The Federal Land Policy and Management Act, Indian mineral leasing laws, and other statutes charge the Department of the Interior (“DOI”), Bureau of Land Management (“BLM”) with administering oil and gas operations on public and Indian lands in a manner that protects the lands while allowing for appropriate development of the resources. BLM manages approximately 700 million subsurface acres of federal mineral estate and approximately 56 million acres of Indian mineral estate across the United States.
On May 11, 2012, BLM published in the Federal Register a draft proposed rule to regulate hydraulic fracturing on public and Indian lands. BLM received over 177,000 comments on the Initial Proposed Rule. As a result of the significant public interest, on May 24, 2013, the BLM released a Supplemental Notice of Proposed Rulemaking and Request for Comment regarding their proposal. Nearly three years later, BLM has announced the release of a final rule to regulate hydraulic fracturing on BLM-managed public and Indian lands (the “Final Rule”). The Final Rule was published in the Federal Register today, March 26, 2015, and becomes effective June 24, 2015.
Prior to this rulemaking, BLM last updated its hydraulic fracturing regulations in 1988. Outdated regulations coupled with increased public awareness and scrutiny of hydraulic fracturing triggered the development of an updated regulatory regime on public and Indian lands. The Final Rule, which the Department of the Interior hails as “a framework of safeguards and disclosure protocols that will allow for the continued responsible development of our federal oil and gas resources,” includes the following key elements:
- An expanded set of cement evaluation tools (rather than cement bond logs) for the protection of usable water zones.
- Updated requirements for well-bore integrity (e.g., replacement of the “type well” concept to demonstrate well integrity with a requirement to demonstrate well integrity for all wells).
- Additional requirements to ensure that fluids recovered during hydraulic fracturing operations are contained, including specific measures relating to interim storage.
- Public disclosure requirements, modeling Colorado’s rule, which requires operators to disclose chemicals used in hydraulic fracturing through FracFocus within 30-days of completing fracturing operations.
- More stringent requirements related to claims of trade secrets exempt from disclosure.
- Revised records retention requirements to ensure that records of chemicals used in hydraulic fracturing operations are retained for the life of the well.
- Additional (public) submission requirements to BLM regarding each hydraulic fracturing operation including detailed information on the geology, depth, and location of preexisting wells so that BLM might be better-informed to evaluate and manage unique site and area characteristics.
- Submission of a “master hydraulic fracturing plan” in certain instances.
- A detailed program for certifying contractors and contractor performance relating to hydraulic fracturing operations.
- The availability of a process to allow states and Tribes to request variances from the BLM Final Rule if the state or Tribe offers an equal or more protective regulation to reduce administrative costs and to improve efficiency.
The applicability of these requirements to existing wells was a significant issue of concern during the rulemaking. The final scope of the above-listed requirements, as well as additional requirements discussed in more detail in the Final Rule, apply in varying degrees depending on the timing of approval of an application for permit to drill (“APD”) as well as operations under the same. BLM cites groundwater protection as one of the principal reasons for applying the rule to all wells, existing or new. We expect the scope of applicability of the Final Rule will continue to be a highly-controversial issue throughout implementation. Importantly, after publishing the Final Rule, BLM issued a correction to the Final Rule related to scope that BLM anticipates publishing in the Federal Register on March 30, 2015 (the “Correction to Final Rule”). Per today’s publication, the Final Rule applies in full to APDs not filed before June 24, 2015. In addition, to conduct hydraulic fracturing within 90 days after June 24, 2015, operators must comply with all paragraphs of section 43 C.F.R. § 3162.3–3, with limited exemptions due to pre-existing prior approvals, if the operator submitted an APD but that APD has not been approved as of June 24, 2015; or if the operator submitted an APD or APD extension that was approved before June 24, 2015, but for which the authorized drilling operations did not begin until after June 24, 2015. Today’s Final Rule publication also states that authorized drilling operations began, but not completed before June 24, 2015 are subject in full to section 3162.3–3 of the Final Rule. Today’s Final Rule described two additional buckets of application, both of which have been revised by the Correction to Final Rule.
The Correction to Final Rule clarifies subsection 3162.3–3(a)(5), which currently states that operators must comply with all paragraphs of section 3162.3–3 if the “[a]uthorized drilling operations were completed after September 22, 2015.” This subsection 3162.3–3(a)(5) should instead read if “[a]uthorized drilling operations were completed after December 26, 2014,” the operator must comply with all paragraphs of the section. Similarly, subsection 3162.3–3(a)(6) should state that “[a]uthorized drilling activities [ ] completed before December 26, 2014” must comply with all paragraphs of this section. A strict reading of the scope of the Final Rule at 43 C.F.R. § 3162.3–3(a) certainly leads to an expansive application of the rules, applying to the entire world of existing wells prior to December 26, 2014, and raises significant concerns for industry. However, a closer reading of the Final Rule indicates that BLM tempered, although slightly, the applicability of the rule with respect to wells where drilling activity was completed prior to December 26, 2014. BLM recognizes that for historic existing wells, the casing and cementing activities would have already occurred and operators may not have all the requisite date required by this Final Rule. At the new section 3162.3–3(e)(ii), BLM states that to comply with these rules for existing wells, the operator must submit documentation to demonstrate that adequate cementing was achieved for all casing strings designed to isolate and protect usable water and BLM may request additional information.
Through this rulemaking, BLM consulted with Indian Tribes, as well as other stakeholders, concerning the Initial Proposed Rule and the Revised Proposed Rule. Some Tribes expressed concern with respect to increased regulation of hydraulic fracturing and whether that effect would drive oil and gas development off Indian lands. BLM states that it has taken steps to reduce the economic cost of compliance, but estimates that implementation of the Final Rule will cost approximately ¼ of 1% of the cost of drilling one well, based on the Energy Information Administration’s average per well cost of $5.4 million. Whether the Final Rule is cost effective, the discrepancy between federal rules applicable to tribal mineral development and state laws already drives development capital from tribal lands. We expect the imposition of a separate hydraulic fracturing rule from BLM on public and Indian lands will only exacerbate the problem.
In a BLM Press Release, Director of BLM, Neil Kornze, stated that “[t]his rule was informed and shaped by the technical expertise, interests and concerns of all of our partners, and builds on the work of states and tribes to ensure best practices on a nationwide basis. The new regulations are essential to our mutual efforts to protect the environment and the communities that depend on vital water, land and wildlife resources. This rule is good government.” While many provisions in the Final Rule are similar to or based on existing state or tribal rules and industry best practices, implementation of the 395-page Final Rule will certainly raise questions and highlight areas of effective regulation as well as areas that could use improvement. In an effort to maintain updated and effective hydraulic fracturing standards, BLM has committed to evaluating the adequacy of the Final Rule in 2022, seven years after the date of publication of the same in the Federal Register.