On May 4, 2012, the US Bureau of Land Management (“BLM” or the “Bureau”), which is part of the Department of the Interior, released its proposed rule for regulating hydraulic fracturing on public and Indian lands. As expected, the proposal addresses public disclosure of fracturing fluid constituents, well-bore integrity, and wastewater management. 

BLM administers approximately 700 million acres of federal mineral estate and approximately 56 million acres of Native American mineral estate. BLM’s final regulations, therefore, are likely to have a substantial influence on fracturing throughout the United States, but particularly in the American West where the bulk of the approximately 50,000 oil and gas leases it administers are located.

BLM’s existing regulations require notification of routine fracturing and pre-approval of nonroutine fracturing; however, the Bureau never has explained the distinction between the two. The proposed rule instead would require pre-approval of all well stimulation activities—defined to include fracturing, acidizing, and other activities in an individual well bore to increase hydrocarbon flow from rock by making the formation more permeable. The proposal thus does not distinguish between vertical and horizontal wells.

Under the proposal, approval for fracturing new wells could be obtained largely through an Application for Permit to Drill; operators of existing wells would submit proposals for well stimulation through BLM’s sundry notice of intent. Operators would submit detailed plans prior to beginning stimulation activity, monitor performance of the work, and then, within 30 days of completion, provide information showing how the job actually was performed. Information to be submitted in advance would include the following:

  • Cement bond logs “proving” that “usable water” (meaning water containing up to 10,000 parts per million total dissolved solids) has been isolated.
  • Source and location of the water to be used as a base fluid.
  • An in-depth description of the well stimulation design, including information ranging from the surface treating pressures to the estimated fracture length and height.
  • Proposed methods for handling and disposing of recovered fluids.
  • The operator’s certification that the treatment fluid complies with all applicable federal, tribal, state, and local requirements.
  • The results of a successful mechanical integrity test of the well casing.

During fracturing, the operator would continuously monitor and record annulus pressure. Any pressure increase greater than 500 pounds per square inch would need to be reported to BLM. Recovered fluid, moreover, would need to be stored in tanks or lined pits.

After completing fracturing, the operator would provide information showing how the work actually was done and identifying any deviations from the plan. The proposal would allow post-stimulation information to be submitted through a service company’s log or report. But the operator would need to certify, again, that it complied with applicable requirements and that well-bore integrity was maintained throughout the operation.

The post-stimulation report also would need to disclose the chemical makeup of the fracturing fluid. This would include a table showing the complete chemical contents with Chemical Abstracts Service Registry Numbers and percentages by mass, along with a separate table disclosing all additives by trade name and purpose. BLM’s intent is that the information would be publicly available on the Internet, perhaps through the existing FracFocus website. By splitting the disclosure in two, the Bureau is hoping to avoid intellectual property objections. Operators could claim an exemption from public disclosure by demonstrating that a specific federal requirement prohibits release of its information. 

BLM expects the proposed rule’s average annual cost per well stimulation to be approximately $12,000. The Bureau calculated that the average annual benefit per stimulation would range between $3,754 and $13,688 (although the Bureau also noted that it could not capture the benefit of disclosure). Much of the calculated benefit appears to be the result of the proposed requirement to use lined pits or tanks.

The net benefits are positive only when the proposal is assumed to prevent “high remediation cost/high environmental risk.” For those scenarios, BLM set the cost of remediating groundwater at $1 million—a value BLM picked from case studies available on the Federal Remediation Technologies Roundtable website, none of which the Bureau specifically identified in its proposed rule or its supporting economic analysis. Nor do those documents offer any support for that estimate with specific real-world costs of addressing contamination from well stimulation activities at BLM leaseholds.

Initial responses from industry have focused on the proposed rule’s potential additional burden to obtaining permits for developing federal lands and its duplication of state requirements. Environmentalists, on the other hand, have criticized the Bureau’s proposal to require disclosure after stimulation rather than prior to the work.

Comments to BLM will be due 60 days after the proposal appears in the Federal Register. In addition, comments on the proposed rule’s information gathering requirements should be sent to the Office of Management and Budget within 30 days of its publication. Consistent with President Obama’s announcement in his 2012 State of the Union address that he was requiring companies that drill for gas on public lands to disclose the chemicals they use, BLM has announced that it intends to issue a final rule by the end of the year.

For more information about the proposed rule, or any other matter raised in this Legal Update, please contact Roger W. Patrick at +1 202 263 3343, or your regular Mayer Brown lawyer.