BLM Publishes New Rule for Hydraulic Fracturing; Oil and Gas Groups Bring Challenge

On March 26, 2015, the Bureau of Land Management (BLM) published in the Federal Register its much anticipated new regulatory rule governing hydraulic fracturing (HF) operations conducted on federal and Indian lands. 80 Fed. Reg. 16128-16222 (March 26, 2015).  The rule culminates a public process resulting from controversial draft rulemakings published originally in May 2012 and again in May 2013 that drew well over a million public comment submissions.

According to BLM, the “increased complexity” of HF operations, when coupled with large-scale operations involving new horizontal drilling technology, warrants “additional regulatory effort and oversight.”  Citing “public concern about whether fracturing can lead to or cause the contamination of underground water sources, and whether the chemicals used in fracturing pose risks to human health,” BLM adopted the rule in an attempt to “adequately address emerging technological developments and health and environmental protections,” but stated it would evaluate the rulemaking seven years after the date of publication.

Immediately upon BLM’s publication of the final draft of the rule, the Independent Petroleum Association of America (IPAA) and the Western Energy Alliance (WEA) brought a challenge to the agency action in the United States District Court for the District of Wyoming claiming the rule is “arbitrary and unnecessary” agency action that either “duplicate[s] state law” or “improperly curtail[s] the primary jurisdiction of state governments.”  The IPAA/WEA petition also asserts that BLM’s rules are “a reaction to unsubstantiated concerns [lacking] factual, scientific or engineering evidence.”  See Independent Petroleum Assoc. of America, et al. v. Jewell, et al., Civ. No. 15-CV-41-F.  IPAA’s press release issued the same day as the petition criticizes the new regulatory program as a redundant regime that merely adds to BLM’s struggle to meet its already significant regulatory workload.

The Effect of BLM’s New Rule:

In a nutshell, BLM’s new rule establishes an oversight program designed to work in tandem with existing BLM programs for oversight and approvals of oil and gas drilling on federal and Indian lands.  The rule requires operators on federal and Indian lands to make substantial public disclosures to BLM officials in advance of HF operations as well as after completion (including, among many other things, identifications of chemicals and sources of water to be used in the operations), to diligently assess the casing of wells and address inadequate casings before commencing operations, to monitor operations and carefully manage and handle HF flowback fluids, and to do extensive monitoring of HF operations, take corrective actions when needed, and provide extensive reports (utilizing the widely used FracFocus source) and certifications to BLM during and after the completion of HF operations.

In response to concerns raised by industry during the public comment periods, BLM’s new rule includes narrowly circumscribed opportunities for operators to submit master HF plans for groups of wells (but each well still requires an individual approval and reporting), to employ a range of methods for determining casing adequacy, to meet a long list of criteria justifying the use of lined pits rather than the generally required above-ground tanks for fracturing and flowback fluids, and to seek protection of certain information as trade secrets so long as the operator can establish competitors could use the information, and that there is a likelihood of substantial competitive harm if the information is disclosed to the public.  The rules also provide operators, as well as state and tribal authorities, certain opportunities to seek variances from the requirements of the rules, and purport to grant discretion to BLM officials to decide when variances are warranted.  Finally, BLM, in the comments accompanying the published rules, encourages coordination between federal, state and tribal regulators, but it remains to be seen how effectively that will occur given that BLM’s rules differ in some respects from rules administered by state agencies on private, state and federal lands, and the variance opportunities for state and tribal authorities are narrowly limited.

Comprehensive Summary of BLM’s New Rule: 

BLM’s new HF rule is adopted in the form of amendments to 43 CFR Subpart 3160 relating to onshore oil and gas operations generally, and Subpart 3162 containing requirements for operating rights owners and operators.  A brief summary of specific parts of BLM’s new HF rule follows:

Applicability.  BLM’s new rule applies to HF operations on federal or Indian lands.  Pursuant to the terms of a table in amendments to Section 3162.3-3(a), all or portions of the new rule apply to any HF operations for which an application for permit to drill (APD) was either not applied for or not approved by BLM within 90 days from the March 26 publication date of the rule, or by June 24, 2015.  All or portions of the rule also apply to new or renewed HF operations where authorized drilling operations were completed prior to the effective date of the rule.

Advance Approval Required.  Advance approval may be sought for HF operations with an APD or a Sundry Notice and Report on Wells (Form 3160-5) as a notice of Intent (NOI).  In order to be approved, all HF operations must meet the performance standard in Section 3162.5-2(d) relating to the isolation of usable waters to prevent contamination.  Further, under Section 3162.3-3(e), BLM approval will not be provided until documentation of the adequacy of cementing is provided no less than 48 hours prior to commencement of proposed HF operations.  The only narrow exception is that prior advance approval will not be required just for further well operations (such as redrilling, deepening, repairing casings, plugging back, etc., that may be in anticipation of separately approved HF operations), but only to the extent of “acidizing jobs or recompletion in the same interval,” and subsequent reporting of those activities is required under Section 3162.3-2.

What Must Accompany An Approval Request.  Section 3162.3-3(d) identifies the extensive information that must accompany an approval request for HF operations.  The information includes, but is not limited to: specific information about the top and bottom depths of the formation into which HF fluids will be injected, the “confining zone(s)” that must be capable of preventing fluid movement into a “usable water zone,” and the usable water zones themselves; known and suspected faults or fractures within one-half mile of the wellbore trajectory that may transect the confining zone; the source and location of water supply as well as access route to bring the water to the site; a design plan for the HF operation that includes the “estimated total volume of fluid” to be used and the “maximum anticipated surface pressure” that will be applied during the fracturing process; a map showing the trajectory of the wellbore,  the estimated direction and length of fractures, the “true vertical depth” of the top and bottom of fractures, and the trajectory and depth of existing wellbores within one half of a mile of any portion of the wellbore into which HF fluids are to be injected; the depth of the perforations or open hole interval and distance between the fracture zone and the nearest usable water zone; and information about the estimated volume of fluid to be recovered and the proposed methods of handling recovered fluids between the commencement of HF operations and the separate approval of a plan for the disposal of produced fluid under BLM requirements.  In addition, where approval is sought using a Sundry Notice, a surface use plan of operations and documentation demonstrating that casing and cement have isolated usable water zones.  The authorized BLM official also may request additional information beyond all of the above.

Monitoring and Verification of Cementing Operations.  BLM’s new rule, in Section 3162.3-3(e), contains detailed provisions designed to ensure the adequacy of casing and cementing operations.  During cementing operations on any casing used to isolate usable waters, the operator must “monitor and record the flow rate, density and pump pressure” and then submit a report to BLM prior to commencing operations.  For surface casing, the operator must observe cement returns and document any indications of inadequate cement (such as lost returns), and if there are such indications, the top of cement must be determined using a cement evaluation log (CEL), temperature log, “or other method or device approved in advance by BLM.  For intermediate and production casing, if the casing is not cemented to the surface, the operator must run a CEL to determine that there is at least 200 feet of adequately bonded cement between the deepest usable water zone and the deeper HF zone.  Any indications of inadequate cementing must be reported to BLM within 24 hours, and a remedial action plan must be submitted on Form 3160-5 and carried out such that verification and certification of adequate cementing can be established by a CEL or other method and submitted to BLM in a subsequent Form 3160-5 report due at least 72 hours before starting HF operations.

Mechanical Integrity Testing.  Section 3162.3-3(f) sets out requirements for mechanical integrity testing of casing at not less than the maximum anticipated surface pressure, and the MIT test will only be considered to be successful if the pressure applied holds for 30 minutes with no more than a 10 percent pressure loss.

Monitoring and Recording During HF Operations.  Section 3162.3-3(g) provides for continuous monitoring and recording of the “annulus” (the space around a pipe in a wellbore) pressure at the “braidenhead” (the flanged fitting allowing casing strings and sealing of the annulus).  The record must be submitted as part of what must be reported on Form 3160-5 after HF operations (see below).  If the annulus pressure increases by more than 500 psi compared to the pressure prior to stimulation, then HF operations must cease until corrective actions are successfully implemented sometime after BLM is notified within 24 hours of the incident.

Management of Recovered Fluids.  BLM’s new rule does not use the term “flowback fluids,” which is often used to describe HF fluids that are returned to the surface after HF operations.  Instead, it refers to “recovered fluids,” and then treats them similarly to produced water on the theory that the two types of fluids contain similar handling and disposal challenges.  Section 3162.3-3(h) requires that recovered fluids be stored in “rigid enclosed, covered, or netted and screened above-ground tanks not exceeding a 500 barrel capacity unless approved by BLM in advance.  If using such a tank is “infeasible for environmental, public health or safety reasons,” then an operator may attempt to satisfy an extensive list of minimum conditions that must exist before may approve of a request to use lined pits instead of tanks.

Post-HF Operations Reporting.  Under Section 3162.3-3(i), within 30 days of the final stage of HF operations for each well, information for each well must be reported to BLM using FracFocus, another BLM-designated database, or in a Subsequent Report Sundry Notice on Form 3160-5.  The information must include: (1) the true vertical depth of the well, the total water volume used and, importantly, a description of the base fluid and each additive in the HF fluid (including detailed information on chemicals and concentrations thereof in the fluids); (2) the actual sources of the water used; (3) maximum surface pressure and rate at the end of each HF stage and the “actual flush volume;” (4) the actual, estimated or calculated fracture length, height and direction; (5) the actual measured depth of perforations or the open hole interval; (6) the total volume of fluid recovered; (7) the methods of handling, storing, reusing or disposing of recovered fluids, and the associated disposition percentages for the fluids; (8) a certification of compliance with the BLM rule and other applicable federal, state or tribal laws; and (9) the result of the MIT test performed on the well.  The authorized BLM official may require further substantiation of the information.

Claiming Exemptions from Public Disclosure.  Section 3162.3-3(j) establishes a process and standard for claiming that information to be reported to BLM under the new HF rule are exempt from public disclosure, and the standard is a high one.  First, if the information is actually provided to BLM using FracFocus or another BLM-designated database, then any right to protect the information from public disclosure is deemed waived.  Second, to successfully protect any information withheld from such reporting, one or more affidavits of the operator (and the owner of the information, if different) must identify a statute or regulation that would prohibit BLM from disclosing the information, make several affirmations that, for example, the information has been withheld, is not publically available, is not required to be made public, and could not be reverse engineered using publically available information.  Third, the affidavit(s) also must affirm that the owner of the information is in actual competition with identified competitors that could use the information to cause the owner of the information “substantial competitive harm,” and demonstrate a factual basis for concluding that the release of the information “would likely cause substantial competitive harm.”  BLM may require that the information sought to be protected be provided during consideration of the claim, and if BLM decides it should be disclosed, it may disclose it after 10 business days from notice of the decision.  Moreover, even where information about chemicals is withheld, the HF operator still must supply the generic name of the chemical that is not less specific than the generic chemical name that must be provided to the Environmental Protection Agency.  Records of information withheld must be kept for 6 years after HF operations on Indian lands, and for 7 years after HF operations on federal lands.

Variance Opportunity for Operators, States and Tribes.  It should be noted that both individual operators as well as States and Tribes, as well as BLM itself, are provided with opportunities to seek variances from the new rule under Section 3162.3-3(k).  The rule provides that the granting of a variance is “entirely within BLM’s discretion” and “is not subject to administrative appeals either to the State Director (for an individual variance) or under 43 CFR part 4.”  States and tribes may seek a variance from the State Director of BLM, and the opportunity is part of BLM’s professed attempt to encourage cooperation where possible between BLM and its State and tribal counterparts in the regulation of HF operations.  A variance, or a variance with conditions, may be granted “only if BLM determines that the proposed alternative meets or exceeds the objectives of the regulation for which the variance is being requested.  Thus, for example, to the extent that a State or tribe might apply less onerous requirements on an operator than BLM now does in order to allow the use of lined pits rather than tanks for storing recovered fluids, it would appear that the opportunity to obtain a variance to allow more broadly for use of lined pits may be limited or non-existent.

Newly Defined Terms.  Terms newly defined by amendments to the general onshore oil and gas operations rules in Subpart 3160 include:

  • Annulus (essentially defined as the space around a pipe in a wellbore)
  • Braidenhead (flanged fitting allowing casing strings and sealing of the annulus)
  • Cement evaluation log (CEL) (a class of tools used to verify annular cementing)
  • Confining zone (geologic features that would keep HF fluids from usable waters)
  • Hydraulic fracturing (use of fluids under pressure to increase permeability)
  • Hydraulic fracturing fluid (HF liquids or gas and associated solids and chemicals)
  • Isolating (cementing to protect usable water and mineral resources)
  • Master hydraulic fracturing plan (for wells with very similar characteristics)
  • Proppant (granulars carried in HF fluids to keep cracks open post-fluids removal)
  • Usable water (lists recognized categories of waters with 10,000 ppm or less TDS)

What’s Next? Litigation challenges will proceed.  In the meantime, operators will be faced with daunting challenges complying with the new regulations, and BLM offices, already struggling to manage existing paperwork, will have much more on their plates.

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