Years of regulatory limbo may soon come to an end if the United States Bureau of Land Management (“BLM”) ultimately announces the rescission of the “Oil and Gas; Hydraulic Fracturing on Federal and Indian Lands” Rule (“2015 Final Rule”) but not perhaps without some unexpected last-minute uncertainty. On September 21, 2017, in addition to dismissing the appeal of the judgment of the United States District Court for the District of Wyoming (“Wyoming District Court”) that invalidated the 2015 Final Rule as “prudentially unripe,” the United States Court of Appeals for the Tenth Circuit (“Tenth Circuit”) vacated the lower court judgment. If no petition for rehearing is filed, the mandate from the Tenth Circuit could issue within the next two months. The immediate impact of the Court’s action on the status of the 2015 Final Rule is uncertain; although the Tenth Circuit’s summary of its decision stated that it will “remand with directions to vacate the district court’s opinion,” the opinion concluded with the affirmative statement it was vacating the lower court’s judgment. This could generate more activity either at the Tenth Circuit or in the Wyoming District Court.

The decision comes in the context of a proposed rule-making that is poised to eliminate the 2015 Rule. The Tenth Circuit acted in response to the BLM’s request that the appeal of the judgment be held in abeyance while it pursued further rulemaking in response to Executive Orders from President Trump. BLM’s proposed rescission would retain the prior regulatory framework without additional administrative or procedural requirements that could have cost millions of dollars per year. However, in an ironic twist, the 2015 Final Rule could become effective if BLM does not promptly finalize the proposed rescission.

In November 2010, the BLM, which operates as an agency under the United States Department of the Interior (“DOI”), prepared a rule aimed at regulating the use of hydraulic fracturing techniques in developing oil and gas resources on Federal and Indian lands. That rule, which was later supplemented, eventually resulted in the 2015 Final Rule being published on March 26, 2015. The BLM estimated that the 2015 Final Rule would affect as many as 90 percent of new wells on Federal and Indian lands. The primary regulations promulgated by the 2015 Final Rule required operators engaged in hydraulic fracturing techniques on Federal or Indian land to:

  1. Submit information regarding the proposed hydraulic fracturing operations to the BLM as part of either the Application for Permit to Drill (“ADP”) or a Notice of Intent (“NOI”) Sundry;
  2. Develop and implement a casing and cementing program that protects and/or isolates usable water, as defined by the 2015 Final Rule;
  3. Monitor cementing operations during well construction and provide reports to the BLM prior to the hydraulic fracturing operation;
  4. Take remedial action if there are indications of inadequate cementing, and demonstrate that the remedial actions taken were successful prior to commencing hydraulic fracturing operations;
  5. Demonstrate that there is at least 200 feet of adequately-bonded cement between the zone to be hydraulically fractured and the deepest usable water zone, unless the operator returns the cement behind the casing to the surface;
  6. Perform a successful mechanical integrity test prior to commencing hydraulic fracturing operations;
  7. Monitor annulus pressures during hydraulic fracturing operation;
  8. Store recovered fluids in rigid above-ground tanks, with capacity limited to 500 barrels;
  9. Submit information to the BLM after the hydraulic fracturing operation in a Subsequent Report Sundry; and
  10. Disclose the chemicals used in the fracturing fluid to the BLM directly or through FracFocus (with provision for protection of trade secrets, albeit through a very cumbersome process).

The potential for delays in obtaining necessary permits, the burdens relating to the provisions relating to protection of usable water, and the fracturing fluid disclosure requirements were among the issues that most concerned the industry and trade groups. The mandates of the 2015 Final Rule were met with immediate opposition, with two industry associations filing suit to block its implementation. Four states and one tribe also filed challenges, and the various cases were consolidated by the U.S. District Court for the District of Wyoming. The District Court stayed and then preliminarily enjoined the 2015 Final Rule from taking effect; on June 21, 2016, the District Court invalidated the 2015 Final Rule, concluding that Congress had revoked the BLM’s authority over hydraulic fracturing operations on Federal and Indian Lands when it gave the United States Environmental Protection Agency (“EPA”) the authority to regulate hydraulic fracturing activities and then subsequently put sharp limits on even EPA’s authority. The Interior Department and intervening environmental groups appealed that decision to the Tenth Circuit. In March 2017, after the parties had completed briefing, but before oral argument, the Tenth Circuit requested that the Interior Department clarify whether its position on the 2015 Final Rule had changed in light of the change in the Administration. The Interior Department responded that a notice of proposed rulemaking was being prepared to rescind the 2015 Final Rule and requested that the appeals be abated.

That proposed rulemaking was in response to Executive Orders 13,771 (January 30, 2017) and 13783 (March 28, 2017), which initially directed the Department of the Interior to review its regulations “for consistency with the policies and priorities of the new Administration,” and then specifically directed publication of proposed rules “suspending, revising, or rescinding” the 2015 Final Rule. Interior Secretary Ryan Zinke issued Secretarial Order No. 3349 (March 29, 2017) instructing the BLM to take steps to rescind the 2015 Final Rule.

Upon further review of the 2015 Final Rule, the BLM determined that the rule “unnecessarily burdens industry with compliance costs and information requests that are duplicative of regulatory programs of many states and some tribes.” Based on this determination, the BLM on July 25, 2017 proposed to rescind the 2015 Final Rule.

In announcing its proposal to rescind the 2015 Final Rule, the BLM noted the increase in state regulations and industry guidance since the rule was first announced. Specifically with regards to the requirement that operators disclose the contents of their fracturing fluid, the BLM stated, “[D]isclosures of the chemical content of hydraulic fracturing fluids to state regulatory agencies and/or databases such as FracFocus is more prevalent than it was in 2015 and there is no need for a Federal chemical disclosure requirement, since companies are already making those disclosures on most of the operations, either to comply with state law or voluntarily.” Moreover, the BLM determined that “resource damage was unlikely to increase by rescinding the 2015 Final Rule because of the rarity of adverse environmental impacts that occurred from hydraulic fracturing operations before the 2015 Final Rule.” Finally, the BLM determined that rescinding the 2015 Final Rule would result in a reduction of $14 to $34 million in compliance costs.

The BLM proposal to rescind the 2015 Final Rule is currently in the final days of the comment period, which will end September 25, 2017. Over 200 groups and individuals have commented on the decision to rescind the rule, with a number of individuals as well as groups such as the National Federation of Independent Business coming out in favor of rescinding the 2015 Final Rule.

After the BLM considers all comments, it can either proceed to finalize its proposed rule or take other action, such as modifying or abandoning the proposed rescission rule. If - as anticipated - the BLM finalizes the proposed rule, it would normally be expected to go into effect 30 days after publication. The Tenth Circuit’s decision to dismiss the pending appeal and vacate the lower court’s judgment invalidating the 2015 Final Rule may cause the BLM to move quickly, potentially using the “good cause” exception to have the rescission become effective less than 30 days after publication.