L. Poe Leggette, Barclay Richard Nicholson and Jennifer Cadena
On February 3, 2012, the Department of the Interior became the latest government entity to release draft regulations governing hydraulic fracturing. The rules are in draft, meaning they are not yet being proposed for public comment. If adopted, the regulations would only govern hydraulic fracturing on federal and Indian oil and gas leases.
Although this briefing summarizes the details of the draft below, two points bear emphasis. First, the Department's draft would slow the permitting process for hydraulic fracturing the producing formation when completing a well. Currently the Department does not routinely require prior approval for "routine fracturing or acidizing jobs." 43 C.F.R. § 3162.3-2(b). The draft rule requires a lessee to file for approval of any well stimulation work (including fracturing) "at least 30 days before commencement of operations[.]" 43 C.F.R. § 3162.3-3(a) (draft).
Second, the Department has not yet released the documentation showing its compliance with the Paperwork Reduction Act. 44 U.S.C. § 3501 et seq. Among other things, that Act's purpose is to reduce duplicative paperwork, and the requirements in Interior's draft are duplicative of most information requirements of state oil and gas conservation commissions.
The draft regulations would require well operators to disclose the trade names and purposes of additives used in the fracturing fluid. As with many state regulations, the draft rule also includes an exemption for trade secrets. This action by the Department of the Interior comes shortly after President Barack Obama's State of the Union address, in which he indicated his administration would require "all companies that drill for gas on public lands to disclose the chemicals they use."
The draft regulations are in line with the concerns expressed by President Obama regarding the protection of usable water, conservation of water, chemical disclosure, casing integrity, and flowback water. Specifically, the regulations require that operators submit a proposal on Form 3160-5, entitled Sundry Notices and Reports on Wells, and that the proposal contain specific information, such as fracturing fluid additives. If there is additional surface disturbance, operators must also submit a surface use plan. All well stimulation activities must be approved at least 30 days prior to the commencement of the operations. 43 C.F.R. § 3162.3-3(a) (draft). Operators also must perform mechanical integrity tests of the casing, monitor well stimulation operations, and submit a sundry notice subsequent to the stimulation of the well.
A. Sundry Notice Requirements
The most significant change is that the Sundry Notice must include substantial amounts of additional information prior to any operations, including geological formation information, fracturing fluid information, stimulation design information, and information about recovered fluids.
As to the geological formations to be stimulated, operators must identify the formation to be fractured, as well as proposed measured depths of usable water. To prove that usable water has been isolated, the operator must provide Cement Bond Logs. 43 C.F.R. § 3162.3-3(a)(2) (draft). Operators must also provide the sources and locations of water to be used in the stimulation, including the access route and transportation method. Id. § 3162.3-3(a)(3) (draft).
As for chemical disclosure, operators must include the trade name of the base fluid (if not water), the trade names and purposes of all additives used in the stimulation fluid and the chemical makeup of all materials. Id. §§ 3162.3-3(a)(3)-(5) (draft). An operator may provide a copy of the service company contractor's proposed well stimulation program design, provided that the requirements regarding chemical disclosure are still met. Id. § 3162.3-3(a)(6) (draft). The operator must further certify that the proposed treatment fluid complies with all applicable permitting and notice requirements as well as all applicable Federal state, and local laws, rules, and regulations. Id. § 3162.3-3(a)(7) (draft).
With regard to the proposed well stimulation design, the operator must include: (i) estimated total volume of fluid to be used; (ii) anticipated surface treating pressure range; (iii) maximum injection treating pressure; and (iv) estimated or calculated fracture length and fracture height. Id. § 3162.3-3(a)(8) (draft). Operators will also need to provide the proposed measured depth of perforations or the open-hole interval. Id. § 3162.3.3(a)(3) (draft).
The operator will also need to provide information regarding recovered fluids, including (i) the estimated volume of fluid to be recovered during flow back, swabbing, and/or recovery from production facility vessels; (2) the methods by which to handle recovered fluids (including pits, chemical composition of the fluid, re-use, pond use, etc.); and (3) the proposed disposal method of the recovered fluids, including hauling by truck, injection, or transporting by pipeline. Id. § 3162.3-3(a)(9) (draft). Storage of all recovered fluids must be in either tanks or lined pits. Id. § 3162.3-3(e) (draft).
B. Mechanical Integrity Test of Casing
Prior to well stimulation, the operator must perform a successful mechanical integrity test of the casing. Id. § 3162.3-3(b) (draft). For stimulation through casing, at a minimum, the test must be performed at the maximum anticipated treating pressure. Id. For stimulation through a fracturing string, the fracturing string must be "stung" into a liner or run on a packer-set not less than 100 feet below the cement top of the production or intermediate casing. Id. At a minimum, the fracturing string test must be performed at the anticipated treating pressure minus the annulus pressure applied between the fracturing string and the production or intermediate casing. Id. For either type of stimulation, the test will be considered successful if the pressure applied holds for 30 minutes with no more than a 10 percent pressure loss. Id.
C. Monitoring of Well Stimulation Operations
During well stimulation, the operator must monitor and record the annulus pressure. Id. § 3162.3-3(c) (draft). For stimulation operations where there is an intermediate casing, the operator must also monitor and record the pressure between the intermediate casing and production casing. Id. The operator's records of the pressure monitoring must be submitted in the Sundry Notice submitted after stimulation operations are complete. Id. During stimulation, if the annulus pressure increases by more than 500 psi, the operator must notify an authorized officer within 24 hours of the incident. Id. § 3162.3-3(d) (draft). Additionally, as part of the Sundry Notice submitted after stimulation operations, the operator must report all details relating to the incident, including correct actions taken, within 15 days of the occurrence. Id.
D. Subsequent Report Sundry Notice
After well stimulation, the operator must submit a Subsequent Report Sundry Notice that includes more definitive information about the stimulation operations. Id. § 3162.3-3(f) (draft). The report must contain the amount of fluid used, the depths of perforation, the stimulation fluid additives, the actual or estimated fracture length and fracture height, a certification of wellbore integrity, and the volume, method of handling and disposing, and type of flowback fluids. Id.
E. Trade Secret Exemption
The draft regulations include a trade secret exemption. To exercise the exemption, the operator must identify the information claimed to be exempted, identify the Federal statute or regulation that protects the information, and explain in detail why the specific information is exempted from public disclosure. Id. § 3162.3-3(g)(1)-(2) (draft). The operator must also inform the Bureau of Land Management whether the information is available to the public through other means, such as disclosures required by state law. Id. § 3162.3-3(g)(3) (draft).
This article was prepared by L. Poe Leggette (email@example.com or 303 801 2746), Barclay R. Nicholson (firstname.lastname@example.org or 713 651 3662) and Jennifer Cadena (email@example.com or 303 801 2755) of the firm's Energy Practice Group.
Learn more about Fulbright's Shale and Hydraulic Fracturing Task Force at www.fulbright.com/fracking.
Fulbright & Jaworski L.L.P. has offices in:
Austin, Beijing, Dallas, Denver, Dubai, Hong Kong, Houston, London, Los Angeles, Minneapolis, Munich, New York, Pittsburgh-Southpointe, Riyadh, San Antonio, St. Louis and Washington, D.C..
Copyright 2012 - Fulbright & Jaworski L.L.P., all rights reserved.
For more information about LexisNexis products and solutions connect with us through our corporate site.