BLM Revises Proposed Rule on Hydraulic Fracturing

On May 16, 2013, the U.S. Department of the Interior’s Bureau of Land Management (“BLM”) issued a revised proposed rule regarding hydraulic fracturing on federal and Indian lands for oil and gas production. In response to the more than 177,000 public comments submitted in response to its initial proposed rule, BLM is proposing to make a number of modifications to alleviate public concerns about safety, while at the same time providing industry greater flexibility and trade secret protection and facilitating coordination with States and tribes.

The revised proposed rule modifies BLM’s initial proposed rule by, among other things, (1) permitting an expanded set of cement evaluation tools to be used to ensure usable water zones have been isolated and protected from contamination, and (2) modifying and clarifying the procedures for handling trade secret information about chemical composition, modeled on procedures adopted in Colorado. Comments on the revised proposed rule are due by June 24, though BLM has given preliminary indication that it will be extending that deadline by 30 days.

Background
BLM issued its initial proposed rule regarding hydraulic fracturing on federal and Indian lands on May 11, 2012. Both the initial proposed rule and the revised proposed rule require adherence to certain best practices, including requirements that the chemicals used in hydraulic fracturing operations be publicly disclosed, subject to certain trade secret protections; that there be confirmation that wells used in fracturing operations meet appropriate construction standards; and that operators institute proper procedures for managing flowback waters from fracturing operations.

Specific Changes

Changes in Scope

The revised proposed rule narrows the scope of the regulation to apply only to hydraulic fracturing and refracturing operations and not to other well stimulation activities, such as secondary and tertiary recovery operations. However, it also broadens the scope in some ways by requiring that operators isolate all “usable” water, not simply drinking water, as well as other mineral-bearing formations, and protect them from contamination.

The revised proposed rule adds a new provision allowing States and tribes to work with BLM to create variances from rules so long as the alternative meets or exceeds the objectives of the rule from which it departs. BLM seeks comment as to whether deferring to state or tribal laws in such circumstances would create enforcement complexities.

Changes in Pre-Operation Submissions and Approvals

The revised proposed rule retains the requirement that a proposal to conduct hydraulic fracturing (or refracturing) be approved before commencing of operations, but eliminates the requirements to submit a pre-hydraulic fracturing cement bond log (“CBL”) and to certify that it will comply with all applicable permitting and notice procedures. The proposal to conduct fracturing operations can be submitted with the operator’s application for permit to drill or on BLM Form 3160-5 as a Notice of Intent (“NOI”) Sundry for approval by the authorized officer prior to commencement of fracturing. 

Under the revised proposed rule, an operator will be permitted to submit an NOI Sundry for either a single well or, where there is a group of wells with the same geological characteristics, by providing certain information that is required for reliance on a “type well.”

The required contents of the operator’s proposed hydraulic fracturing design have been expanded to include, among other things, the estimated vertical distance to the nearest usable water aquifer above the fracture zone, as well as the estimated fracture direction and propagation. The depths of usable water aquifers will need to be based on a drill log of the subject well or another well in the field.

The revised proposed rule eliminates the requirement that the chemical composition of recovered fluids be specified in a proposal to conduct fracturing operations.

Changes in Monitoring and Evaluation Requirements

Except for qualifying operations under the “type well” exception, the revised proposed rule requires the operator to run a cement evaluation log (“CEL”) on each casing showing that there is adequate cement bonding that protects usable water. A CEL is broadly defined as “any one of a class of tools that verify the integrity of annular cement bonding, such as, but not limited to, a cement bond log, ultrasonic imager, variable density logs, micro-seismograms, CBLs with directional receiver array, ultrasonic pulse echo technique, or isolation scanner,” provided that the tool selected is at least as effective in verifying the integrity of annual cement bonding as a CBL. The revised proposed rule requires the operator to monitor and record flow rate, density, and treating pressuring during cementing operations. The revised proposed rule adds new procedures that an operator must follow in the event there is any indication of inadequate cementing, including requirements for reporting to BLM, taking corrective action, running a further CEL, and certifying that the problem has been corrected.

The revised proposed rule also requires continuous monitoring and recording of annulus pressure at the bradenhead not only during hydraulic fracturing but also during refracturing. For any incident of the annulus pressure increasing by more than 500 psi, operators will still be required to take immediate corrective action and orally notify the authorized officers as soon as practical no later than 24 hours following the incident. The revised proposed rule would change the due date for a Subsequent Report Sundry Notice from 15 days after the occurrence to 30 days after completion of fracturing operations. However, the preamble to the revised proposed rule inconsistently states that the deadline will be 30 days after the occurrence.

Changes in Post-Fracturing Operations Submissions

The revised proposed rule replaces the requirement to submit a pre-fracturing operations CBL with a general requirement that, within 30 days after completion of hydraulic fracturing, the operator submit a CEL. Operators also will be required to submit, among other things, a monitoring report and the result of the mechanical integrity test to BLM in a Subsequent Report Sundry Notice within 30 days after completion of hydraulic fracturing.

Under the revised proposed rule, the operator also will be required to provide the authorized officer detailed information about each well fractured or refractured within 30 days after completion of fracturing, even if the BLM approved a Notice of Intent Sundry for a group of wells. Operators will be permitted to report their chemical information to the BLM either directly or through FracFocus or any other database that BLM specifies. Notably, the revised proposed rule makes the operator expressly responsible for information submitted by its hydraulic fracturing contractor.

The revised proposed rule also requires operators to report the actual, estimated, or calculated length, height, and direction of the fractures. Information that must be reported for each well under the revised proposed rule includes the true vertical depth of the well, total water volume used (including the base fluid), and for each chemical used (including the base fluid), the trade name, supplier, purpose, ingredients, CAS number, maximum ingredient concentration in the additive, and maximum ingredient concentration in the fracturing fluid.

However, the handling of trade secret information about chemical composition has been modified under the revised proposed rule. Operators will no longer be required to submit all information about chemicals to BLM, to segregate their trade secret information, and to justify the assertion of trade secret protection. Instead, operators can withhold their trade secret information, subject to the requirement that they provide BLM an affidavit that (i) identifies the federal statute or regulation that allows withholding of the information or prohibits BLM from disclosing it; (ii) affirms the information is not publicly available; (iii) affirms that the information is not required to be publicly available under any applicable law; (iv) affirms that the release of the information would likely harm the operator’s competitive position; and (v) affirms that the information is not easily discernible through reverse engineering. Nevertheless, BLM retains the ability to compel disclosure under the revised proposed rule, and operators are subject to a 6-year record retention requirement for information claimed to be trade secrets.