Oil Industry Meets First Federal Fracking Rules With a Lawsuit

(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 industry previously said the regulations would add
$97,000 to the cost of each well. The version of the rule
released today has requirements the industry hadn’t evaluated,
including pressure testing and storage policies, and the
government put the cost of compliance at $5,500. 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 it’s led to a surge in U.S. production, causing
prices to drop worldwide.

“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. gas output and 5 percent of oil production.
About 90 percent of them use fracking, or hydraulic fracturing.

The rule issued by the Interior Department’s Bureau of Land
Management will exacerbate a flight by drillers from public
lands to private property governed by simpler, more predictable
state regulation, according to Mark Barron, a Denver-based
attorney with Baker & Hostetler LLP.

That could cost local jobs and federal revenue, he said.

‘Unsubstantiated Concerns’

Barron’s law firm represents two industry groups, the
Independent Petroleum Association of America and the Western
Energy Alliance, that are challenging the rule in Wyoming
federal court. The rule is based on “unsubstantiated
concerns,” according to the lawsuit filed Friday.

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.

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.

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

Drillers have already 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,”
Kathleen Sgamma, vice president for government and public
affairs at 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. A typical shale well costs about $7
million.

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

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