Chapter 2 A Short History Of Federal Statutory And Regulatory Concerns Relating To Hydraulic Fracturing

• Jurisdiction: United States

Hydraulic Fracturing
(Nov 2011)
CHAPTER 2
A SHORT HISTORY OF FEDERAL STATUTORY AND REGULATORY CONCERNS RELATING TO HYDRAULIC FRACTURING
Bruce M. Kramer
McGinnis, Lochridge & Kilgore LLP
Houston, Texas

BRUCE M. KRAMER is a long-time professor at Texas Tech University School of Law and a preeminent oil, gas, energy, and land use legal scholar. He is the co-author of several important books that have become the definitive references for energy lawyers, including two multi-volume treatises, The Law of Pooling and Unitization and Williams and Meyers Oil and Gas Law (since 1996), as well as the last three editions of the Manual of Oil and Gas Terms. Bruce also is an authority on land use, zoning, and the conflicts that arise between mineral property owners. Among his many accomplishments, Bruce's books and legal articles have been cited as authority in numerous court rulings and appellate opinions, including decisions of the Supreme Courts of Texas, Alaska, Louisiana, Montana, New Mexico, and North Dakota; the United States Court of Appeals for the Fifth Circuit; the United States Court of Appeals for the Tenth Circuit; and numerous Federal District Courts. Bruce has prepared papers and spoken at more than 80 continuing education programs for lawyers and other professionals in the oil and gas and real estate/land use industry.

Bruce M. Kramer

Of Counsel, McGinnis, Lochridge & Kilgore

Maddox Professor of Law Emeritus

Texas Tech University School of Law

I. INTRODUCTION

Well before the onset of the modern era of federal environmental law ushered in by the enactment of the National Environmental Policy Act¹ in 1969, President Calvin Coolidge created the Federal Oil Conservation Board.² The OCB consisted of the Secretaries of War, Navy, Interior and Commerce. Henry L. Doherty, an independent oil and gas executive, was undoubtedly a major stimulus in the creation of the OCB.³ In 1926, the OCB held hearings on the need for a federal statutory unitization law in order to prevent the very wasteful practices that Mr. Doherty asserted were a threat to national security. At the hearings the American Petroleum Institute hired Justice Charles Evans Hughes to argue against a federal role in oil and gas development.⁴ The industry was successful in limiting future OCB activities to studies and hearings and when President Franklin D. Roosevelt was inaugurated in 1933 he did not reappoint members of his Cabinet to the Board.⁵ The OCB studies may have been instrumental in supporting the inclusion of voluntary unitization provisions in both the temporary Mineral

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Leasing Act of 1930⁶ and the Mineral Leasing Act of 1931⁷ and the compulsory unitization provisions passed in 1935.⁸ President Roosevelt, as part of his New Deal legislation, created a Petroleum Code that was designed to deal with post-production issues consistent with the regulatory approach taken under the National Industrial Recovery Act.⁹ The fate of the Petroleum Code, as well as all other codes adopted under the aegis of the NIRA was sealed by the Supreme Court's decision in A.L.A. Schechter Poultry Corp. v. United States,¹⁰ finding Title 1 of the NIRA unconstitutional because it amounted to an unlawful delegation of legislative authority to the executive branch. Thus the decades of the 1930s and 1940s became one where states responded to the lack of federal regulation with the enactment of state oil and gas conservation agencies with broadened powers delegated to them by newly-adopted or newly-amended changes to state oil and gas conservation statutes.¹¹

II. THE FEDERAL ENVIRONMENTAL REVOLUTION

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The decade of the 1970's¹² will forever be remembered as the year the Federal Government dove into the murky waters of environmental regulation in a big way. Starting with the enactment of the Clean Air Act Amendments of 1970,¹³ Washington enacted a series of environmental statutes that embraced what was called "cooperative federalism." Instead of regulatory programs whereby the standards would be set at the Federal level and the enforcement mechanism would reside with the newly-created Environmental Protection Agency, these statutes embodied a sharing of responsibilities, mostly in the enforcement and implementation arena, between the State and Federal governments. The Clean Air Act Amendments of 1970 was the forerunner of the "cooperative federalism" statutes.¹⁴ In 1972. Congress enacted the Federal Water Pollution Control Act Amendments¹⁵ which followed closely the cooperative federalism approach embodied in the Clean Air Act Amendments of 1970.

There was some debate following the enactment of the FWPCAA of 1972 as to the scope and extent to which the EPA and/or the states would be able to regulate the discharge of pollutants into the groundwater. On its face the statute prohibits the "discharge of any pollutant" into the waters of the United States without a permit.¹⁶ There is also legislative history showing

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that Congress was aware of the relationship between surface water and groundwater while noting that surface water quality issues were for the moment a more serious problem than groundwater quality issues.¹⁷ But there was an express exemption made for certain types of subsurface discharges from the no discharge without a permit requirement. The statute provided that the term "pollutant" does not include:

(B) water, gas, or other material which is injected into a well to facilitate production of oil or gas, or water derived in association with oil or gas production and disposed of in a well, if the well used either to facilitate production or for disposal purposes is approved by authority of the State in which the well is located, and if such State determines that such injection or disposal will not result in the degradation of ground or surface water resources.¹⁸

While some argued that with the specified exclusions from groundwater regulation, the EPA would have the authority to regulate those pollutants not expressly excluded, the EPA took the position in litigation that groundwater did not fit within the definition of navigable waters of the United States and thus would not be regulated.¹⁹ It was also unclear as to how one would prove that the groundwater discharge would affect surface waters or whether deep well disposal is "associated" with surface water discharges. In Exxon Corp. v. Train,²⁰ the court approved the issuance of a NPDES permit to Exxon relating to both surface disposal and injection well disposal of brine, produced water and other pollutants while noting that Exxon in seeking the permit was not endorsing the view that it needed to get a NPDES permit for the injection well operations. The Environmental Protection Agency acquiesced to Exxon but in a way that still

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left some wiggle room for Clean Water Act authority should the evidence point to a close nexus between groundwater and surface water quality.²¹

III. THE SAFE DRINKING WATER ACT

The Safe Drinking Water Act was first enacted in 1974 after a two-year review period through the halls of Congress.²² It has two basic strategies for dealing with the protection of groundwater. The first is triggered by a determination that a particular aquifer is "the sole or principal drinking water source" for a given region.²³ The second strategy relates to the Underground Injection Control Program (UIC) which is the cornerstone of the regulatory scheme and the one directly related to hydraulic fracturing operations and the disposal of frac water, produced water and other by-products of the drilling operation.²⁴ In many ways the UIC program serves the same purposes as the NPDES program for surface water discharges. The UIC program, like the air and water programs, entails the basic principles of cooperative federalism. The Act provides conditions for state UIC programs,²⁵ federal takeovers,²⁶ and federal management in the absence of an approved state program.²⁷ As with the Clean Water Act, a state program must prohibit all underground injections, except those specifically exempted, unless such injections are authorized.²⁸ State programs must also require that:

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permitted injections not endanger drinking water sources; the state has an adequate inspection, monitoring, record-keeping and reporting administrative program and federal injections must be subject to state regulation.²⁹

In implementing the SDWA, the EPA has developed a classification scheme for various types of injection wells. Class I wells are wells used to dispose of hazardous, industrial or municipal wastes beneath underground sources of drinking water.³⁰ Class II wells deal with the injection of fluids associated with conventional oil or natural gas production, enhanced recovery of oil or natural gas, underground storage of natural gas, or the storage of liquid hydrocarbons.³¹ Class III wells cover those which inject fluids in mining operations, other than oil and gas operations.³² Class IV wells, which are prohibited, inject hazardous or radioactive material into or above a formation within one-quarter mile of an undeground source of drinking water.³³ Class V wells deal with all wells not classified as Class I-IV wells.³⁴

The EPA adopted a rule that "grandfathered" existing injection wells that antedated the enactment of the SDWA but an exception was made for enhanced recovery and hydrocarbon storage injections.³⁵ There is also a regulatory provision allowing for the issuance of emergency permits to either avert an imminent or substantial endangerment to human health or a substantial and irretrievable loss of oil and gas resources.³⁶ For oil and gas-related emergency

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permits there must be a finding that the injection will not result in the contamination of underground sources of drinking water.³⁷ The permit applicant must also show that it was not dilatory in seeking a regular UIC permit. These emergency permits are to last only so long as they...