While state governments are the primary regulators of oil and gas development, landowners have the first and arguably greatest opportunity to shape drilling firms’ conduct. This is most obvious in the case of the largest landowner of all: the federal government, which controls 700 million acres of subsurface rights (plus 56 million subsurface acres of Indian mineral estate) across 24 states. Large landowners have a lot of negotiating power in setting lease terms. With this much land, the federal Bureau of Land Management (BLM) has so much negotiating power that it can essentially dictate terms – its rules on how drilling activity can take place on federal lands look just like regulation, making it the largest “regulator” of drilling activity in the country.
BLM last revised its oil and gas regulations (the Onshore Orders) in the 1980’s and early 1990’s, well before the recent rapid expansion of shale gas development. Thus the Agency felt it needed to propose revisions and additions to its rules aimed specifically at hydraulic fracturing activity (both shale gas or tight oil). There have been two rounds of proposed revisions so far, the most recent issued in May of this year after 177,000 comments were received on the first round changes. Both industry and environmental groups have criticized the proposal.
What would these proposed rules mean for shale development on federal lands and, crucially, how would they interact with existing state rules? We discuss these questions in a new paper. In the proposal, BLM is explicit that it is not “occupying the field” and thereby preempting state law (in fact, it can be argued that it is not really regulating at all). Therefore state law is not preempted and operators must continue to comply with it, at least so long as there is no direct conflict with federal law. This means that stricter state rules prevail over relatively weaker BLM rules.
Understanding the interactions between state law and BLM rules is important because of opposing views about the federal role in shale gas development. To perhaps grossly generalize, one view is that BLM regulations are unnecessary and burdensome and that the federal government should just defer to states. The other view is that federal rules are inadequate to protect the public and the land, and that new BLM rules should remedy that and also provide a model for states.
In comparison with BLM’s earlier 2012 proposed rules, industry outcry clearly persuaded BLM to make the rules less restrictive, particularly by removing requirements for fracking fluid disclosures before drilling could commence.
We compared BLM’s proposed rules with regs in the six states with shale development and the largest amount of federal land. The story here is complex. There are some gaps in the federal regulations compared to what some states regulate. Sometimes this is because BLM lacks the authority to regulate. Other times, updates may not be needed. For example, many BLM well integrity rules were written originally as performance standards (i.e., thou shalt not pollute groundwater) and which, therefore, do not need updating for technological change or public demands (so long as monitoring and enforcement keep up). Still other areas are simply absent, such as setback requirements. Finally, there are some areas in which BLM rules would limit activities that some states currently leave unregulated, like use of liners on fluid storage pits and some types of fracking fluid disclosure.
But generallythe BLM rules do not impose tighter requirements than those the states already have. A caveat to these conclusions is that we cannot observe what happens during the permitting process, either at the federal or state level. So how stringent the regulations are in practice is a very open question.
Our read of this analysis is that BLM rules should be more focused on areas not adequately or consistently regulated at state level. One candidate would be tighter restrictions on flowback/produced water containment, which is not well addressed in some states. This would be a better target than, setback restrictions, for example, which are far more prevalent at the state level.
BLM could go further: some have called for rules that set a comprehensive "minimum federal floor" or, further, a "gold standard" for states. Whether this course is wise is debatable. BLM may lack the resources and expertise to regulate comprehensively. On the other hand, federal lands held in trust for the people should arguably receive the greatest protections - if anywhere should be the "gold standard," it is probably federal lands. In any case, either a baseline or "gold standard" would be a much more modest approach than new general federal regulation. States would remain free to regulate less stringently outside of federal lands.
BLM to date has taken a minimalist approach, apparently due to industry influence. It should decide whether to continue on that path and be open about its philosophy.