The United States is currently experiencing a significant rise in oil and natural gas development due to technological advances in harnessing hydrocarbons locked in shale resources. Growth in development in the Marcellus, the Eagle Ford, the Barnett, and the Bakken formations has led to regulatory change and uncertainty. While state governments have revised their regulations considerably since 2010, the federal government is now attempting to regulate oil and natural gas production through rules at the Bureau of Land Management (BLM) and Environmental Protection Agency (EPA). These proposed regulations, which encroach upon typically state-led oil and gas regulatory regimes, have raised the question as to whether it is wise to have federal regulations governing oil and gas production.
In case law, the vast majority of controversies have arisen from rules and regulations from state regulatory regimes, such as the Texas Railroad Commission. States have continued to stress the importance of continuing this reserved regulatory sphere in shale development by creating the Interstate Oil and Gas Compact Commission and the Groundwater Protection Council, both of which serve as clearinghouses of best practices and regulations for governing the industry. Further, the State Review of Oil and Natural Gas Environmental Regulations seeks to audit state regulations and propose potential improvements to keep pace with emerging and innovative regulatory structures. See www.strongerinc.org (last visited July 22, 2014). States have led the way in being proactive on many types of oil and natural gas regulations, from reporting chemicals used in hydraulic fracturing, to wellbore integrity, to reduced emission completions.
Despite those efforts, BLM proposed a rule in 2011 seeking to regulate wellbore integrity, chemical disclosure, and produced fluids used on federal and Indian lands. That rulemaking is anticipated to be finalized in the summer or fall of 2014. Further, EPA has submitted an Advance Notice of Proposed Rulemaking focused on chemical disclosure of fluids used in hydraulic fracturing under the Toxic Substances Control Act. EPA also aims to apply its New Source Performance Standards to new oil and natural gas wells, which would have a significant impact on production activities. Both agencies justify their rules under their enabling statutes, and it is within their jurisdiction to regulate these activities. The fundamental question is whether it is in the best interest of the industry—and the regulators—to have single federal standards on oil and natural gas production activities or if the practices vary so greatly by state, region, or play would federal regulations prove unworkable and be of little benefit.
Many entities have expressed opinions about the need or usefulness of federal standards for shale development. A host of environmental groups have claimed that state oil and gas commissions are effectively captured by industry—and do not promulgate regulations providing sufficient protections. In response, industry advocacy groups and state leaders point out the significant level of regulatory updates occurring since the rise of the shale boom, as well as a strong safety record with limited or minimal occurrences of contaminations or well safety issues. Even President Obama has chimed in, suggesting in an interview with the New York Times’ Thomas Friedman that there does not necessarily have to be a national law and that there could be “a series of states working together—and, hopefully, industry working together” to ensure the proper regulatory regime. States and industry groups would categorize the proposed regulations by BLM and EPA as de facto national laws, and characterize the current arrangement—state regulatory regimes with audits and best practice sharing—as being in accord with the president’s comments.
State regulations are typically narrowly tailored to the specific characteristics and conditions of the shale plays within their boundaries. Shale plays exist at different depths, with different porosity and different compositions. Further, some states, such as Texas with the Barnett and Eagle Ford formations, have multiple shale plays with different characteristics, requiring different types of regulations in order to be effective. The BLM rule attempts to accommodate differing geology and shale characteristics through variances. However, because each shale play is different, the practical effect may be field-specific or state-specific variances, which may render the original rule an afterthought. Other concerns with blanket federal rules involve the amount of water required to fracture a well, which is not an issue relative to total water capacity in a state like Pennsylvania, but is of significant importance to states such as Wyoming and North Dakota, which have a significantly less water available than Eastern states. While the attempt to enact and enforce federal regulations governing the production of oil and gas from shale may prove to be a complicated endeavor, practitioners should look to state rules to seek variances and exemptions to reduce the burden of compliance and reporting for their clients.