December 19, 2012

Stricter Regulation of Fracking in the USA

Article by Sam Sharp.

Following in the wake of our article last week on fracking in the UK, proposals in the U.S. for a similarly stringent regulatory regime continue to be developed in the face of industry opposition.

Back in February 2012, the Obama administration issued proposed rules intended to apply to the increasing number of fracking operations which are taking place in the U.S. The rules would require public disclosure by operators of the chemicals used in the fracking process, along with confirmation of well integrity and stricter permitting requirements. The new regulation also broadens the definition of waters which are to be protected during drilling operations from “fresh waters” to “usable waters”; which will now encompass water used for construction, agriculture and other purposes.

The rule will apply to operations on 700 million acres of public land administered to by the Bureau of Land Management, as well as 56 million acres of Native Indian lands. Of the 3,400 wells drilled each year, the Interior Department estimates that 90 percent currently rely on fracking.

A majority of the wells drilled each year are on private lands and thus fall primarily under state regulation. There have therefore been major concerns over the potential overlap between the new federal regulations and the existing state regulations. Although rules and the rigor of enforcement vary from state to state, there have been efforts in recent years to standardize reporting under the various government and industry bodies.

Shortly following their proposal, and in a significant concession to the oil industry, the rules were amended so that companies would not be required to reveal the composition of fluids until after they had completed drilling. This marked a distinct change from the government’s original proposal, which would have required disclosure of the chemicals 30 days before a well could be started.

Republican officials have once again pushed for the withdrawal of the new regulations, with critics stating that if they come into force they are likely to add significant and unnecessary costs to the production of oil and natural gas; without necessarily assuring any additional environmental protection. In addition to which, the new federal permitting requirements are expected to cause severe delays.

A recent study carried out has stated that the potential cost to oil companies of disclosing the chemicals which have been used and certifying that the well is isolated so as to avoid leaks is likely to be around US$254,000 per well. A figure well in excess of the estimated cost arrived at by The Bureau of Land Management, of US$11,833 per well.

In their most recent opposition to the proposals, the Independent Petroleum Association of America (IPAA) and the Western Energy Alliance (WEA) submitted a letter to the Secretary of the Interior. The letter stated that the U.S. Environmental Protection Agency, in its study of the health and environmental impacts of well stimulation, had “yet to find one verifiable instance where stimulation activities caused aquifer contamination, human health impacts, environmental degradation, or any other health or environmental impact that would warrant such a dramatic expansion of BLM authority”.

As the study in question is not due to be released for peer review until 2014, the organisations have requested that no further action should be taken in respect of the proposed procedures until such a review has taken place.

The U.S. Department of the Interior has recently pushed the date for finalisation of the rules back to 2013, allowing more time for the government to address the industries’ understandable concerns about the proposed rules.

To discuss this issue further with the author, please contact Sam Sharp via Clyde & Co LLP, or you can reach him via LinkedIn.

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