On May 4, 2012, the Bureau of Land Management (BLM) unveiled its highly anticipated proposed regulations regarding well stimulation activities on federal and Indian lands. The regulations are intended to update hydraulic fracturing regulations that were last revised in 1988. Among other things, the proposed regulations require operators to obtain prior approval for all well stimulation activities and to submit post-stimulation activity reports.
The BLM proposal distinguishes between well stimulation activities, defined to include hydraulic fracturing and acidizing, and well injection activities, such as secondary and tertiary recovery operations. The new regulations would eliminate the prior distinction between "routine" and "non-routine" fracturing jobs, applying the rules to all fracturing operations. The three main areas BLM attempts to address in the rules are: (1) the public disclosure of chemicals used in hydraulic fracturing operations, (2) ensuring fracturing operations meet construction standards, and (3) management of flowback water, including the collection of information regarding the source of water used in fracturing operations.
Information Required for Approval
I f the rules are codified as currently drafted, operators will be required to submit a request for approval of proposed well stimulation operations at least 30 days before beginning stimulation operations on federal and Indian lands. An operator may submit this request with its Application for Permit to Drill (APD) or as a separate approval request if the operator already has an approved drilling permit. Information required for this approval includes:1
- geological information about the formation in which the stimulation activity will take place,
- a showing that usable water will be isolated, including submission of cement bond logs,2
- a description of the proposed well stimulation design,
- information regarding the amount and source of water to be used (or trade name of base fluid if not using water), and
- the estimated volume of fluid that will be recovered and proposed methods for handling and disposing of it.
In addition, an operator must certify that the fluid it proposes to use for well stimulation activities complies with all permitting and notice requirements and all applicable federal, tribal, state, and local laws, rules, and regulations, and requires that operators store recovered fluids in tanks or lined pits.3
A successful mechanical integrity test of the casing is also required prior to stimulation, and operators must continuously monitor and record the annulus pressure at the bradenhead (casinghead) during stimulation operation.4
Operators holding well stimulation approvals must apply for new approvals if five years have passed since their last well stimulation activities or if "the operator has significant new information about the geology of the area, the stimulation operation or technology to be used, or anticipated impacts of the stimulation activity to any resource."5 The proposed rules provide no specifics as to what would constitute "significant new information" under this provision.
Post-Well Stimulation Activity Reporting
Under BLM's proposal, operators would be required to submit a subsequent report within 30 days following completion of well stimulation activities that mirrors the required pre-well stimulation information, albeit with some notable additions.6 In addition to the general information on base fluid source and amount, the subsequent report must contain specific information about the chemicals used in the hydraulic fracturing fluid. The chemical disclosure requirements include disclosure of all additives by trade name and purpose, the complete chemical makeup of all materials used, the Chemical Abstract Service Numbers of the chemicals, and their percent mass values. BLM has said that it will allow for online reporting of this information, and is working to integrate this disclosure with the FracFocus.org website. Additionally, the regulations allow operators to identify all information they believe is exempt from public disclosure by law.7
In addition to the chemical disclosure requirements, the subsequent report must contain the operator's certification that wellbore integrity was maintained as required throughout the operation, and that the treatment fluid complied with all permitting and notice requirements and all applicable federal, tribal, state, and local laws, rules, and regulations.8 The actual fluid handling and disposal methods used must be described, along with information regarding source and amount of actual fluids used, the fracture length and height, pressure and rate, and depths of perforations or open-hole interval. The report must indicate if any operations deviated from the approved plan.9
The rules allow for variances from these requirements upon written request as long as the proposed alternative meets or exceeds the objectives of the regulation.10
Economic Analysis
BLM conducted an economic analysis of the costs and benefits of its proposed rule, concluding it is not economically significant according to the criteria of Executive Order 12866.11 The analysis compares the proposed rule to an alternative not requiring lined pits. It provides two value ranges for net benefits, one assuming low remediation costs and environmental risks and another assuming high remediation costs and environmental risks. The only combination of proposals and environmental risk assumptions resulting in positive net benefits in the economic analysis is the assumption of high remediation costs and high environmental risks as applied to the proposed regulations. This results in a calculation of positive net benefits ranging from $5.33MM to $6.28MM, depending on the number of well stimulations assumed. However, BLM emphasizes that the benefits in this calculation are likely underestimated and that it does not take into account the benefits of publicly disclosing hydraulic fracturing chemical information. The report estimates the average annual cost per well, including administrative and operational costs, to be about $11,833.
What This Means to You
If adopted as proposed, BLM's regulations will increase the regulatory burden associated with well completion and stimulation activities on federal and Indian lands. Although there has been a surge in domestic oil and gas production in the past few years, production from federal and Indian lands has been decreasing.
The proposed regulations will be published in the Federal Register, initiating a 60-day public comment period. Interested parties should carefully track this proposed rule and participate in the public comment process, which will conclude 60 days from date of publication in the Federal Register.
Footnotes
1. Proposed Subpart 3162.3-3(c).
2. If the operator submits its request for approval with the APD, the cement bond log may be submitted after the permit to drill is approved by prior to starting well stimulation activities.
3. Proposed Subpart 3162.3-3(f).
4. Proposed Subpart 3162.3-3(d) and (e)(1). If the annulus pressure increases by more than 500 pounds per square inch compared to the pressure immediately preceding the stimulation, the operator must notify BLM orally within 24 hours and submit a report of the incident within 15 days. Proposed Subpart 3162.3-3(e)(2).
5. Proposed Subpart 3162.3-3(b)(iii).
6. Proposed Subpart 3162.3-3(g). 7. Proposed Subpart 3162.3-3(h)-(i). 8. Proposed Subpart 3162.3-3(g)(8)-(9). 9. Proposed Subpart 3162.3-3(g)(11). 10. Proposed Subpart 3162.3-3(j). 11. However, the report states that the Office of Management and Budget (OMB) came to the opposite conclusion.
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