Our Commentary on Recent Fracking News
- Judge Blocks Moratorium on New Federal Oil and Gas LeasesJune 17, 2021
On June 16, 2021, the U.S. District Court for the Western District of Louisiana (“Court”) granted a preliminary injunction halting the Biden Administration’s moratorium (or “pause”) on new oil and gas leasing on Federal public lands and offshore waters. The decision will allow leasing to restart on Federal public lands and offshore waters nationwide and continue until the Court rules on the substance of the case or until the Court or an appeals court issues additional orders.
The Moratorium on Federal Oil and Gas Leasing
Earlier this year, President Biden issued an executive order directing the Secretary of the Department of the Interior (“DOI”) to pause new oil and natural gas leases on federal public lands or offshore waters to the extent consistent with applicable law, until the completion of a comprehensive review and reconsideration of Federal oil and gas permitting and leasing practices, and to identify steps that can be taken to double renewable energy production from offshore wind by 2030. The Secretary immediately issued the suspension order, which put an indefinite moratorium on new leases on federal public land and offshore waters. The suspension order did not impact existing leases in federal public land and offshore water, leases on state land, leases on private land, or leases on Indian lands or lands held in trust for Tribes.
Legal Challenges to the Moratorium
DOI’s suspension order was immediately challenged by several states and industry groups claiming that the DOI had exceeded its authority by indefinitely pausing lease sales on eligible land. The instant case was brought by the States of Alabama, Alaska, Arkansas, Georgia, Louisiana, Mississippi, Missouri, Montana, Nebraska, Oklahoma, Texas, Utah, and West Virginia. These states asked the Court to enjoin, or stop, the pause on new leasing while the Court further considers whether the pause is lawful.
The Court determined that the states had met their burden in showing that the pause on new leasing should be immediately stopped nationwide. Specifically, the Court determined that the states were likely to succeed in their claims, showed that they would be “irreparably harmed” by loss of revenues linked to the sales, and that it was in the public interest to resume the lease sales. This strongly signals that the Court will ultimately put a permanent stop to the moratorium as the litigation progresses. That decision, however, will still be subject to further review by appellate courts.
The decision focuses on the fact that neither the President nor DOI have the discretion under the Mineral Leasing Act (“MLA”) or Outer Continental Shelf Lands Act (“OCSLA”) to decide whether to offer areas for oil and gas development because both the MLA and OCSLA set forth requirements to hold lease sales of eligible land and requirements for how those sales should be conducted. DOI is required to designate land that will be available for development, but the opinion underscores that, once areas are designated, DOI does not have the power to pause the ongoing program unless the land has become ineligible or some other legal deficiency is present. The Court stated that an executive order is not sufficient reason under the statutes, as the executive order gave no reason for the pause other than a “pretextual” need for further environmental analysis. The decision did not address the Biden Administration’s argument that the moratorium was due to violations of the National Environmental Policy Act. While the government defendants argued to the Court that there has not been an actual moratorium on new leasing, the Court noted that there has not been a single new lease sale since the executive order was issued. The Court pointed out that a number of lease sales have been postponed, and DOI has either provided no reason for the delay, or gave reasons that the states described as “pre-textual.”
The decision also notes DOI’s failure to provide notice and comment on the moratorium as further indication of likelihood of success on the merits, as the moratorium is a substantive rule and the Administrative Procedure Act requires notice and comment for all substantive rules.
Finally, the Court found that there was a risk of substantial monetary losses from the leasing pause and that the balance of equities was in the plaintiffs’ favor, as an injunction would not harm the public interest. Therefore, it granted the preliminary injunction.
What Comes Next?
Leasing on Federal public lands and offshore waters may immediately restart nationwide. The Biden Administration may choose to appeal the preliminary injunction to the Fifth Circuit and request a stay of the Court’s order pending appeal.
As directed in President Biden’s initial executive order, DOI is currently preparing an interim report that includes a comprehensive review of Federal oil and gas permitting and leasing practices. The interim report is expected to be published in the coming weeks.
Stay tuned to our fracking tracker for any updates to the status of oil and gas leasing on federal lands.
- Biden Administration to Suspend Future Oil Leases in Arctic RefugeJune 3, 2021
On June 1, 2021, the U.S. Department of the Interior (“DOI”) issued Secretarial Order 3401 (“Order”), temporarily suspending all activities related to the Coastal Plain Oil and Gas Leasing Program (“Program”) in the Arctic National Wildlife Refuge pending completion of a comprehensive environmental analysis under the National Environmental Policy Act (“NEPA”). This Order follows through on President Biden’s day-one Executive Order on environmental and climate change issues, which ordered a review of all oil and gas activity in the Arctic Refuge.
The Program was established by DOI’s Bureau of Land Management (“BLM”) in 2019 during the Trump administration. BLM Prepared an environmental impact statement for the Program under NEPA and held its first lease sale under the program on January 6, 2021. The lease sale resulted in issuance of multiple ten-year leases that cover more than 430,000 acres in the Arctic Refuge. These leases were signed and finalized on January 19, 2021, President Trump’s last full day in office. President Biden’s Executive Order calling for a review of all oil and gas activity in the Arctic Refuge was issued the next day.
In the Order, DOI Secretary Deb Haaland states that her review of the Program identified multiple legal deficiencies in the Program’s NEPA analysis and Record of Decision, including failure to adequately analyze a reasonable range of alternatives. Sec. Haaland ordered DOI to temporarily halt all department activities, including leasing, exploration, development, production, transportation, and processing of any pending or future applications for such activities, related to the Program and conduct a new environmental analysis. It is important to note that the Order only suspends new leasing and has no impact on existing leases in the Arctic Refuge.
The Order is effective immediately and gives DOI 60 days to publish its notice of intent to initiate its NEPA review of the Program. The review process will include a comprehensive environmental analysis of the potential impacts of the Program, consultation with other federal agencies, and a public notice and comment period on DOI’s draft environmental analysis. Environmental reviews under NEPA can easily extend for many months, and unless a court imposes a deadline, there is no limit to the amount of time DOI can spend on the analysis. As a result, we cannot predict how long the suspension will last.
- New Mexico Environment Department Proposes Groundbreaking Air Emissions Rule Applicable to Permian Basin OperatorsMay 10, 2021
Oil and gas producers and processors in New Mexico’s Permian Basin should be tracking a new technology-forcing air emissions rule proposed by the New Mexico Environment Department (“NMED”). On Thursday, May 6, 2021, NMED proposed rules aimed at achieving three goals: (1) reducing flaring, (2) ensuring attainment with EPA’s ambient air quality standard for ozone, and (3) reducing methane emissions from new and existing sources. NMED is touting the proposed rule as being more stringent than rules adopted by other states and as a model for the Biden administration. Indeed, the rule, if finalized, would materially change how producers and processors operate and demonstrate compliance. Highlights include:
- Tighter emissions limits. NMED has proposed new emission standards and/or operational requirements for equipment commonly used at tank batteries and gas processing plants, such as engines and turbines, compressors, enclosed combustion devices and thermal oxidizers, vapor recovery units, and storage tanks.
- Technology-forcing LDAR requirements. NMED has proposed new requirements to reduce equipment leaks and fugitive emissions, including a requirement to repair leaks within 7 days of discovery. NMED intends for the rule to “incentivize use and development of new technologies for leak detection and repair such as remote monitoring via satellite, plane, or airship, to increase the accuracy and speed of reporting.”
- Next generation compliance. NMED has proposed to require producers and processors to enhance their ES&H programs to handle, among other things, implementation of an Equipment Monitoring Tag regime, under which operators must tag emissions units with a bar code that provides compliance information upon scanning. The rule would also empower the NMED to require a producer or processor to retain a third party to verify compliance and make recommendations to correct or improve the collection of data. And, if credible information obtained by the NMED from the public indicates a source is not in compliance, NMED will presume the producer or processor is in violation “unless and until the owner or operator provides credible evidence or information demonstrating otherwise.”
- Pre-conveyance compliance audits. No earlier than 3 months before the sale of a tank battery, gas processing plant, or other like-source, NMED proposes to require the current owner or operator to conduct and document a full compliance evaluation of covered equipment. The final evaluation would need to include a certification by a responsible official as to whether the covered equipment is in compliance with the rule.
New Mexico’s Environmental Improvement Board will now schedule a public hearing, most likely in September 2021, that will be preceded by an opportunity for interested stakeholders to file technical testimony regarding the rule. The rule represents a material change to environmental regulation in New Mexico. Those interested or affected by the proposal should consider engaging in this summer’s stakeholder process. Trade associations, such as the New Mexico Oil and Gas Association, are expected to be actively involved. NMED anticipates that the rule will go into effect in March 2022.
- Senate Acts to Remove Trump-Era Methane Rule, Opening the Door to Further Regulation of Methane from Oil and Gas ActivitiesApril 30, 2021CaliforniaColoradoIllinoisNevadaNew YorkNorth CarolinaNorth DakotaOhioOklahomaPennsylvaniaTexasWest VirginiaWyoming
On April 29, 2021, the Senate passed a resolution (the “Resolution”) to disapprove a rule adopted by the Trump administration which lifted certain requirements that had been put in place by an Obama-era methane rule, also known as “Quad Oa.” If passed by both chambers of Congress and signed by the president, as expected, the Resolution would undo the Trump administration’s 2020 rollback of the Obama-era methane rule, which is described in greater detail in this previous post. In the absence of this Trump-era roll-back, the Obama-era Quad Oa regulations will go into effect unless halted by the courts.
Congressional Review Act and Congress’s Power to Invalidate Regulations
This will be the first time that Democrats in the new Congress have used the Congressional Review Act (“CRA”) to overturn a regulation. The CRA allows a new administration to swiftly overturn the prior administration’s last-minute regulations by a simple majority vote in both chambers of Congress and the signature of the president. It may only be used to overturn regulations that have been adopted within the past 60 legislative days. The CRA also contains a provision that prevents future administrations from enacting regulations similar to those overturned by the CRA without congressional approval. In 2017, congressional Republicans used the CRA to undo 16 Obama-era regulations. Use of the CRA in this case is part of the Biden administration’s broader review of the Trump administration’s environmental policies, consistent with an Executive Order signed on President Biden’s first day in office. The 60-day window to use the CRA will expire in late May.
If the Resolution is passed, (1) the industry will once again be subject to the requirements in Quad Oa, and (2) EPA will be obligated to pursue methane regulation of existing sources. Read more about V&E attorney’s commentary on the effect of this Resolution on our blog here.
- California Lawmakers Introduce Bill to Ban Fracking StatewideFebruary 19, 2021California
On February 16, 2021, California state Senators Wiener and Limon introduced SB 467, which, if enacted as proposed, would ban hydraulic fracturing and other enhanced oil extraction methods by 2027. The Bill follows through on a September 2020 executive order by Governor Gavin Newsom targeted at reducing both supply and demand for fossil fuels in the state. The Order called for an end to the issuance of new hydraulic fracturing permits by 2024 but did not actually put a ban in place. The new Bill applies to hydraulic fracturing and other enhanced extraction techniques, including acid well stimulation treatments, steam flooding, water flooding, and cyclic steaming.
The Bill would institute a halt on new fracking permits and renewal of existing permits on January 1, 2022. The Bill would then prohibit all hydraulic fracturing and other well stimulation treatments beginning on January 1, 2027 and criminalize violations of this prohibition. Finally, the Bill would also authorize local governments to prohibit these well stimulation treatments within their jurisdiction prior to the 2027 statewide ban.
Recognizing that this prohibition may cause downstream, midstream, and upstream oil and gas workers to lose their jobs, the Bill includes a provision that would require the California Geological Energy Management Division (“CalGEM”) to develop and administer a program that incentivizes oil and gas well remediation companies to hire workers who have lost jobs due to the prohibition.
While the Bill does not currently include a setback for oil and gas production, Senators Weiner and Limon have issued a press release stating that the bill will be amended to include such a provision. The setback provision will prohibit all new or renewed permits for oil and gas extraction within 2,500 feet of homes, schools, healthcare facilities, or long-term care institutions such as dormitories or prisons, by January 1, 2022. Previous legislation providing for a similar 2,500 foot setback died in committee last year.
This Bill would build on California’s recent efforts to transition its economy away from fossil fuels toward less carbon-intensive forms of energy. In 2018, California adopted a law committing the state to the use of 100% zero-carbon electricity by 2045. Former Governor Brown took this a step further by issuing an executive order committing California to total, economy-wide carbon neutrality by 2045.
Additionally, in 2019, Governor Newsom announced an initiative calling for CalGEM to update and strengthen rules for public health and safety protections near oil and gas extraction facilities. CalGEM was expected to conduct pre-rulemaking in 2020 and issue draft rules by December 31, 2020; however, the draft rules have yet to be published.
While it is unclear whether the California legislature will follow through and pass this proposed ban on fracking, other state initiatives and regulations may significantly constrain oil and gas operations in the state. Vinson & Elkins environmental, energy, and regulatory attorneys are staying up to date on these developments and continue to advise clients on navigating regulatory issues and their potential impacts.
- Biden Administration Halts New Oil and Gas Leasing on Federal Public Lands: What You Need to KnowJanuary 27, 2021
On January 27, 2021, President Biden issued an executive order — effective immediately — directing the Secretary of the Interior to pause new oil and natural gas leases on federal public lands or offshore waters to the extent consistent with applicable law, until the completion of a comprehensive review and reconsideration of Federal oil and gas permitting and leasing practices, and to identify steps that can be taken to double renewable energy production from offshore wind by 2030. The Secretary immediately issued the suspension order and one lawsuit has already been brought, challenging the suspension. There is no end date specified for the halt to leasing or the completion of the review.
Read entire article here.
- Department of Interior Issues 60-Day Moratorium on Federal Leasing and PermittingJanuary 22, 2021
On January 20, 2021, the Acting Secretary of the U.S. Department of Interior (“DOI”) issued an order to halt new oil and gas leases and drilling permits on federal lands and waters (“Order”). The moratorium is effective immediately and will remain in place for 60 days. This action is consistent with President Biden’s campaign promise to halt oil and gas drilling on federal lands.
The Order temporarily suspends DOI’s authority to issue “onshore and offshore fossil fuel authorization, including but not limited to a lease, amendment to a lease, affirmative expansion of a lease, contract, or other agreement, or permit to drill.” DOI’s member agencies and bureaus that normally exert this permitting and leasing authority include the Bureau of Ocean Energy Management and the Bureau of Land Management.
Importantly, the Order has no impact on operations conducted under existing, valid leases. Previously approved activities and operations can continue without impacts. The Order also has an exception for authorizations that are necessary to “ (1) avoid conditions that might pose a threat to human health, welfare, or safety; or (2) to avoid adverse impacts to public land or mineral resources.”
While the order specifically prohibits authorization of new fossil fuel operations, its impact extends to several other industries which also operate on federal lands, including renewable energy, mining, recreation, and ranching. The Order includes a moratorium on several other categories of agency action, including publication of final agency actions in the Federal Register, issuance or revisions of Resource Management Plans under the Federal Land Policy and Management Act, and approval or amendment of plans of operations under the General Mining Law of 1872.
The 60-day moratorium is intended to allow the incoming Administration time to evaluate DOI’s programs and review the questions of fact, law, and policy they raise. Several prominent members of the new Administration have expressed support for restrictions on fossil fuel development due to environmental and climate concerns. Still, a number of recent studies have underscored the negative impacts that restrictions on fossil fuel development will have on the U.S. economy. The University of Wyoming’s December 2020 study estimated that a permanent federal lease ban would result in a $639.7 billion hit to GDP by 2040 in Western states where the federal government owns large amounts of land. The Department of Energy also released a report in January 2021 warning of the economic and national security consequences of banning hydraulic fracturing.
It is unclear whether DOI will extend this moratorium, but those who conduct operations on federal lands should be prepared to see a sharp decline in new leases issued during the Biden Administration.
- Department of Energy Releases Report on the Consequences of a Fracking BanJanuary 15, 2021
On January 15, 2021, the Department of Energy (“DOE”) published its report on the possible consequences of a ban on hydraulic fracturing in the United States. President Trump ordered the DOE to prepare this Report to examine repercussions that a fracking ban would have on jobs, property values, tax revenue, energy prices, trade impacts, and more.
In a message accompanying the Report, Energy Secretary Dan Brouilette warned that “Such a ban would eliminate the United States’ status as the top oil and gas producing country and return us to being a net importer of oil and gas by 2025. It would weaken America’s geopolitical standing and negatively impact our national security.” The economic analysis portion of the Report identified serious negative impacts to the U.S. economy, including:
- 7.7 million fewer jobs by 2025
- $1.1 trillion less in gross domestic product by 2025
- $950 billion less in labor income by 2025
- $167 billion decrease in federal tax revenues by 2025
- $480 billion increase in retail electricity costs between 2021 and 2025
- $400 billion increase in retail natural gas cost between 2021 and 2025
- Average gasoline prices of over $4.20 per gallon in 2022 and 2023
- Average diesel prices of over $4.56 per gallon in 2022
- $502 billion decrease in residential real estate values by 2025
- $721 billion decrease in nonresidential real estate values by 2025
The DOE’s economic analysis concludes that a ban on fracking would have negative impacts on virtually all sectors of the economy and would inevitably hamper the U.S. economic recovery from the COVID-19 pandemic. From a national security perspective, a ban on fracking and the resulting curtailing of U.S. oil and natural gas production would remove an important tool for diplomacy and increase global energy dependence on Russia and the Organization of the Petroleum Exporting Country (“OPEC”) nations.
Fracking ban proponents argue that renewable resources can fill any energy gap that a fracking ban would create. But the Report explains, despite significant advances in renewable energy growth, natural gas is an important partner to renewable electricity and provides necessary baseload power to back up intermittent renewable resources, like solar and wind.
President-elect Biden has not called for an all-out ban on fracking, but a number of prominent Democratic politicians and environmental activists support such a ban. As an important reminder, a President cannot ban fracking or end oil and gas leases on federal lands by executive order alone. Any attempt to ban fracking at the federal level would have to overcome a robust administrative record of prior determinations relating to hydraulic fracturing, including a 2016 U.S. Environmental Protection Agency report containing favorable findings regarding the ability to reduce the frequency and severity of potential fracking impacts and a 2015 Bureau of Land Management rule preamble explicitly stating that “[a] ban or moratorium [on fracking] would not satisfy BLM’s multiple-use responsibilities under the Federal Land Policy and Management Act.”
- Colorado Oil and Gas Conservation Commission Adopts Expansive Regulations Regarding Energy DevelopmentNovember 23, 2020Colorado
On November 23, 2020, the Colorado Oil and Gas Conservation Commission (“COGCC”) voted unanimously to finalize and adopt revisions to its 200-600, 800, 900, and 1200 Series regulations aimed at increasing protections for public health, safety, welfare, wildlife, and environmental resources (“Revised Regulations”). Most significantly, the Revised Regulations establish more stringent setbacks on new oil and gas development and eliminate routine flaring and venting of natural gas at new and existing wells across the state.
The Revised Regulations impose a 2,000-foot setback of new oil and gas development from schools, homes, residential dwelling units, and high priority habitat1 such as riparian areas. The current setback for an oil and gas well from a home is 200 feet statewide and 500 feet in heavily populated urban areas. The revised setback distance is now measured from a well pad’s edge rather than the well itself, which extends the overall distance of the setback. The new 2,000-foot setback is the largest buffer zone yet adopted in the U.S. for oil and gas operations and is expected to put millions of acres of Colorado land off limits to energy developers.
Companies are allowed to seek waivers, referred to as “off-ramps” by the COGCC, under the new regulations, but grant of a waiver is left to the regulator’s discretion. Waivers are allowed in four situations: (1) when the well location is already within an approved comprehensive drilling plan or comprehensive area plan; (2) when specific equipment that has the greatest noise level and air emissions potential are located more than 2,000 feet from protected buildings; (3) when the commission finds, after a hearing, that the applicant has undertaken “substantially equivalent” protections for public health and safety; and (4) when an affected property owner or tenants sign a special waiver agreeing to allow a well pad to be built within 2,000 feet of their properties.
In 2018, Colorado voters rejected similar setback proposals when they voted not to adopt Proposition 112. Proposition 112 would have imposed a 2,500-foot setback on energy development and put 85% of non-federal land off limits to oil and gas drilling.
The Revised Regulations will also prohibit routine flaring and venting at wells across the state. Exceptions to this prohibition exist when conditions at the well are disrupted, during emergencies, and with written permission during maintenance, production evaluations at wildcat wells, or as part of an approved gas-capture plan. An exception also exists if flaring is necessary to complete a well or when an operator can show that flaring will minimize adverse impacts to public health, safety, welfare, the environment, or wildlife resources.
The Revised Regulations are part of a larger overhaul of Colorado’s energy development rules directed by Senate Bill 19-181 (“the Bill”). The Bill was adopted in 2019 and altered COGCC’s mission from “fostering” energy development in a manner consistent with the protection of public health, safety, and welfare to “regulating” energy development to protect the environment, wildlife and public health, safety, and welfare. The Bill identified a number of issues to be addressed through COGCC rulemaking, including:
- Defining the new relationships between state and local government;
- Addressing cumulative impacts by developing a new program with the Colorado Department of Public Health and Environment;
- Establishing setbacks for location siting purposes;
- Establishing a streamlined permitting process that incentivizes landscape-level planning;
- Reorganizing the rules using updated language to ensure public accessibility;
- Establish flowline rules;
- Establish wellbore integrity rules;
- Enacting a prohibition on routine flaring or venting; and
- Increasing protections for wildlife.
The Commission plans to take up additional rulemakings regarding financial assurances around oil and gas development, worker safety, and the enactment of permit fees in 2021.
1 Under the Revised Regulations, “high priority habitat” is defined as “habitat areas identified by Colorado Parks and Wildlife where measures to Avoid, Minimize, and Mitigate Adverse Impacts to wildlife have been identified to protect breeding, nesting, foraging, migrating, or other uses by wildlife. Maps showing, and spatial data identifying, the individual and combined extents of the High Priority Habitats will be provided by CPW and attached to this Rule as Appendix VII. The Commission will provide the maps on its website. The extent of these High Priority Habitat areas is subject to update on a periodic but no more frequent than annual basis and will be modified only through the Commission’s rulemaking process described in Rule 529. Notice of such rulemaking proceeding will be provided by January 15 of each year.” 2 Colo. Code Regs. § 404-1:100.
- President Trump Issues Executive Order on Hydraulic FracturingNovember 2, 2020
On October 31, 2020, President Trump issued an executive order entitled “Memorandum on Protecting Jobs, Economic Opportunities, and National Security for All Americans” (the “Order”). The Order requires an economic analysis of the potential effects of efforts to ban or restrict the use of hydraulic fracturing and a report assessing the impact of fracking bans or restrictions on national security. These analyses should be completed within 70 days of the Order’s issuance, or by January 9, 2021.
The Order cites the numerous benefits that fracking has brought the United States, including costs savings, energy independence, and increased national security. Because of these benefits, the Order seeks to “aggressively protect and enhance American jobs, economic opportunities, and national security” by ensuring support for innovative technologies for energy development such as fracking. The Order stresses that these technologies provide for the responsible and efficient development of domestic natural resources.
The Secretary of Energy and United States Trade Representatives’ economic analysis of impacts of prohibiting or restricting fracking should include, at a minimum:
- Any loss of job, wages, benefits or other opportunities by those who work in the energy industry or an adjacent field, such as sand mining;
- Any increase in energy prices;
- Any decrease in property values, including royalties and other revenues for private property owners;
- Any decrease in tax revenues, impact fees, royalties, and other revenues to the Federal Government, State and local governments, or civic institutions; and
- Any trade impacts, including impacts to United States exports of liquefied natural gas and impacts to exports of any commodity that may be affected by increases in transportation costs.
The Secretary of Energy must also prepare a report on the impact of fracking bans or restrictions on national security. This report will include assessment of potential impacts on Russian and Chinese energy production, consumption, and trade activities, and on the energy security of United States allies that may be attributable to changes in United States energy product exports.
Finally, the Order reinforces President George W. Bush’s Executive Order 13211, issued on May 18, 2001, which required agencies to prepare detailed statements of energy effects when undertaking agency actions that are “likely to have a significant adverse impact on supply, distribution, or use of energy.” The Order specifically requires the Office of Management and Budget (“OMB”) to review agencies’ compliance records with Executive Order 13211. OMB may also issue new guidance on the implementation of and compliance with Executive Order 13211.
The Order came days before the 2020 General Election. At various points during the 2020 presidential campaign season, Democratic Nominee Vice President Joe Biden stated that he would ban fracking on federal lands and develop a comprehensive energy plan that moves away from fossil fuels and the oil and gas industry.