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On May 11, 2012, the US Bureau of
Land Management (BLM) published proposed regulations
governing "Oil and Gas; Well Stimulation, Including Hydraulic
Fracturing, on Federal and Indian Lands." BLM is a latecomer to this
party. Its belated meddling lacks practical or economic justification.
Instead, the proposed BLM rule would drive oil and gas developers off federal
and tribal lands. Complying with the rules is too complicated and costly.
Producers can realize a much faster and much better return on their capital
investment by developing oil and gas reserves on adjoining private lands.
Federal and tribal lands hold large
reserves of oil and natural gas. At a time when the United States desperately
needs to move toward, not away from, energy independence, it makes no sense
to let bureaucratic meddling effectively place these valuable domestic
reserves out of reach. The problems with BLM's approach are myriad.
BLM Misses the Mark
First, a central, federal,
one-size-fits-all approach does not work. The reserves that the oil and gas
industry wants to access using hydraulic fracturing occur in areas with
different geographic, topographic, hydrological, population, precipitation
and umpteen other characteristics. The oil and gas deposits are found at
different depths; the water table is at different depths. The surface and
subsurface vary dramatically, ranging from the Marcellus Shale Formation in
the Northeast to the San Juan Basin in the Southwest. States and tribes have
long ago stepped up to the plate with sensible regulations suitable to their
individual conditions. They are way ahead of BLM.
Second, even if states and tribes did
not already have this under control, BLM's proposed regulations are
inappropriate. The BLM regs are based on inaccurate
assumptions, flawed economics and a perceived but actually nonexistent need.
"[I]t is assumed" (by BLM
for its base case) "that a certain number of well stimulation events may
result in contamination and thus pose a cost to society." This is the
foundation of the agency's flawed estimation of "social benefits"
ranging from $11.7 million to $50.3 million per year. We are left to guess
what those social benefits might be. Despite hysteria about fracking causing earthquakes, contaminating aquifers and
about explosive gases coming from kitchen sink faucets, there is actually no
evidence that fracking causes such problems.
Indeed, the Association of American State Geologists (AASG) "recognizes
that the environmental record of hydraulic fracturing activities over the
past 60 years has been overwhelmingly positive."
Probably the most frequent indictment
of fracturing is its potential contamination of drinking water. But the AASG
further notes that "geologic data generally show a significant
vertical separation between most oil and natural gas reservoirs targeted for
hydraulic fracturing and the shallower freshwater aquifers." In other
words, fresh water is not typically found anywhere near the fracturing area.
BLM acknowledges that about 3,400
wells, roughly 90% of all wells drilled on federal and Indian lands each
year, use hydraulic fracturing. But it offers no evidence of groundwater
contamination as a result of that fracking. As
noted by Donovan Schafer in his excellent article, Frack Attack: "Freshwater sources
can, in fact, be contaminated by oil and gas activity. However, the
contamination is not a result of the actual fracking
process. Instead, it is caused by poor drilling practices and surface
spills."
Even Matt Watson, an energy-policy
specialist with the Environmental Defense Fund, acknowledged that
"the term 'fracking' is being used for all the
things in the process that can cause problems. Most of those problems have
nothing to do with the actual fracking."
Elizabeth Ames Jones, chairwoman of
the Railroad Commission of Texas, testifying before the US House Committee on
Science, Space and Technology, said: "For fracturing fluid or the
natural gas or oil to affect the water table in Texas, those substances would
have to migrate upwards [through] thousands of feet of rock, sometimes even
miles. It is simply geologically impossible. The stories of environmental
damage or contaminated drinking water from hydraulic fracturing are simply
untrue. You have a better chance, frankly, of hitting the moon with a Roman
candle than fracturing into fresh water zones by hydraulic fracturing shale
rock."
That comes as no surprise, since fracking fissures tend to radiate horizontally, not
upward. Even if they did radiate upward, those thousands of feet of multiple
layers would blunt their progress long before they got anywhere near fresh
water. This illustration shows how far the Underground Source of Drinking
Water ("USDW") is from fracking
operations.
Prohibitive Costs
BLM badly underestimates the cost of
compliance with its proposed rule. Oil and gas developers already face costly
delays in obtaining BLM approval of Applications for Permits to Drill (APDs).
The cost of gathering, compiling and submitting the additional information
BLM now wants is real, substantial and not realistically tied to any
benefits. Operators already submit information on wellbore integrity, casing
and cementing programs to the agency, through the existing APD process. The
BLM rule adds 10 more categories of information to be supplied.
BLM is already limited by a shortage
of staff having necessary expertise. The proposed rule would compound delays
and the resulting expense as BLM struggles to deal with added
responsibilities. I am reminded of the sensible admonition: "Never
holler 'Whoa!' at a horse race."
The delays imposed by BLM's
unnecessary "cement bond log requirement," for example, complicated
by its more stringent requirement to isolate "useable" rather than
"fresh" water, will mean that drilling rigs will sit idle at a cost
of over $20,000 per day. Let me explain.
What is a
Cement Bond Log?
Developers
already inject cement to fill the "annulus" - the space between the
steel pipe called the well "surface casing" and the wellbore (the
hole drilled through earth and rock). Fresh water, in groundwater aquifers,
is relatively near the surface. Oil and gas production fluids are isolated
from that fresh water by the surface casing and the cement in which it is
embedded. Cement is injected through the casing pipe into the bottom of the
hole where it pushes back up through the annulus until it completely fills
the wellbore surrounding the surface casing all the way to the surface. A
bond between that cement and the casing ensures that no contaminants from
below find their way into fresh-water zones that the well passes through. A
"cement bond log" documents data from a probe of the wellbore that
uses sonic technology to detect any gaps or voids in the cement.
The following illustration shows a
typical configuration of nested well casings, each cemented within the
wellbore, passing through the Sherwood aquifer in the UK. As you can see, the
fresh water in the aquifer is thousands of feet above the fractures.
BLM has dropped its definition of
"fresh water," however, and now proposes that producers also
protect "useable water" (found at much greater depths) with
cemented surface casings. "Useable water" includes water that is in
fact not "useable" at all, water containing up to 10,000 parts per
million (ppm) of total dissolved solids (TDS). For comparison, EPA's drinking
water standard for humans is only 500 ppm TDS. The cost of extracting and
treating supposedly "useable" water (that is actually heavily laden
with dissolved solids like salt and sulfate) far exceeds the value of any
practical usage.
Furthermore, to protect that
"useable" water, drillers would need to extend the surface casings
thousands of feet deeper. Then, to comply with the cement bond log
requirements, they would need to wait for the cement to fully cure, run the
sonic probe, produce the cement bond log, submit it to an inadequately
staffed BLM and wait 30 days for approval.
The time costs would be prohibitive.
Drilling rigs can't just sit idle waiting for these preliminaries to be
finalized. Instead, they will be decommissioned and moved elsewhere at great
expense - greater expense than can be justified. These costs are completely
overlooked by BLM. Faced with such costs of developing oil and gas on federal
and Indian lands, operators will go elsewhere.
Indian Country Speaks Out
BLM is just "occupying the
field," making sure it has a hand in this rapidly growing industry, but
without regard to the unintended consequences of its actions. BLM's proposed fracking rule would result in reduced domestic oil and
gas production generally and a reduction in revenues from federal and Indian
lands.
Indian tribes would be particularly
hard hit. The United States government has a solemn, long-standing trust duty
to American Indian tribes. That includes BLM. These actions by the tribes'
federal trustee wreak havoc with the tribes' opportunities to earn badly
needed oil and gas revenues from their reservations. The federal government
also has a trust duty to American taxpayers as the custodian of our public
lands. American taxpayers, the true owners of federal lands and beneficiaries
of federal land management, are probably not as acutely aware, as are tribes,
of the irresponsible actions of their trustee.
Meanwhile, the predicament of both
tribes and taxpayers is worsened as wells drilled on neighboring private
lands drain common reservoirs. A similar situation is happening off the
Florida Keys, where our own domestic oil and gas industry is barred from
drilling while foreign operators, as guests of Cuba and with fewer
environmental constraints, are free to suck common reservoirs dry.
I recently attended a meeting at the
White House with representatives of oil- and gas-producing Indian tribes at which
they urged Obama administration officials to withdraw the proposed BLM fracking rule. Dan Utech,
deputy director for Energy and Climate Change on the White House Domestic
Policy Council, stated that President Obama's "All of the Above"
energy strategy calls for responsible development of oil and gas resources,
as stated in his State of the Union address and in later speeches. Dan said
it was important to pursue fracking prospects
responsibly and acknowledged that BLM may have taken a "crooked
path" toward that objective.
The tribal representatives - seasoned
veterans of the real world of oil and gas production - explained why BLM's
proposed rule failed to advance that objective. They asked what pitfall BLM
is seeking to address. They discussed cement bond logs as an example of how
the BLM rule imposes a huge economic burden that is not justified by any
corresponding benefits, and without correcting any contamination problem.
The tribal representatives took issue
with BLM's shift from protecting not just fresh water but all
"useable" water from drilling. Operators normally extend surface
casings down to a depth of 1,500 to 2,000 feet - way more than enough to
protect "fresh water." Running the surface casing to the depth of
all "useable water" would mean extending the surface casing
thousands of feet deeper. These new requirements push tribal oil and gas, and
oil and gas on federal lands, out of the market.
Dan Utech
said that the concern about BLM approval delays was at the top of their list
and that others from the drilling industry had already brought it to the
attention of Obama administration officials. He said, "We want to be
damn sure we get this right and take the time to do it right." He did
not identify the pitfall the rule was designed to address nor explain what
the rule was a remedy for, despite requests that he do so. Nor did he
consider the possibility that the "right" role for BLM might be
doing nothing at all.
During mark-up of House Bill 3973,
the Native American Energy Act, Don Young, chairman of the House Natural
Resources Committee's Subcommittee on Indian and Alaska Native Affairs,
successfully passed an amendment
that would prohibit the BLM rule from applying to Indian lands unless the
Indian land owner gives express consent. Young said: "With their new fracking rule, the Obama administration is doing a real
disservice to America's tribes. By giving Indian tribes the option to follow
this new rule, my amendment simply increases tribal control over their lands
and eliminates this new layer of bureaucratic red tape."
Although not discussed at the
meeting, Congressman Bill Flores (R-TX) has separately introduced H.R.6235,
"a bill to delay action on the proposed rule regarding well stimulation
on federal and Indian lands until such date as the secretary of the Interior
submits a report examining certain effects of such rule." H.R.6235 was
referred to the House Natural Resources Committee.
Just Say No
I would summarize the message from Indian
Country as this: the Obama administration needs to call off its dogs. Tribes
are already quite sophisticated with respect to oil and gas development,
including fracking. Preferably BLM should withdraw
its rule and simply leave tribes alone. By inserting itself at this stage,
BLM is just delaying tribal energy development to the detriment of tribes
without corresponding benefit. Tribal representatives emphasized that the BLM
rule is a solution in search of a problem. They said there has not been one incident
of groundwater contamination as a result of fracking.
They emphasized that Indian lands are not public lands.
Perhaps most important, the proposed
BLM rule and the method by which it has been promulgated so far lacks respect
for tribal sovereignty and authority. Fortunately, nothing in federal
statutes requires subjecting tribal lands to the same standards as federal
lands where tribes are capable of managing such matters themselves. In fact,
the Indian Mineral Development Act protects the right of energy-producing
tribes to develop their mineral resources as they deem appropriate. Moreover,
federal Indian mineral leasing regulations may be superseded by tribes.
Tribes could simply exempt themselves from these proposed BLM regulations
unilaterally.
Tribes may be able to squirm out from
under the heavy, dead hand of this federal agency. The American taxpayers,
however, still get screwed. There is little question as to whether BLM has
jurisdiction over public lands.
So what does all this mean for oil and
gas exploration and development enterprises? If BLM does not back off,
developing oil and gas resources on public lands may be more trouble than
it's worth. Developers may be able to work with Indian tribes, however, to
develop oil and gas resources on reservations without having to deal with
BLM.
None of the Above
The Obama administration's energy
policy is ostensibly "all of the above." That is supposed to mean
that, in the interest of energy independence, the administration supports and
encourages development of all forms of energy. Of course we know that is
simply not true. The administration has engaged in a blatant war on coal, has
blocked onshore leases on public lands, has restricted offshore drilling and
has blocked the Keystone XL pipeline. The Obama energy policy would more
accurately be described as "none of the above," at least with
respect to fossil fuels.
This no-fossil-fuels policy makes no
sense. It is a disservice to all Americans who rely on readily available,
affordable energy. It is a further disservice in that it hogties an entire
sector of the economy, resulting in lost jobs and the reduction of otherwise
available federal and tribal revenue.
Donald Grove
Washington Correspondent
Caseyresearch.com
Donald Grove is a
Washington D.C.-based lawyer and Washington correspondent for Casey Research,
LLC., one of the nation’s oldest and most
respected newsletter publishers, providing unbiased investment guidance for
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