BLM’s Hydraulic Fracturing Revised Proposed Rule

1. BLM’s Hydraulic Fracturing Revised Proposed Rule 2013 Virginia Governor’s Conference on Energy Richmond, VA October 16, 2013 Presented by: Luke D. Johnson, Policy Director August 16, 2014

2. Background • BLM is an agency within the Department of the Interior that administers the surface estate of approximately 260 million acres and the federal mineral estate of approximately 700 million subsurface acres. • BLM’s proposed regulation will have its most direct impact upon states with a high percentage of federal mineral estate – primarily western states.

3. BLM Surface and Subsurface Estate

4. Overview • While BLM’s revised rule is an improvement over the original version, there remains a shallow policy basis for the rule. • There are policy lessons that can be adopted from observing the BLM rulemaking that, if applied, would help avoid future unreasonable regulatory obstacles to development on non-federal lands.

5. Revised Proposed Rule│May 2013 BLM’s initial proposal generated over 177,000 public comments. BLM subsequently withdrew that proposal and published its revised proposal in May 2013. BLM’s revised hydraulic fracturing rules require operators to obtain BLM approval before beginning fracturing operations. Some other definitional revisions. Well Construction / Cementing Requirements Would impose requirement that wells in fracturing operations meet certain construction standards. Chemical Disclosure Addresses disclosure of chemicals used in hydraulic fracturing by providing more detailed guidance on how trade secrets claims will be handled. Use of website FracFocus. Flowback Water Management BLM’s revised rules require operators to submit a plan demonstrating how surface water and groundwater will be protected from contamination by flowback fluids. Variance Procedure Could allow a variance to be given when in compliance with state or tribal standard if that standard is deemed to meet or exceed federal standard.

6. BLM Variance Procedure • New addition to the revised rule. • Some confusion and inconsistency within the actual text about how the provision would actually work. • Potential benefit . . . or potential policy barrier?

7. Policy Concerns with BLM Rule • States are already regulating hydraulic fracturing effectively • There is no evidence that hydraulic fracturing has contaminated groundwater • BLM does not have the capacity and expertise to manage the activity effectively and efficiently

8. Why should “other” states care about the BLM HF Rule? • There remains interest from opponents of HF to elevate the federal role – through BLM, and eventually through EPA. • Many look to the BLM rule as the way for the federal government to push state standards to what they believe requirements ought to be for non-federal lands and minerals.

9. Policy Implications of BLM Rule • Depreciated federal mineral assets. Less federal onshore mineral revenue in the form of bonus bids, rentals, and royalties to federal and state treasuries. Declining federal production. • Private capital deployed away from minerals that require BLM regulatory overlap and engagement. • Slower, more unreliable, unpredictable federal permitting.

10. BLM’s Hydraulic Fracturing Revised Proposed Rule 2013 Virginia Governor’s Conference on Energy Richmond, VA October 16, 2013 Presented by: Luke D. Johnson, Policy Director August 16, 2014

11. Proposed Legislation • HR 2728 - Rep. Flores, (R-TX) - Protecting States’ Rights to Promote American Energy Security Act • S 1482 – Sen. Hoeven, (R-ND) - Empower States Act

12. Key Differences between Original and Revised Rule • Chemical Disclosure • BLM is now proposing additional protection for trade secrets in its revised proposed rule, allowing operators to submit an affidavit that undisclosed information about chemicals in hydraulic fracturing fluid should be exempt from disclosure. BLM would retain its authority to demand specific chemical details of any materials for which a trade secret exemption is sought under the new proposal. • Well Construction & Integrity Testing • The original proposed rule would have required operators to submit information in the form of a “cement bond log” to help BLM ensure water resources are protected. The revised proposed rule would allow more flexibility in testing protocols, and would instead require operators to submit “cement evaluation logs” to verify that operators have properly cemented well casings and isolated water aquifers from the potential for contamination. • Variances • The revised proposed rule attempts to offer an alternative by providing BLM with discretion to grant parties a variance in certain cases when state or tribal regulations meet or exceed federal standards.