Another Layer of Bureaucracy for Oil and Gas Exploration in the US?

On May 11, 2012, the US Bureau of Land Management (BLM) published proposed regulations governing "Oil and Gas; Well Stimulation, Including Hydraulic Fracturing, on Federal and Indian Lands." BLM is a latecomer to this party. Its belated meddling lacks practical or economic justification. Instead, the proposed BLM rule would drive oil and gas developers off federal and tribal lands. Complying with the rules is too complicated and costly. Producers can realize a much faster and much better return on their capital investment by developing oil and gas reserves on adjoining private lands.

Federal and tribal lands hold large reserves of oil and natural gas. At a time when the United States desperately needs to move toward, not away from, energy independence, it makes no sense to let bureaucratic meddling effectively place these valuable domestic reserves out of reach. The problems with BLM's approach are myriad.

First, a central, federal, one-size-fits-all approach does not work. The reserves that the oil and gas industry wants to access using hydraulic fracturing occur in areas with different geographic, topographic, hydrological, population, precipitation and umpteen other characteristics. The oil and gas deposits are found at different depths; the water table is at different depths. The surface and subsurface vary dramatically, ranging from the Marcellus Shale Formation in the Northeast to the San Juan Basin in the Southwest. States and tribes have long ago stepped up to the plate with sensible regulations suitable to their individual conditions. They are way ahead of BLM.

Second, even if states and tribes did not already have this under control, BLM's proposed regulations are inappropriate. The BLM regs are based on inaccurate assumptions, flawed economics and a perceived but actually nonexistent need.

"[I]t is assumed" (by BLM for its base case) "that a certain number of well stimulation events may result in contamination and thus pose a cost to society." This is the foundation of the agency's flawed estimation of "social benefits" ranging from $11.7 million to $50.3 million per year. We are left to guess what those social benefits might be. Despite hysteria about fracking causing earthquakes, contaminating aquifers and about explosive gases coming from kitchen sink faucets, there is actually no evidence that fracking causes such problems. Indeed, the Association of American State Geologists (AASG) "recognizes that the environmental record of hydraulic fracturing activities over the past 60 years has been overwhelmingly positive."

Probably the most frequent indictment of fracturing is its potential contamination of drinking water. But the AASG further notes that "geologic data generally show a significant vertical separation between most oil and natural gas reservoirs targeted for hydraulic fracturing and the shallower freshwater aquifers." In other words, fresh water is not typically found anywhere near the fracturing area.

BLM acknowledges that about 3,400 wells, roughly 90% of all wells drilled on federal and Indian lands each year, use hydraulic fracturing. But it offers no evidence of groundwater contamination as a result of that fracking. As noted by Donovan Schafer in his excellent article, Frack Attack: "Freshwater sources can, in fact, be contaminated by oil and gas activity. However, the contamination is not a result of the actual fracking process. Instead, it is caused by poor drilling practices and surface spills."

Even Matt Watson, an energy-policy specialist with the Environmental Defense Fund, acknowledged that "the term 'fracking' is being used for all the things in the process that can cause problems. Most of those problems have nothing to do with the actual fracking."

Elizabeth Ames Jones, chairwoman of the Railroad Commission of Texas, testifying before the US House Committee on Science, Space and Technology, said: "For fracturing fluid or the natural gas or oil to affect the water table in Texas, those substances would have to migrate upwards [through] thousands of feet of rock, sometimes even miles. It is simply geologically impossible. The stories of environmental damage or contaminated drinking water from hydraulic fracturing are simply untrue. You have a better chance, frankly, of hitting the moon with a Roman candle than fracturing into fresh water zones by hydraulic fracturing shale rock."

That comes as no surprise, since fracking fissures tend to radiate horizontally, not upward. Even if they did radiate upward, those thousands of feet of multiple layers would blunt their progress long before they got anywhere near fresh water. This illustration shows how far the Underground Source of Drinking Water ("USDW") is from fracking operations.

BLM badly underestimates the cost of compliance with its proposed rule. Oil and gas developers already face costly delays in obtaining BLM approval of Applications for Permits to Drill (APDs). The cost of gathering, compiling and submitting the additional information BLM now wants is real, substantial and not realistically tied to any benefits. Operators already submit information on wellbore integrity, casing and cementing programs to the agency, through the existing APD process. The BLM rule adds 10 more categories of information to be supplied.

BLM is already limited by a shortage of staff having necessary expertise. The proposed rule would compound delays and the resulting expense as BLM struggles to deal with added responsibilities. I am reminded of the sensible admonition: "Never holler 'Whoa!' at a horse race."

The delays imposed by BLM's unnecessary "cement bond log requirement," for example, complicated by its more stringent requirement to isolate "useable" rather than "fresh" water, will mean that drilling rigs will sit idle at a cost of over $20,000 per day. Let me explain.

The following illustration shows a typical configuration of nested well casings, each cemented within the wellbore, passing through the Sherwood aquifer in the UK. As you can see, the fresh water in the aquifer is thousands of feet above the fractures.

During mark-up of House Bill 3973, the Native American Energy Act, Don Young, chairman of the House Natural Resources Committee's Subcommittee on Indian and Alaska Native Affairs, successfully passed an amendment that would prohibit the BLM rule from applying to Indian lands unless the Indian land owner gives express consent. Young said: "With their new fracking rule, the Obama administration is doing a real disservice to America's tribes. By giving Indian tribes the option to follow this new rule, my amendment simply increases tribal control over their lands and eliminates this new layer of bureaucratic red tape."

Although not discussed at the meeting, Congressman Bill Flores (R-TX) has separately introduced H.R.6235, "a bill to delay action on the proposed rule regarding well stimulation on federal and Indian lands until such date as the secretary of the Interior submits a report examining certain effects of such rule." H.R.6235 was referred to the House Natural Resources Committee.

I would summarize the message from Indian Country as this: the Obama administration needs to call off its dogs. Tribes are already quite sophisticated with respect to oil and gas development, including fracking. Preferably BLM should withdraw its rule and simply leave tribes alone. By inserting itself at this stage, BLM is just delaying tribal energy development to the detriment of tribes without corresponding benefit. Tribal representatives emphasized that the BLM rule is a solution in search of a problem. They said there has not been one incident of groundwater contamination as a result of fracking. They emphasized that Indian lands are not public lands.

Perhaps most important, the proposed BLM rule and the method by which it has been promulgated so far lacks respect for tribal sovereignty and authority. Fortunately, nothing in federal statutes requires subjecting tribal lands to the same standards as federal lands where tribes are capable of managing such matters themselves. In fact, the Indian Mineral Development Act protects the right of energy-producing tribes to develop their mineral resources as they deem appropriate. Moreover, federal Indian mineral leasing regulations may be superseded by tribes. Tribes could simply exempt themselves from these proposed BLM regulations unilaterally.

Tribes may be able to squirm out from under the heavy, dead hand of this federal agency. The American taxpayers, however, still get screwed. There is little question as to whether BLM has jurisdiction over public lands.

So what does all this mean for oil and gas exploration and development enterprises? If BLM does not back off, developing oil and gas resources on public lands may be more trouble than it's worth. Developers may be able to work with Indian tribes, however, to develop oil and gas resources on reservations without having to deal with BLM.

The Obama administration's energy policy is ostensibly "all of the above." That is supposed to mean that, in the interest of energy independence, the administration supports and encourages development of all forms of energy. Of course we know that is simply not true. The administration has engaged in a blatant war on coal, has blocked onshore leases on public lands, has restricted offshore drilling and has blocked the Keystone XL pipeline. The Obama energy policy would more accurately be described as "none of the above," at least with respect to fossil fuels.

This no-fossil-fuels policy makes no sense. It is a disservice to all Americans who rely on readily available, affordable energy. It is a further disservice in that it hogties an entire sector of the economy, resulting in lost jobs and the reduction of otherwise available federal and tribal revenue.

No doubt about it: between increasing economic uncertainties and political meddling worldwide, energy investors have their work cut out for them. However, now is precisely the time to get in on the most promising plays, in order to ride the coming "super bull" in energy.

By Don Groves, an attorney in Washington, D.C.