Federal fracking rule pelted with lawsuits; more on the way

By Ellen M. Gilmer | 03/27/2015 08:26 AM EDT

An anticipated cascade of litigation targeting the Obama administration’s new drilling rule gained speed yesterday as a Wyoming lawsuit became the second legal challenge on court dockets so far.

An anticipated cascade of litigation targeting the Obama administration’s new drilling rule gained speed yesterday as a Wyoming lawsuit became the second legal challenge on court dockets so far.

Wyoming’s suit accuses the Interior Department’s Bureau of Land Management of abusing its power in crafting new requirements for fracking and drilling on public and American Indian lands. The challenge joins an industry lawsuit filed minutes after the rule’s unveiling in kicking off what is likely to be a protracted legal battle over the controversial regulatory scheme.

The rule, in the works for more than three years, establishes new requirements for hydraulic fracturing chemical disclosure, well construction and wastewater management. Stakeholders across the spectrum — states, tribes, environmentalists and industry — have criticized the new Interior regulation as either an expensive federal overreach or a missed opportunity to protect the environment as high-volume fracking gains popularity across the country (EnergyWire, March 23).


The opening legal shots come from the parties with the most to lose: Wyoming, with its 4 million oil- and gas-producing acres of federal lands, and independent producers, the companies most vulnerable to the sting of the projected $11,000-per-well cost to comply with the new rule.

The industry lawsuit, filed by the Independent Petroleum Association of America and Western Energy Alliance last week, argues that Interior’s rule creates "arbitrary and unnecessary burdens" that duplicate state law and infringe on state powers. The filing urges the U.S. District Court for the District of Wyoming to strike down the new rule as a violation of the Administrative Procedure Act for imposing steep costs on industry without significant environmental gains.

Wyoming’s challenge follows similar lines, contending that BLM has overstepped its authority. The lawsuit argues that the agency’s attempt to regulate fracking violates the Safe Drinking Water Act, which assigns underground injection control issues to U.S. EPA, and the 2005 Energy Policy Act, which exempts hydraulic fracturing from EPA’s UIC program.

BakerHostetler attorney Mark Barron, who is representing industry in the first lawsuit, said Wyoming’s decision to enter the fray demonstrated the high level of concern over the rule.

"Wyoming’s willingness to fight these regulations in federal court is evidence of the extent to which Interior’s action represents regulatory overreach and an untenable infringement on state sovereignty," Barron said in a statement.

In a House Natural Resources subcommittee hearing yesterday, BLM Director Neil Kornze said the agency this week began discussions with Wyoming officials to allow the state to manage regulation of certain aspects of drilling covered by the new rule as part of a "variance" process included in the final version.

‘Litigation is always an option’

With state and industry suits already filed, all eyes are now on environmentalists to see when or whether they challenge the rule. Many groups have been tempered in their response to the rollout, noting that the rule is an important "first step" toward regulating fracking but expressing overall disappointment because of its narrow focus.

"The bottom line is: these rules fail to protect the nation’s public lands — home to our last wild places, and sources of drinking water for millions of people — from the risks of fracking," said Natural Resources Defense Council attorney Amy Mall in a statement after the release. "More than ever, this underscores the urgent need to get better protections in place around the country — at the local, state and federal levels."

Attorneys for frequent litigants like NRDC and the Center for Biological Diversity have remained tight-lipped about any plans to challenge the rule but did not rule out litigation.

"We’ll be looking at the fracking rule very closely over the coming days," said CBD attorney Clare Lakewood. "If the dangerous flaws we identified in the draft are not rectified in this final version, litigation is always an option that is open to us."

Some state regulators, meanwhile, have been more open about their plans to consider a challenge to the rule.

North Dakota regulators voted this week to direct the state attorney general to study the possibility of filing a lawsuit or joining an existing suit. Wyoming said the same thing last week and had filed suit within days. While North Dakota has only a half-million acres of federal land with oil and gas production, many of those federal acres are in the state’s Bakken Shale sweet spot, accounting for prolific volumes of oil production.

North Dakota is also the epicenter of the tribal element of the battle over the fracking rule. The Mandan, Hidatsa and Arikara Nation, situated in the heart of the Bakken Shale in western North Dakota, has been skeptical of the fracking rule from the start, arguing that it improperly lumps in American Indian lands with public lands. Some tribes, including the MHA Nation, have crafted their own oil and gas regulations in recent years and argue that federal permitting creates a bottleneck.

"Just last week, BLM increased this bureaucracy by adding new hydraulic fracturing requirements that will further slow production, cost jobs, lower royalties and inefficiently use Federal funding," tribal Chairman Mark Fox said in testimony Tuesday to a House Appropriations subcommittee.

The Ute Indian Tribe of Utah echoed that complaint in its own testimony this week, asking Congress to fund a tribal energy permitting clearinghouse to expedite production. So far, though, the MHA Nation and Utes have stayed mum on prospective litigation.

The Southern Ute Indian Tribe of Colorado, meanwhile, has issued the strongest litigation threat among tribes so far.

"Tribal staff is reviewing this new rule to see if and how the Tribe’s suggestions have been addressed," Souther Ute officials said in a statement. "The Tribe is prepared to take steps that the Tribal Council ultimately deems necessary and appropriate to advance the Tribe’s best interests."

Follow-up lawsuits

Beyond immediate challenges to the regulations, some lawyers view the fracking rule as a path toward new, localized litigation.

Carl Pernicone and Kathleen Wilkinson, partners who work on the hydraulic fracturing team for the New York-based firm Wilson Elser, said the rule can be used by both industry and environmentalists to bolster future claims. For industry, the rule encapsulates the federal government’s position that the risks of unconventional drilling can be mitigated.

"Could the industry turn this statement to its advantage in its ongoing battles with fracking opponents in states over proposed moratoria, bans and other restrictions on fracking?" the attorneys wrote in a recent client note. "Might it not argue that, like the BLM, it too believes that we can responsibly ‘obtain the benefits of mineral development while protecting other resources’?"

On the other hand, they said in an interview with EnergyWire, the rule gives environmentalists a benchmark that could be used to pressure regulators to enhance state-level rules for drilling and fracking.

Indeed, Interior Secretary Sally Jewell said during the rule’s rollout that state lawmakers and regulators now have the responsibility to ensure the safety of drilling on state and private lands.

The rule may also spur some provision-specific litigation, including challenges to industry trade secret claims or protests of the rule’s variance process, Pernicone said. The variance provision allows states and tribes to use their own regulations in place of BLM’s rule for certain aspects of drilling if their rules are as strong and receive BLM approval.

"Whenever you have a case-by-case analysis, what factors will go into that review?" Pernicone said. "There’s enough open moving parts in this that it could very well have some [legal] issues to deal with."