CHAPTER 2 LAWS GOVERNING TECHNICAL INNOVATIONS IN SHALE PLAYS: HORIZONTAL DRILLING, HYDRAULIC FRACTURING, AND WATER USE INNOVATIONS--DRIVING THE BOOM AND GENERATING LITIGATION

• Jurisdiction: United States

Development Issues in Major Shale Plays
(May 2014)
CHAPTER 2
LAWS GOVERNING TECHNICAL INNOVATIONS IN SHALE PLAYS: HORIZONTAL DRILLING, HYDRAULIC FRACTURING, AND WATER USE INNOVATIONS--DRIVING THE BOOM AND GENERATING LITIGATION
John C. Martin
Partner
Susan M. Mathiascheck
Partner
Dawn Miller, Associate
Crowell & Moring LLP
Washington, DC

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JOHN C. MARTIN counsels clients and litigates complex matters involving natural resources and environmental issues. John has litigated a number of cases under various environmental laws including NEPA, ESA, CAA, CWA, SMCRA, and Superfund. He has developed a particular focus on the application of environmental regulation to the energy industry. In recent years, John has represented clients concerning an array of hydraulic fracturing issues. He is also litigating cutting edge CWA, wildlife, offshore oil & gas, public lands, and other environmental issues on behalf of extractive industries. John has defended many enforcement cases brought by the U.S. Department of Justice and non-government organizations under various environmental statutes. He has argued several cases before U.S. Courts of Appeals, including both appeals and regulatory matters. He represents clients before the Interior Board of Land Appeals and in administrative proceedings at the Environmental Protection Agency. John has contributed to various publications, and has served as co-author to three environmental law texts. He is also a frequent speaker on various environmental and natural resource topics.

SUSAN M. MATHIASCHECK is a partner with Crowell & Moring LLP and works with oil and gas, mining, nuclear, and other energy-related industries in developing and defending energy and resource production in the face of environmental and public lands challenges. She has more than 20 years of experience litigating and advising clients under the federal environmental and public lands laws including the Clean Water Act, Clean Air Act, Safe Drinking Water Act, Endangered Species Act, Marine Mammal Protection Act, NEPA, RCRA, CERCLA, FLPMA, OCSLA, and CZMA.

DAWN MILLER is an associate in the Crowell & Moring LLP's Washington, D.C. office. She practices in the Environment & Natural Resources Group. Her practice involves litigation, client counseling, and advocacy under the Clean Air Act, Clean Water Act, Toxic Substances Control Act, National Environmental Policy Act, Federal Land Policy and Management Act, and other environmental statutes. Dawn has represented trade associations and industry clients across a broad range of sectors, including manufacturing, mining, nuclear energy, and oil and gas.

Introduction

The shale gas boom and the widespread use of new drilling technologies continue to draw pressure for broad regulatory intervention, both at the state and federal level. While the oil and gas industry is certainly no stranger to state regulation (often including drilling, permitting, and environmental requirements), or federal regulation for that matter, expanding oil and gas development has attracted increased attention to hydraulic fracturing, and the broad range of land use and environmental issues that the public has come to associate with it. As a result, the regulatory landscape for hydraulic fracturing has become an increasingly confusing, constantly changing one.

This paper summarizes some of the more significant pending federal efforts to fill perceived regulatory "gaps," as well as issues posed by new state regulation, including enduring tensions between state authorities and their local counterparts and the difficulty in reconciling the economic benefits of shale gas development with competing public concerns. With such significant regulatory activity at all levels of government, it appears inevitable that we will continue to see overlap and, in some cases, conflict across the range of regulatory approaches chosen - and it is likely that such conflict will continue to play a major role in regulatory and litigation outcomes for some time to come.

A. BLM Regulation of Hydraulic Fracturing on Federal Lands

One of the most potentially significant areas of federal regulation is the Bureau of Land Management's ("BLM's") pending rulemaking regarding hydraulic fracturing operations on federal public and Indian lands. Although BLM has made clear that the rulemaking would not impose any new requirements on operators on private or state lands, the rulemaking is still seen as having significant reach, as it would extend to all hydraulic fracturing operations on federal lands and potentially provide a "model" for further state and local regulation in the future.¹

1. BLM's Initial Hydraulic Fracturing Proposal

BLM first issued a proposed rulemaking on May 11, 2012 in which it promoted "certain best practices," including public disclosure of hydraulic fracturing chemicals, well construction standards, and effective flowback management.² The rulemaking was spurred in part by recommendations from the Natural Gas Subcommittee of the Secretary of Energy's Advisory Board and, according to BLM, was needed because otherwise applicable regulations were "more than 30 years old and were not written to address modern hydraulic fracturing activities."³ The May 2012 proposed rule anticipated significant changes to prior regulations, among them:

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• A requirement for the protection of "all usable water" (defined as "water containing up to 10,000 ppm of total dissolved solids") as opposed to merely "fresh water" during well stimulation operations;

• A requirement for prior approval before conducting well stimulation activities - applicable to both new projects and wells permitted prior to the rule's effective date;

• New and detailed pre- and post-operational reporting requirements, including: specific geological information about the well site; a cement bond log; information about the water source and measured depths; well stimulation engineering designs; fluid volumes; surface treating and injection pressures; fracture length and height; handling, management, and disposal of recovered fluids; information on hydraulic fracturing chemicals; and various post-operation information. BLM would also be able to seek any additional information desired regarding particular well stimulation activities;

• Mechanical integrity testing requirements;

• Monitoring and recordkeeping concerning well stimulation pressure, along with notification under certain conditions;

• Recovered fluid storage requirements; and

• Post-operational disclosure of information on hydraulic fracturing fluids, by additive trade name and additive purpose, including "the percent mass of each ingredient used in the stimulation operation."⁴

2. BLM Repeats the Drill, Issuing New Proposal

In January 2013, after receiving over 170,000 comments, BLM withdrew its May 2012 proposal and announced its decision to issue a new revised proposal, concluding that changes were needed "to maximize flexibility, facilitate coordination with state practices and ensure that operators on public lands implement best practices."⁵ Accordingly, BLM issued a new proposed rule in May 2013.⁶

BLM characterizes the new proposal as having retained the "three main components of the initial proposal" (chemical disclosure requirements, requirements to assure well-bore integrity, and effective flowback water management), but adding "increased flexibility and reduced regulatory duplication."⁷ In particular, the updated proposal includes modified approaches to evaluating well integrity and new provisions for addressing trade secret claims in

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the course of chemical reporting and disclosure, as well as new "opportunities for the BLM to coordinate standards and processes with individual States and tribes to reduce administrative costs and improve efficiency."⁸ The proposal further includes a new variance provision, under which compliance with state or tribal requirements deemed as or more stringent than applicable federal standards may be accepted for purposes of compliance with the BLM regulations.⁹ BLM has also narrowed the definitional scope of the proposed rule's applicability, focusing on "hydraulic fracturing" and "refracturing" as opposed to "well stimulation" more broadly, to address concerns that routine maintenance operations would be swept into the regulation's coverage.¹⁰

3. Public "Flowback" from BLM's Proposal

Stakeholder comment and media coverage reveal stark disagreement on BLM's proposal and whether it goes too far or not far enough. Environmental groups and other non-industry stakeholders have been critical of the proposed rule, particularly its most recent iteration. These stakeholders claim that the rule should take a more aggressive stance on many of the areas of regulation and that the revised proposal falls far short of measures needed to ensure that hydraulic fracturing operations do not result in unwanted health risks or environmental damage. They call for, among other things: broad regulation of "well stimulation" as opposed to hydraulic fracturing alone (i.e., a return to the stance taken in the initial proposal); revisions to provisions that would excuse operators from repeating cement evaluation log requirements at a well of the same types as one at which approved operations were successfully completed; prohibition of the storage of wastewater in open pits; baseline groundwater testing; submission of information on recovered flowback fluids (as was required under the initial proposal); and even consideration of an all-out ban on hydraulic fracturing on public lands.¹¹ A number of environmental organizations have also raised concerns under the National Environmental Protection Act ("NEPA"): they argue that BLM was required to take a "hard look" at the environmental effects of hydraulic fracturing generally, and consider potential alternatives (including prohibition of hydraulic fracturing), through...