Crude Oil ( ) Brent Crude ( ) Natural Gas ( ) S&P 500 ( ) PHLX Oil ( )

Judge Scott Skavdahl Blocks Proposed Government Regulations

The final day of September marked the end of Q3’15 for the majority of oil and gas companies. The same definitive timeframe doesn’t apply for hydraulic fracturing on Federal lands, which created a new chapter as corporations closed the books on their latest quarterly financial results.

On September 30, 2105, U.S. District Court Judge Scott Skavdahl of Wyoming issued an injunction on fracing regulations imposed by the United States Bureau of Land Management (BLM). The development is a follow up to a June filing that requested a temporary delay in the new regulations. The Rocky Mountain region is at the forefront of denying the BLM regulations, as North Dakota, Utah, Colorado, Utah and Wyoming have teamed up in the debate. The Ute Indian Tribe also joined in the suit, believing the government is overstepping its bounds.

According to the injunction: “Petitioners contend the Fracking Rule should be set aside because it is arbitrary, not in accordance with law, and in excess of the BLM’s statutory jurisdiction and authority… The Ute Indian Tribe additionally contends the Fracking Rule is contrary to the Federal trust obligation to Indian tribes.”

days-to-process-drilling-permit-2012The BLM’s Position

When the Department of the Interior first announced new fracing guidelines in March 2015, the branch said it had “not kept pace with advances in technology and modern drilling methods.” The pending regulations would enforce several additional measures on the method. A 2013 report estimated that 90% of all wells drilled on federal lands were stimulated with fracing, and the lands produce roughly 5% and 11% of oil and natural gas consumption in the United States. The Interior believed more safeguards and documentation from those areas were necessary.

Industry backlash was obviously swift and harsh, with oil and gas backers alleging the measures would only expedite the decline in domestic production, which has been in place since the spring.

Oil and Gas Responds

Lawsuits were filed almost immediately, with industry proponents claiming the measures could add years to the well permitting process. Colorado and North Dakota joined Wyoming in a lawsuit in April, and their respective attorney generals each accused the government of encroaching on the rights of states. North Dakota’s initial filing alleged that the Environmental Protection Agency has already delegated authority to the states to monitor and protect underground water resources.

Source: BLM Data Mark Green, API

Source: BLM Data
Mark Green, API

Governors of Utah and Colorado both offered simpler, easier methods for oil and gas regulations in respective feature interviews with Oil & Gas 360®. Governor Matt Mead (Wyoming) said his state’s regulations are already well-ahead of the proposed federal requirements, and said the smaller size of his state’s government allows it to quickly address and mend a problem, rather than letting the issue get caught up in the large federal government.

Governor John Hickenlooper (Colorado) said, “We’ve all rigorously improved our regulatory environment… Why couldn’t [we] have one regional set of regulations in the West?”

Governor Gary Herbert of Utah also chimed in, saying the extra layer of oversight is unnecessary. “It becomes redundant and just expensive and more costly when it comes to producing energy,” he said to Oil & Gas 360® in May. “Why would we want to do that?”

Excerpts from Judge Skavdahl’s Injunction

Some of the highlights from the Judge’s 54-page filing are included below:

“Historically, however, BLM’s only regulation addressing hydraulic fracturing worked to prevent any additional surface disturbance and impose reporting requirements and did not regulate the fracturing process itself… The BLM cites to no other existing regulation addressing hydraulic fracturing. Neither does the BLM cite any specific provision of the mineral leasing statutes authorizing regulation of this underground activity or regulation for the purpose of guarding against any incidental, underground environmental effects. Indeed, the BLM has previously taken the position, up until formulation of the Fracking Rule, that it lacked the authority or jurisdiction to regulate hydraulic fracturing.”

“Even if the BLM had the authority to promulgate the Fracking Rule, the Court is troubled by the paucity of evidentiary support for the Rule. Agency action must be the product of ‘reasoned decisionmaking’ and supported by facts in the record… The BLM has neither substantiated the existence of a problem this rule is meant to address, identified a gap in existing regulations the final rule will fill, nor described how the final rule will achieve its stated objectives. Rather, the Fracking Rule seems a remedy in search of harm.”

“The BLM fails to reference a single confirmed case of the hydraulic fracturing process contaminating groundwater. While the Court agrees the BLM need not wait for “a catastrophe” to take action for the protection of public resources from risks, there must be substantial evidence to support the existence of a risk. The Court sees nothing in the BLM’s official explanation (or the record) that satisfies the APA’s arbitrary and capricious standards.”

“The BLM fails to identify any states that do not have regulations adequate to achieve the objectives of the Fracking Rule, nor does the BLM cite evidence that its rule will be any more effective in practice than existing state regulations protecting water and other environmental values. Indeed, the record supports the contrary. The Court finds a desire for uniformity, in itself, is insufficient. Because the BLM has failed to ‘examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts and the choice made,’ the Fracking Rule is likely arbitrary, requiring that it be set aside.”

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.