With Congress and the White House mired in partisan gridlock and preoccupied by issues like the federal debt ceiling, the Affordable Care Act rollout, and the Edward Snowden leak investigation, states again took the lead on shale gas issues in 2013. Several states enacted new hydraulic fracturing regulations, with many others completing overhauls of existing rules to account for changing technology and expanded opportunities for unconventional oil and gas plays.
This report examines the key legal developments in the shale oil and gas industry in 2013, with a look ahead to several key issues that will continue to shape this industry in 2014.
Congress once again spent the year mostly on the sidelines in the hydraulic fracturing debate, with little if any significant shale legislation reaching President Obama’s desk. In June, the President unveiled his proposed Climate Action Plan—a comprehensive strategy to address climate change by reducing domestic carbon pollution, which included a proposal for national carbon emissions standards by the Environmental Protection Agency (EPA). But Democratic lawmakers were unsuccessful in pushing through any significant oil and gas legislation in 2013. For example, Democratic senators introduced a bill—known as the FRAC Act—that would amend the Safe Drinking Water Act to repeal an exemption from restrictions on underground injection of fluids for fracturing operations. The bill never made it to a full vote.
Significant legislative efforts by Republicans similarly stalled before reaching the President’s desk. One Republican bill—the Federal Lands Jobs and Energy Security Act (H.R. 1965), which aimed to streamline the drilling permit process on federal lands—passed the House in November, but quickly lost momentum and was never taken up by the Senate. Another Republican proposal—the Protecting States’ Rights to Promote American Energy Security Act (H.R. 2728), which gave state drilling laws primacy over federal regulations—also passed the House in November, but was quickly scuttled when the White House threatened to veto any attempt to undermine federal regulatory authority over drilling.
Most of the action on the federal level occurred in the regulatory sphere, with the highlight being the Bureau of Land Management’s (BLM) proposed rules on the use of hydraulic fracturing techniques on federal land, issued in May 2013. The rules represent a modified version of drilling regulations proposed by the BLM in 2012, based in part on public comments received by the agency after its initial proposal.
Among other things, the BLM’s revised rules would: (i) exempt automatic disclosures of chemicals used in the fracturing process based on trade secret protections and institute a central website, “FracFocus.org,” for all public disclosures; (ii) create testing protocols for well integrity, particularly the cement casings on wells and aquifers, maximum injection pressure, and flowback volumes; and (iii) require management plans for the protection of both surface water and groundwater from contamination by flowback fluids, including potentially requiring such fluids to be stored in closed tanks.
Experts have estimated that the BLM’s proposed regulations could cost the industry anywhere from $20 million to $2.7 billion each year. The public comment period for the proposed rules, which ended in August, drew over 1 million responses, and the BLM has yet to set a date for issuing a final rule. Among the concerns voiced in the public comments were calls for greater protection of industry trade secrets, since as-written, the rule requires companies claiming protection to provide proprietary information to operators, which conflicts with normal practice and could violate private non-disclosure agreements.
Several new rules issued by the Occupational Safety and Health Administration (OSHA) will also impact the oil and gas industry, including a proposed rule governing acceptable exposure limits for silica dust. The rule, proposed in September 2013, triggered a mandatory 90-day public comment period, which ended in December. No final rule has been issued, but industry experts have warned that any such rule could be particularly costly to drillers using fracturing techniques that depend on the use of silica sand. Continue Reading