Bureau of Land Management Proposes Cradle to Grave Regulation of Hydraulic Fracturing on Public Lands

On May 11, 2012, the U.S. Department of Interior's Bureau of Land Management (BLM) published a proposed rule entitled Oil and Gas; Well Stimulation, Including Hydraulic Fracturing on Federal and Indian Lands (BLM's Proposal). While BLM's jurisdiction over hydraulic fracturing, or "fracking," is limited to federal and Indian lands, if promulgated, BLM's Proposal would represent the first federal cradle to grave regulation of the controversial oil & gas extraction process and provide a blueprint for all future regulation in the field.

Among other numerous obligations, BLM's Proposal incorporates President Obama's Jan. 25, 2012, State of the Union Address commitment to require public disclosure of the chemicals used in hydraulic fracturing on public lands. BLM's Proposal also comes less than a month after the U.S. Environmental Protection Agency (EPA) finalized its Oil & Natural Gas Sector New Source Performance Standards and National Emission Standards for Hazardous Air Pollutants regulation. The EPA rule, promulgated under its Clean Air Act authority, represents the first federal rule specifically targeting hydraulic fracturing. Click here to see Clark  Hill's May 10, 2012, Alert .

BLM's Proposal applies to "well stimulation activities" (namely, hydraulic fracturing) for both new and existing wells located on the approximately 756 million acres of federal and tribal land that BLM administers. These lands include private and sovereign lands where the federal government only holds subsurface rights. As currently drafted, the new regulations would overhaul BLM's "Subsequent Well Activity" rules and add new rules specific to hydraulic fracturing. The new rules would cover fracking activities from well-boring integrity to flowback water.

Information Required to Frack

BLM's Proposal requires that approval must be obtained prior to any hydraulic fracturing activities. For new wells, operators would be required to apply for approval through BLM's Application for Permit to Drill . For existing wells, operators would be required to submit a Sundry Notice and Report on Wells . The requests for approval of well stimulation activities would be required to include, inter alia , the following:

• A geological description and proposed measured depth of the top and the bottom of the formation into which well stimulation fluids are to be injected.

• The proposed measured depths of all occurrences of usable water and the cement bond logs proving that the occurrences of usable water have been isolated to protect them from contamination.

• The proposed measured depth of perforations or the open-hole interval; the source and location(s) of the water used in the stimulation fluid or trade name of the base fluid (if other than water); type of proppants ( i.e ., sand, sintered bauxite, or ceramic); and estimated pump pressures.

• A certification signed by the operator that the proposed treatment fluid complies with all applicable permitting and notice requirements as well as all applicable federal, tribal, state, and local laws, rules, and regulations.

• A detailed description of the proposed well stimulation design.

• The estimated volume of fluid to be recovered during flow back; the proposed methods of handling the recovered fluids, including, but not limited to, the chemical composition of the fluid; and the proposed disposal method of the recovered fluids.

Prior to well stimulation, BLM's Proposal further requires mechanical integrity testing (MIT) of all new and existing wells. To pass the MIT, a well casing would have to hold – under the maximum anticipated treating pressure – for 30 minutes with no more than 10 percent pressure loss.

Additional Requirements

During well stimulation, BLM's Proposal requires: (i) operators continuously monitor, record and report to BLM the annulus pressure at the bradenhead; (ii) BLM be notified within 24 hours if the annulus pressure increases by more than 500 pounds per square inch as compared to the pressure immediately preceding the stimulation; and (iii) storage of all recovered fluids be in either tanks or lined pits.

Within 30 days of completion of any well stimulation, well operators also would be required to submit a Subsequent Report Sundry Notice , which in addition to the types of information included in the initial Application for Permit to Drill , contains the following information:

• The actual total volume of fluid used; the actual surface pressure and rate at the end of each fluid stage; the actual flush volume, rate and final pump pressure; and the actual, estimated, or calculated fracture length and fracture height.

• A report that discloses all additives of the actual stimulation fluid, by additive trade name and purpose.

• A report that discloses the complete chemical makeup of all materials used in the actual stimulation fluid, including the Chemical Abstracts Service Registry Number and the percentage by mass for each chemical.

• A certification signed by the operator that the treatment fluid used complied with all applicable permitting and notice requirements as well as all applicable federal, tribal, state, and local laws, rules, and regulations.

• A certification signed by the operator that wellbore integrity was maintained throughout the operation, and an explanation of any deviation from the approved plan.

Operators may seek a variance from the above-listed requirements by submitting a written request to BLM, which identifies the regulatory provision for which the variance is sought, explains why the variance is needed, and demonstrates how the operator will satisfy the objectives of the regulatory provision for which the variance is sought. Whether or not a variance will be granted lies within the discretion of BLM.

Cost of New Regulations

BLM estimates the cost of complying with the new regulations to range between $37 to $44 million per year, or just under $12,000 per stimulated well, compared to an estimated average annual benefit per stimulation ranging between $3,754 and $13,688.

Comment Period

Comments on BLM's Proposal must be submitted to BLM by July 10, 2012. Comments on the Proposed Rule's information gathering requirements must be submitted to the Office of Management and Budget by June 11, 2012.

For more information contact Kenneth von Schaumburg at (202) 772-0904 or Michael J. Pattwell at (517) 897-1087.