Oil Industry Immediately Challenges First Federal Fracking Rules

(Bloomberg) — U.S. drillers already reeling from a six-month drop in oil prices denounced new U.S. fracking regulations
as costly and unnecessary, and quickly met them with a lawsuit.

After three years of debate, the U.S. Interior Department
said Friday that drillers on federal land must reveal the
chemicals they use, meet construction standards for wells and
safely dispose of contaminated water.

The rule issued by the Interior Department’s Bureau of Land
Management will exacerbate a flight from federal and tribal
lands to private property governed by simpler, more predictable
state regulations, said Mark Barron, an attorney for the Western
Energy Alliance, a Denver-based industry group whose members
include ConocoPhillips, Halcon Resources Corp. and QEP Resources
Inc.

That will cost local jobs and federal revenue, Barron said.

Barron’s law firm, Baker & Hostetler, represents the
Western Energy Alliance and the Independent Petroleum
Association of America in a lawsuit challenging the fracking
rule in Wyoming federal court. The rule was based on
“unsubstantiated concerns,” according to the lawsuit filed
Friday.

A study for the Western Energy Alliance had estimated
federal regulation would add $97,000 to the cost of each well.
Fracking has triggered a boom in crude output over the last
decade as drillers learned how to release trapped oil in
underground rocks using water, chemicals and sand. The technique
has been so successful that it’s led to a surge in U.S.
production, causing prices to drop worldwide.

‘Environmental Protections’

“This rule will move our nation forward as we ensure
responsible development while protecting public land
resources,” Interior Secretary Sally Jewell told reporters. She
called it “critical that the public has confidence that robust
safety and environmental protections are in place.”

More than 100,000 wells on federal lands account for about
11 percent of U.S. natural gas output and 5 percent of oil
production. About 90 percent of them use fracking, or hydraulic
fracturing.

The final rule issued Friday has requirements that the
industry hadn’t evaluated for cost, such as pressure testing of
all wells and storage of waste water in tanks, said Kathleen
Sgamma, vice president for government and public affairs at the
Western Energy Alliance. The government put the cost of
compliance at $5,500 per well. A typical shale well costs about
$7 million.

The new regulations don’t take effect for at least 90 days,
and Barron said the groups may ask for an order blocking them
altogether.

‘No Public Benefit’

The rule by the Bureau of Land Management “provides no
public benefit,” Baker & Hostetler said in a statement. A
provision requiring disclosure of proprietary well design and
geological information is at odds with federal law, it said.

ConocoPhillips, with 25 percent of its petroleum leases on
federal lands, needs more time to review the rules before
commenting, company spokesman Daren Beaudo said in an e-mail.

The Houston-based company “sought to work constructively
with BLM as the rule was crafted to ensure regulations would be
environmentally effective, safe, and cost efficient,” he said.

Representatives of Halcon and QEP, which produce oil from
tribal land in North Dakota, didn’t respond to phone calls
seeking comment.

BLM has said the rule may serve as a model for state
policies regulating drilling on private land.

Drillers already have slashed spending an average 37
percent and dismissed tens of thousands of workers after
fracking created an energy glut. Oil prices have dropped 54
percent and gas fell by 36 percent in the past year.

Environmental Groups

Some environmental groups praised the final rule because it
includes pressure testing each well before production begins,
and would require millions of gallons of waste water be stored
in tanks, rather than open pits.

“One bad apple can spoil the barrel and similarly, one bad
operator can ruin an aquifer,” said Kate Zimmerman, public
lands policy director for the National Wildlife Federation, in a
statement. “That’s not a chance we are willing to take.”

Other environmental groups said the rule falls short,
pointing to fracking mishaps they said have led to contamination
of local water supplies in communities from Wyoming to
Pennsylvania. They urged the federal government to tighten its
earlier plans on exemptions for chemical disclosure and the use
of open pits to dispose of flowback water.

“These rules put the interests of big oil and gas above
people’s health, and America’s natural heritage,” said Amy Mall, who directs the fracking advocacy at the Natural Resources
Defense Council. “The bottom line is the rule fails to protect
the nation’s public lands — home to our last wild places, and
sources of drinking water for millions of people.”

Three Months

Unless a court intervenes, the regulation will take effect
in three months. The industry’s lawsuit says the Interior
Department “lacks the factual, scientific or engineering
evidence necessary” to support the policy.

“Interior’s $5,500 a well cost estimate is laughable,”
Sgamma of the Western Energy Alliance said Friday in a telephone
interview. A study done for the Alliance had projected added
costs of $97,000 a well based on an earlier proposed rule. The
final version’s requirements for well testing and storage tanks
will add to that figure, though no estimate is yet available,
she said.

Under the Interior Department plan, drillers must disclose
the chemicals they use to the industry-supported website,
FracFocus.org. BLM will become the largest consumer of that
website and will attempt to make it easier to use, the agency
said.

Largest Landowner

The Bureau of Land Management is the largest landowner in
the U.S., overseeing about 700 million acres of mineral rights
underground. Farmers or ranchers own the surface rights on large
tracts of federal land.

Senate Energy and Natural Resources Committee Chairman Lisa Murkowski, an Alaska Republican, said the rule may “make it
even harder to produce oil and gas” on public lands.

Senator James Inhofe, an Oklahoma Republican and chairman
of the Environment and Public Works Committee, introduced
legislation Thursday to keep regulation of fracking under state
oversight. The rule “adds unnecessary, duplicative red tape
that will in turn make it more costly and arduous for our nation
to pursue energy security,” he said.

To contact the reporters on this story:
Mark Drajem in Washington at
mdrajem@bloomberg.net;
Jim Polson in New York at
jpolson@bloomberg.net;
Andrew Harris in federal court in Chicago at
aharris16@bloomberg.net

To contact the editors responsible for this story:
Susan Warren at
susanwarren@bloomberg.net
Will Wade, Stephen West

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