On May 16, 2013, the US Bureau of Land Management (BLM) released its long awaited re-draft of rules on hydraulic fracturing on federal and Indian land. BLM had originally proposed the rule a year ago, but then pulled it back amid a deluge of stakeholder concerns. The new proposal, which has yet to be published in the Federal Register, modifies significant portions of the original in ways that may provide more flexibility to operators and make state law conflicts less likely. Overall, the proposal seeks to achieve a balance between commercial and environmental interests, streamlining or loosening many requirements and adopting existing state programs, while providing a federal backstop to ensure protection of water quality and public disclosure.

BLM manages some 700 million subsurface acres of federal mineral estate and 56 million subsurface areas of Indian mineral estate across the US, particularly in the West. In May 2012, the Bureau proposed the first comprehensive federal regulations on the practice of hydraulic fracturing, focusing on well fluid disclosure, well integrity and water management. After receiving voluminous comments on that proposal, many critical, BLM withdrew it and re-proposed the rule this month. The new proposal provides several significant nods to industry groups and operators who had criticized the original as overly prescriptive and potentially duplicative of state rules. The new proposal makes several changes that will provide some of the flexibility requested by industry critics, including:

Well Integrity

The revised rule provides an expanded set of cement evaluation tools to ensure water zones are protected from contamination. Specifically, the proposal requires the use of cement evaluation logs (CELs) in the place of the originally proposed cement bond logs (CBL), a change intended to allow a broader variety of logging methods and technologies to be used to show the adequacy of cementing. The revision would also authorize the use of a state- or tribe-mandated technology BLM considers at least as effective.

Disclosure of Fracturing Fluids

In order to provide greater uniformity on disclosure of hydraulic fracturing fluids and a more streamlined approval process, the revised rule requires disclosure of fluids after the fracturing operation is completed. Moreover, this information would be submitted through the industry-favored and privately-run Frac.focus.org website, which is already used by some states with mandatory reporting requirements.

Protection of Trade Secrets

The revised rule seeks to provide further uniformity on disclosure by modeling the proposal on a recently established Colorado program allowing operators to submit affidavits that undisclosed information about chemicals is entitled to trade secret protection. BLM would retain the ability to demand specific chemical details of any materials being proposed for trade secret exemption.

Variance for State and Tribal Regulations

In recognition of the many states that have adapted effective regulations on the practice, the revised rule allows BLM to grant a variance that would apply to all lands within boundaries of states or tribes where the Bureau determines existing state or tribal regulations would meet or exceed the effectiveness of the proposed rule.

These proposals go a long way to addressing the concerns of many in industry, although industry trade groups still argue that BLM need not establish any regulations at all and should allow states to take the lead. Environmental groups have strongly criticized the proposal, particularly where it allows disclosure after fracturing and on an industry-friendly website that some do not consider particularly useful to the public. In any event, the proposal strongly suggests that the Obama administration has paid attention to the complaints of operators that the federal government shouldn’t micromanage hydraulic fracturing while still trying to address environmental concerns raised by many. To this end, the revised proposal adds or maintains some strict requirements, such as ensuring operators demonstrate well bore integrity with pressure testing on all wells, setting stricter performance standards regarding usable water and adding new data gathering and analysis requirements related to water management. These provisions demonstrate the administration is concerned that there be some federal backstop to state regulation.

Overall, though, it would appear that the administration, at this juncture, is seeking to work with industry and states to promote hydraulic fracturing, which has transformed the energy industry in the US. It is also significant that the proposal has been issued before the US Environmental Protection Agency (EPA) has issued its several-years-long study on the water cycle in hydraulic fracturing. EPA, indeed, has yet to weigh in on how it might regulate hydraulic fracturing and its impacts on water and other issues (it has already issued rules related to air emissions from hydraulic fracturing for gas; the BLM rule does not address air emissions). But, based on the proposal, it would appear that the administration is open to balancing environmental concerns against those of industry, and coming down on the side of drilling where it considers it appropriate. This would further suggest that EPA regulations may be similarly structured.

Once the proposal is published in the Federal Register, it will be open for comment for 30 days. We will continue to monitor developments and can discuss any concerns and interest you might have with the proposal.