Sidley Shale and Hydraulic Fracturing Report - 6 July 2016

Sidley Austin provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Attorney Advertising - For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, 212.839.5300; One South Dearborn, Chicago, IL 60603, 312.853.7000; and 1501 K Street, N.W., Washington, D.C. 20005, 202.736.8000. VOLUME 5, NO. 27, JULY 6, 2016 SIDLEY UPDATE Shale and Hydraulic Fracturing Federal BLM and environmental groups appeal decision vacating regulations for hydraulic fracturing on federal lands. The U.S. Bureau of Land Management (BLM) and a group of environmental nongovernmental organizations (NGOs) including the Sierra Club, Earthworks and Western Resource Advocates filed separate appeals of a district court decision vacating BLM regulations for hydraulic fracturing on federal lands. As previously reported, the district court decision held that BLM lacked authority to regulate hydraulic fracturing after finding that Congress, in the Energy and Policy Act of 2005, had left regulation of hydraulic fracturing to the states. Both BLM and the environmental NGOs are expected to argue that other federal laws, including the Mineral Leasing Act, independently give the BLM authority to regulate resource extraction activities on federal lands. In a separate action, the successful challengers to the BLM’s hydraulic fracturing rule filed motions to dismiss appeals of a prior district court decision to stay implementation of the hydraulic fracturing regulations, arguing that the district court’s vacatur of the rule rendered the appeals moot. While none of the other parties opposed dismissal of the appeal, intervenor NGOs requested that the court also vacate the appealed preliminary injunction because it made preliminary rulings on issues that were not ultimately resolved by the district court’s decision on the merits. BLM and BSEE increase penalties for violations of oil and gas rules. In response to the Bipartisan Budget Act of 2015, both BLM and the Bureau of Safety and Environmental Enforcement (BSEE) issued interim final rules to increase penalties for violating oil and gas rules. The interim final rules are intended to adjust existing penalties upward to account for inflation. BLM last adjusted penalties for onshore oil and gas activities in 1987, and the rule increased penalties by 105 percent. BSEE last adjusted penalties for offshore oil and gas activities in 2011, and the rule increased penalties by 5 percent. The new penalty provisions went into effect on June 28; agencies will accept comments on the interim final rules until August 29. EPA prohibits shipment of hydraulic fracturing wastewater to municipal sewage treatment plants. The Environmental Protection Agency (EPA) published a final rule prohibiting the discharge of hydraulic fracturing wastewater into municipal sewage treatment plants. In the final rule, EPA states that hydraulic fracturing wastewater often contains chemical constituents that could be harmful to public health and the environment. The agency also reported that many of those constituents are not commonly treated by municipal sewage treatment plants and could either be discharged untreated or inhibit biological treatment processes at the facilities. While EPA acknowledged that hydraulic fracturing wastewater is not currently SIDLEY UPDATE Page 2 discharged to municipal sewage treatment plants, the agency asserted that the rule was necessary to ensure that such discharges do not occur in the future. States Nebraska court reverses permit authorizing disposal of hydraulic fracturing wastewater. A Nebraska state court reversed a permit issued by the Nebraska Oil and Gas Conservation Commission authorizing the disposal of hydraulic fracturing wastewater at an out-of-service oil well in northwestern Nebraska. While agreeing that the Commission had authority to permit disposal of hydraulic fracturing wastewater as part of its authority to regulate oilfield waste, the court held that the Commission’s authority was limited to wastewater associated with oil and gas production in Nebraska. The court then revoked the permit because it was intended to dispose of hydraulic fracturing wastewater produced in other states. 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