth Circuit (State of Wyoming et al. v. Zinke, docket no. 16-8068) to decide whether BLM acted beyond its statutory authority when it promulgated its final rule.

While these appeals were pending, President Donald Trump assumed office, and on March 28, 2017, he signed Executive Order No. 13783 on Promoting Energy Independence and Economic Growth directing heads of agencies to “immediate[ly] review … all agency actions that potentially burden the safe, efficient development of domestic energy resources,” including the BLM Hydraulic Fracturing Rule on Federal and Indian lands. Following this Executive Order, on March 29, 2017, Interior Secretary Ryan Zinke issued Order No. 3349 announcing that “BLM shall proceed expeditiously with proposing to rescind the final rule entitled, “Oil and Gas; Hydraulic Fracturing on Federal and Indian Lands.”

On July 25, 2017, BLM issued a proposed rule to rescind the BLM Hydraulic Fracturing Rule because “it is unnecessarily duplicative of state and some tribal regulations and imposes burdensome reporting requirements and other unjustified costs on the oil and gas industry.” This proposed rule also plans on “return[ing] the affected sections of the Code of Federal Regulations to the language that existed immediately before the published effective date of the 2015 final rule.”

With the agency proposing to rescind the final rule, on September 21, 2017, the U.S. Court of Appeals for the Tenth Circuit dismissed the original appeal of the BLM Hydraulic Fracturing Rule as “prudentially unripe,” vacated the district court’s judgment invalidating the BLM Final Rule, and remanded with instructions to dismiss the underlying action without prejudice. The U.S. Court of Appeals stated that BLM’s proposed rescission of its final rule supports such conclusion.


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