The new year brought with it several noteworthy developments in the fracking world. These include: a new lawsuit in connection with the Keystone Pipeline; legal action against the Department of Interior (“DOI”) Federal Bureau of Land Management (“BLM”) in connection with its proposed opening of public lands for oil and gas exploration; new methane emission rules proposed by BLM for Federal and Indian lands; and a report by the Science Advisory Board that was critical of the U.S. Environmental Protection Agency’s (“EPA”) assessment of groundwater contamination risk associated with hydraulic fracking operations. Several states were also active with new oil and gas regulations implemented in California, Colorado, Wyoming and Nebraska, while a nuisance lawsuit in Pennsylvania against a fracking operator resulted in a jury award. In many instances, we carry forward text from our prior information updates in order to provide context, although we encourage readers to refer to previous installments for a more in-depth analysis.
Federal Regulatory Developments
BLM Fracking Rule
As reported in our March 2016 fracking law update in the Energy Law Report (reflecting our January 2016 Client Alert available here), a Wyoming federal court has before it a challenge to the validity of BLM’s final rule for fracking on federal and tribal lands (“Final Rule”)1 brought by several states, industry groups and the Ute Indian2 Tribe (“Ute Tribe”). The Ute Tribe contends that, by applying standards for federal lands to tribal lands, the DOI Secretary violated her fiduciary duty as a trustee for the tribe by reducing the value of tribal mineral leases.3 BLM, on the other hand, contends that the Final Rule was properly promulgated after consultation with the Ute Tribe and taking into consideration all relevant factors. The government has urged the court to dismiss the Ute Tribe’s action to block the Final Rule.4
The states of Wyoming, Colorado and Utah argue that BLM’s reliance on the Federal Land Policy and Management Act and the Mineral Leasing Act, among other laws, is misplaced, as federal land management and leasing laws are intended to apportion various uses of the surface and mineral rights and do not act as environmental laws to protect underground water supplies. The states point to the Safe Drinking Water Act (“SDWA”) as the only federal law that protects underground water supplies, and contend that the use of SDWA to regulate fracking was mostly preempted by the Energy Policy Act of 2005.
The states also contend that applying the Final Rule across all federal and Indian lands creates a uniform standard that does not consider the varying environmental and geographic circumstances that impact wells differently across the country. Accordingly, the states claim they are in the best position to account for such variables and should be charged with regulating the industry.
The Independent Petroleum Association of America and the Western Energy Alliance also requested clarity and justifications for the rule, claiming that provisions in the rule are unclear or impractical making the rule arbitrary and capricious.
On March 21, federal attorneys asked the U.S. Court of Appeals for the Tenth Circuit to overturn the preliminary injunction currently holding up the application of BLM’s fracking rules, promulgated in 2015, pending resolution of consolidated lawsuits challenging the validity of the regulations.5 The appeal of the injunction is moving forward while the merits of the fracking rules themselves are contested in the U.S. District Court for the District of Wyoming by state, tribe and industry plaintiffs. As for the injunction, the federal appellants, backed by environmental groups, argue that BLM has the authority to regulate fracking and that the plaintiffs’ claims of irreparable harm justifying the injunction are without merit. The plaintiffs have until April 25 to respond to the federal appellants’ brief on the injunction, while the federal government responded in the underlying district court case in early April.
EPA Fracking Study
The Science Advisory Board (“SAB”), on February 16, 2016 issued a report (“SAB Report”) raising concerns over EPA’s draft assessment on drinking water impact from hydraulic fracking (issued June 4, 2015) (“Draft Study”).6 The Draft Study found no evidence that fracking has led to a “widespread, systemic impact on drinking water resources in the United States.” Although the Draft Study did find specific instances of contamination of drinking water wells (and other impacts on drinking water resources), EPA concluded that such cases are limited compared to the total number of fracking wells. EPA requested that the Science Advisory Board (“SAB”) review the Draft Study, partly in response to critical comments submitted over the study’s core conclusion that fracking has not caused systematic injury to water supplies. The SAB Report raises concerns with the observations, data and level of uncertainty around conclusions reflected in the Draft Study and sets for the number of information requests related to: (i) the probability and risk of well failure scenarios, (ii) spills and releases of water produced from fracking operations, (iii) the toxicology with regard to fracking chemicals, (iv) descriptions of best management practices and details on state regulations, and (v) radioactive materials that can emerge from a well.7 The SAB Report recommends that EPA revise the major statements of findings in the Executive Summary “to be more precise, and to clearly link these statements to evidence provided in the body of the
The SAB Report also urged EPA to recognize and analyze “local-level hydraulic fracturing impacts,” which can be severe when such impacts occur, including available EPA and state findings on impacts to water resulting from fracking operations in Pennsylvania, Wyoming and Texas, where citizens perceive fracking operations to have a significant impact on water resources.
The SAB Report further recommends that the Draft Study be revised to include illustrations, clarify ambiguities, and “be more precise in the presentation of major findings,” so that the general public can better access and understand EPA’s findings. Toward that end, the SAB held a teleconference on March 7, 2016 to solicit public input.
Keystone XL Pipeline
On January 6, 2016, TransCanada Corp filed suit8 in the Southern District of Texas alleging that President Barack Obama’s decision not to approve a permit for the Keystone Pipeline (as reported in the March 2016 Energy Law Report)9 was politically motivated and not based on substantive consideration of the project. TransCanada further argued in its complaint that Congress, not the President, holds the power to regulate international and interstate commerce. The United States filed a motion to dismiss on April 1, 2016, contending that the President’s determination was appropriately founded on considerations of national security and foreign relations.10
Natural Gas Storage Task Force
In response to the recent major natural gas leak at Aliso Canyon in California, the Energy Department and the Pipeline and Hazardous Materials Safety Administration have announced the formation of a natural gas storage safety task force.11 The task force will hold workshops with industry and government leaders to develop best practices to increase safety at storage facilities and refine emergency response policies and procedures. The task force, which will also include experts from EPA, the Department of Health and Human Services, DOI, the Federal Energy Regulatory Commission and the National Oceanic and Atmospheric Administration, will summarize and make public its findings later this year.
GAO Report on EPA Oversight of Injection Wells
A report released by the Government Accountability Office (“GAO”) criticized EPA’s oversight of fracking fluid injection wells. According to the March 28th report, EPA failed to adequately collect data, complete inspections, or conduct sufficient oversight activities for the Class II underground injection wells. As a result of its conclusions, GAO recommended that EPA require reporting of data from well specific inspections, issue guidance on enforcement failure to report, and improve exemption databases. EPA advised that it will complete most recommendations, but it is not planning to require well-specific data on inspections.12
Pacific Offshore Fracking Review
Under a legal settlement filed in January 2016 in federal court by the Center for Biological Diversity, the Environmental Defense Center (“EDC”) and DOI’s Bureau of Ocean Energy Management and Bureau of Safety and Environmental Enforcement (“BSEE”), in connection with a pending lawsuit brought by EDC, BSEE agreed to prepare a programmatic environmental assessment (“PEA”) of fracking, acid well stimulation, and other drilling techniques on the Pacific Outer Continental Shelf (“OCS”).13 The complaints accuse DOI of rubber-stamping permits for offshore drilling off the California coast without considering environmental effects. As part of the settlement, BSEE also agreed not to approve any applications for permits to drill or applications for permits to modify that involve fracking or acid well stimulation on the Pacific OCS until completion of the PEA.
The draft PEA, which was published in the Federal Register on February 22, 2016 and concludes that offshore fracking will not significantly impact the environment, is now under fire by the EDC and Surfrider Foundation, as well as certain members of Congress. The environmental groups allege that the PEA does not offer scientific evidence that fracking will not impact the local environment, and fails to adequately describe the chemicals, or their toxicity, used in offshore fracking. The final version of the PEA is anticipated to be issued on May 28, 2016.
White House Review of Oil and Gas Infrastructure Proposal
A proposed rule by EPA14 to clarify what will be considered a “source” subject to regulatory obligations for new and modified oil and natural gas wells is set to undergo review by the White House Office of Management and Budget this month.15 EPA suggests two approaches. Under the first option, which EPA and industry leaders prefer, “adjacent” sources will be considered a single source when two or more surface sites share the same two digit Standard Industrial Classification (“SIC”) code, are under common control, and are contiguous, or are located within a short distance of one another, with EPA proposing a distance of a quarter-mile or less. EPA states that it prefers this option because it is similar to regulations under the National Emission Standards for Hazardous Air Pollutants (“NESHAPs”) rules and will streamline the permitting process. Further, EPA states this will avoid facilities being “daisy-chained” whereby “each individual unit is located within the specified ‘contiguous or adjacent’ distance from the next unit, but where the last unit is separated from the first unit by a much larger distance.”
Under the second option, a source would be defined to include all interrelated equipment that is under common control, is in the same two-digit SIC code, and is on contiguous or adjacent property. Sources will be considered “adjacent” if (1) separated by a distance of a quarter-mile or more and there is an exclusive functional interrelatedness (e.g. connected by a pipeline or there are exclusive deliveries of products from one group of equipment to the other via trucks or trains); or (2) the pollutant-emitting activities are separated by a distance of less than a quarter mile. Some commentators have noted that EPA does not explain in the Source Determination Rule how this proposal differs from the standard of “functional interrelatedness” in determining adjacency under the Title V of the Clean Air Act struck down by the U.S. Court of Appeals for the Sixth Circuit Court.16
The proposed rule may significantly impact the industry if equipment and infrastructure once considered separate and independent, and permitted as minor sources, are deemed adjacent and grouped under one permit as a major source of pollution subject to increased regulation. The proposal is part of EPA’s broader mission of complying with the Obama administration’s Climate Action Plan, which calls for the U.S. and Canada to reduce methane emissions from the oil and gas sector by 40-45% from 2012 levels by 2025.17
BLM Rule to Reduce Methane Emissions from Oil and Gas Operations on Indian/Federal Lands
BLM proposed a new rule18 in February 2016 (“Waste Prevention Rule”) intended to reduce waste and methane emissions from oil and gas operations, and limit oil and gas flaring, venting, and leaking on federal and Indian lands. The Waste Prevention Rule, which would phase in over several years if approved, would require operators to adopt current technologies to limit flaring to 1,800 cubic feet per month per well, inspect equipment for leaks, and replace equipment that vents methane into the air. The Waste Prevention Rule would reduce waste in the operation of pneumatic controllers and pumps, downhole well maintenance and liquids unloading, and calls for more efficient well drilling and completions. The Waste Prevention Rule would also permit BLM to increase onshore oil and gas royalties above the current 12.5%, but no such increase is proposed at this time. BLM estimated that the new method of applying royalties to unavoidable gas flaring could generate additional royalties of $9 million to $16 million a year. BLM estimates that the Waste Prevention Rule will reduce venting, flaring and leaking methane emissions and volatile organic compounds by 50% after a three-year phase-in of the regulations.
Suit Filed on BLM Plan to Open New Public Lands for Oil and Gas Production
BLM’s recent decision to open one million acres of public land for oil and gas exploration is the subject of a lawsuit19 filed by an environmental group. The complaint alleges that BLM failed to comply with the National Environmental Protection Act when it issued an inadequate Environmental Impact Statement (“EIS”) that does not contemplate the effects of fracking. The environmental group notes that the EIS doesn’t mention fracking, which, according to the plaintiff, would result in significantly more harm to air quality, water quality, wildlife and human health than conventional drilling. According to the plaintiff, the area in question has approximately forty-two federally listed threatened and endangered animal species within its borders.
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