BREAKING: Wyoming Federal Court Delays Implementation Of BLM’s Final Fracking Rule

On the heels of yesterday’s day-long hearing on several preliminary injunction motions in litigation challenging the Bureau of Land Management’s (“BLM”) new final rule regulating hydraulic fracturing on federal public lands, the Wyoming district court has temporarily ordered a delay of the rule’s implementation for at least several weeks. (See our prior coverage of the preliminary injunction briefing here.) According to official minutes from the proceedings, the court will stay the final rule’s effective date—originally set for today, June 24—in order to give the BLM more time to file its administrative record. Following that, the parties will have seven days to submit citations to those parts of the record that support their arguments. The court will then re-review the motions and issue its ruling within two weeks after receiving the supplemental filings.

Several news outlets have discussed this recent development:

UPDATE: The Wyoming federal district court issued its order postponing the effective date of the BLM’s final rule and it is available here.

Mineral Law Blog will continue to monitor and report on these legal challenges to the BLM’s new public lands hydraulic fracturing rule as they move forward.

More Injunction Arguments In BLM Fracking Rule Litigation Prior To Major Court Hearing Tomorrow

Several more key filings have come into the federal litigation challenging the Bureau of Land Management’s (BLM) final rule regulating hydraulic fracturing on public lands in advance of the June 23 consolidated preliminary injunction hearing. These briefs are summarized below:

BLM’s Opposition To The Preliminary Injunction Motions Filed By The States Of Wyoming And Colorado And By The State Of North Dakota

In responding to a preliminary injunction motion filed by the states of Wyoming and Colorado, the BLM argued three main points.

First, the BLM contends that the states failed to demonstrate its likelihood of succeeding on the argument that it exceeded its statutory authority, since Congress delegated the BLM authority over federal public lands and minerals through various statutes, including the Mineral Leasing Act of 1920 (MLA). The BLM further maintains that the Safe Drinking Water Act (SDWA)—cited by the states governments—does not displace its authority under the MLA.

The BLM also submits that the states failed to demonstrate irreparable harm, particularly because federal public lands are within the federal agency’s power to regulate. According to the BLM’s opposition arguments, the final fracking rule does not harm the states’ sovereign authority, but, instead, preserves that sovereignty.

Finally, the BLM argues that the balance of harms and public interest weigh against an injunction, because the BLM’s final rule covers all public lands in the United States, whereas the states’ regulatory authority does not extend beyond their borders.

The BLM largely echoed these arguments in its response opposing the State of North Dakota’s separate preliminary injunction motion, adding that economic harm is not a basis for granting a preliminary injunction, even if North Dakota were to suffer some economic harm in terms of reduced tax income.

Opposition To State Governments’ Preliminary Injunction Motions By Environmental Groups

Sierra Club and the other intervening environmental groups also filed arguments opposing the preliminary injunction motions by Wyoming, Colorado, and by North Dakota. Those arguments largely parroted ones set forth by the BLM in its opposition briefs. Specifically, the environmental groups argued that the BLM has broad statutory authority to regulate oil and gas development on federal lands; the states failed to show that they will suffer lost mineral or tax revenue due to the final rule; and that the public interest weighs against a preliminary injunction, since the BLM’s final rule will prevent drilling of new oil and gas wells using environmentally inadequate methods.

State Of Utah Joins The Fray

In addition, the State of Utah—which previously indicated its intent to intervene in the litigation—filed papers formally joining in the preliminary injunction arguments set forth by Wyoming, Colorado, and North Dakota.

UPDATE (June 23): On June 22, the Ute Indian Tribe of the Uintah and Ouray Reservation in Utah filed an unopposed motion to intervene in the lawsuit challenging the BLM’s final fracking rule, as well as its own motion for a preliminary injunction.  Among its arguments, the tribe contends that the BLM’s final rule is contrary to the federal government’s fiduciary obligations to manage Indian trust lands in a way that’s profitable for Indians, citing the Indian Mineral Leasing Act (IMLA).  Those obligations are distinguishable from the federal mandate for overseeing non-Indian public lands, according to the tribe.  Arguing that the final rule will hinder the Ute Indian Tribe’s economic development and reduce job opportunities in its sovereign territory, the tribe maintains the rule as promulgated is inconsistent with lawfully managing those two different types of public lands, and that a separate rule is necessary for Indian trust land.  The Ute Indian Tribe also submits that the BLM did not properly consult with its tribal government in developing the final rule, contrary to Department of Interior policies and procedures, and that the BLM’s final rule exceeds its authority in light of the IMLA and other federal authority concerning Indian trust lands.

Mineral Law Blog will continue to monitor and report on these legal developments as they progress.

By Andrew Pieper (andrew.pieper@stoel.com) and Jenny Suh.  Ms. Suh is a Summer Associate with Stoel Rives LLP and is not currently licensed to practice law.

Preliminary Injunction Arguments Pour Into Litigation Against BLM’s Final Fracking Rule

Since our last update on federal litigation in Wyoming challenging the Bureau of Land Management’s (BLM) final rule to regulate hydraulic fracturing on public lands, the flurry of activity continues in advance of the June 23 preliminary injunction hearing. We’ve summarized several key filings below:

BLM’s Opposition To Preliminary Injunction

On June 1, the BLM filed its brief opposing the preliminary injunction motion entered by the two industry group plaintiffs—the Independent Petroleum Association of America and the Western Energy Alliance. The BLM primarily focuses on two arguments.

First, the BLM contends the industry groups are unlikely to succeed on the merits of their litigation against the rule, and, as a result, a preliminary injunction is unwarranted. In support of its position, the BLM argues:

  • It developed the final rule in accordance with appropriate statutes, including the Federal Land Policy and Management Act, which grants the BLM authority to administer public lands and resources.
  • The industry can comply with certification requirements, such as the temporary recovered fluid storage requirement, by invoking trade secret protection under the BLM’s existing regulations.
  • The final rule is justified and necessary to address modern technological advances and changes in hydraulic fracturing industry.
  • The industry groups failed to demonstrate irreparable harm, since there is no imminent risk of disclosure of confidential information.

The BLM also maintained that the public interest would not favor a preliminary injunction, because entering one would deny the BLM tools to prevent environmental harm, including putative groundwater contamination. And, according to the BLM’s arguments, an injunction would detrimentally affect the orderly administration of federal energy policy, causing confusion among the public and the industry as to whether and when its final fracking rule would become effective.

Continue Reading

Status of Oil and Gas-related Bills Proposed in California’s 2015-2016 Legislative Session

June 5, 2015 marked the deadline for lawmakers to pass bills out of their house to the opposite house. Bills that did not pass in their house of origin by that date have effectively died (unless such bill has been identified as a 2-year bill). Below is the status and summary of the oil and gas related bills Stoel Rives is monitoring. Stoel’s Oil & Gas Team will continue to monitor these bills, among other environmental related legislation, throughout the 2015-2016 Legislative Session and provide periodic updates as the bills move through the legislative process.

SENATE BILLS

SB-13 (Pavley): Groundwater

UPDATE: This bill passed the Senate on April 30, 2015, and is pending in the Assembly Committee on Water, Parks and Wildlife.

If passed by the legislature and signed into law, this bill would:

  • specify that the State Water Resources Control Board is authorized to designate a high- or medium-priority basin as a probationary basin;
  • provide a local agency or groundwater sustainability agency 90 or 180 days, as prescribed, to remedy certain deficiencies that caused the board to designate the basin as a probationary basin; and,
  • authorize the State Water Resources Control Board to develop an interim plan for certain probationary basins one year after the designation of the basin as a probationary basin.

In addition, if the Department of Water Resources determines that all or part of a basin or subbasin is not being monitored, this bill would require the Department of Water Resources to determine whether there is sufficient interest in establishing a groundwater sustainability plan.

Finally, SB-13 would eliminate the provisions requiring a local agency or combination of local agencies that elect to be a groundwater sustainability agency for a basin to submit a prescribed notice of intent to the Department of Water Resources.

Continue Reading

EPA Finds No Systemic Threat to Drinking Water from Fracking

On Thursday, the Environmental Protection Agency (“EPA”) released a long awaited, and congressionally mandated, study detailing the relationship between hydraulic fracturing and drinking water. The EPA found no signs of “widespread, systemic” drinking water pollution from hydraulic fracturing.

“It is the most complete compilation of scientific data to date,” says Dr. Thomas Burke, with the EPA’s Office of Research and Development, “including over 950 sources of information, published papers, numerous technical reports, information from stakeholders and peer-reviewed EPA scientific reports.”

“After more than five years and millions of dollars, the evidence gathered by EPA confirms what the agency has already acknowledged and what the oil and gas industry has known,” said Erik Milito, with the American Petroleum Institute. “Hydraulic fracturing is being done safely under the strong environmental stewardship of state regulators and industry best practices.” Continue Reading

Wyoming, Colorado Seek To Halt BLM’s Fracking Regulations; Environmental Groups Intervene

On the heels of a preliminary injunction motion filed in the action by two industry groups challenging the federal Bureau of Land Management’s (BLM) final rule regulating hydraulic fracturing on public lands, the states of Wyoming and Colorado likewise filed a preliminary injunction motion in their related case last Friday.

In their brief, the states called into question the validity of the BLM’s final rule by highlighting three issues.  First, the states contend that the Congressional authority relied upon by the BLM in promulgating its final rule does not authorize hydraulic fracturing regulation.  Instead, the states submit that the Safe Drinking Water Act and the 2005 Energy Policy Act granted authority to regulate hydraulic fracturing practices directly to the states.  As a result, the states argue, the BLM’s final rule exceeds the agency’s jurisdictional authority.

Second, the states contend that the final rule will cause irreparable harm by:

  • Creating an overlapping federal regime that interferes with existing state regulations concerning groundwater safety;
  • Disallowing variance requests from being subjected to administrative appeal, thereby preventing states from being assured the BLM will not arbitrarily modify or rescind variances; and
  • Pushing operators to drill on private land in order to avoid the increased time and cost of obtaining public land permits, which will reduce tax income for states with a large amount of public lands.

Third, states contend that a preliminary injunction would support the public interest, since states are more flexible and efficient in reviewing permits for approval.

As a result, the states maintain they are likely to succeed on the merits of their claim, and asked the court to preserve the status quo by entering an order enjoining BLM’s final rule from taking effect until the litigation is resolved.

The BLM will submit arguments responsive to those set forth by the states and the industry groups on June 12.  A hearing on both preliminary injunction motions is scheduled for June 23.

It is also expected that the State of North Dakota, which previously intervened in the lawsuit, will submit its own preliminary injunction motion within the next week.

In another development, several environmental groups—including Sierra Club and The Wilderness Society—filed a motions to intervene in both the industry’s and the state governments’ consolidated cases, and seek to defend the BLM’s final rule.  The groups contend they have a legally protected interest in the BLM’s actions impacting public lands because they were directly involved in adopting the final rule, and the final rule would protect them and their members from the impacts of oil and gas development.  They also argue that the BLM cannot adequately represent the groups’ interests because it has a statutory mandate to manage public lands for “multiple use[s],” while the environmental groups are focused solely on conservation, health, and safety.

Mineral Law Blog will continue to monitor and report on these legal developments as they progress.

By Andrew Pieper (andrew.pieper@stoel.com) and Jenny Suh.  Ms. Suh is a Summer Associate with Stoel Rives LLP and is not currently licensed to practice law.

States Show Their True Colors on Fracking – One Enacts a Ban, While Two Others Prohibit All Local Bans

Three states have recently taken a stand for or against controversial bans on hydraulic fracturing. Oklahoma, Texas, and Maryland have all passed laws within the past month relating to hydraulic fracturing bans.

Oklahoma

Last Friday, Oklahoma Governor Mary Fallin signed Senate Bill 809, which prohibits local governments from choosing whether to have oil and gas operations within their jurisdictions. Oklahoma’s law allows exceptions for “reasonable” restrictions for setbacks, noise, traffic issues and fencing. Governor Fallin said “A patchwork of regulations that vary across the state would be inconsistent with the goal of reasonable, easily understood regulations and could damage the state’s economy and environment.” Senate Bill 809 reaffirms that the Oklahoma Corporation Commission is the primary entity charged with establishing a unified regulatory framework for the energy industry. Chad Warmington, president of the Oklahoma Oil and Gas Association, said “This bill was a good compromise for all involved. It maintains the Corporation Commission’s role in regulating oil and gas activities, without limiting cities’ ability to protect their residents.” Senate Bill 809 passed with wide margins in both the House and the Senate. Continue Reading

Preliminary Injunction Motion Filed To Stop BLM’s Final Fracking Rule

Last Friday, the Independent Petroleum Association of America (IPAA) and the Western Energy Alliance (WEA) opened their arguments on a preliminary injunction motion to halt the federal Bureau of Land Management’s (BLM) final rule regulating hydraulic fracturing on public lands until resolution of the litigation.

In its supporting memorandum, the IPAA and WEA detail the process by which the BLM arrived at its final rule and highlight several issue they submit favor a preliminary injunction. The industry groups challenge the BLM’s issuance of the rule over comprehensive comments in the record that detail technical and legal problems with its proposal. In particular, the groups fault the BLM for ignoring or misunderstanding technical aspects of oil and gas production and the economic consequences of the final rule; they contend both undermine the procedural legitimacy of the rulemaking process. Specifically, the groups challenge several provisions of the final rule as impossible and, thus, per se arbitrary, including, for example:

  • Requiring operators to certify fluids used in hydraulic fracturing comply with all applicable permitting and notice requirements and all federal, state, tribal, and local laws, rules, and regulations;
  • Undefined and vague “mechanical integrity test” for any casing or fracturing string, which do not appear different than ones operators are currently required to perform; and
  • Expanding earlier requirements to isolate freshwater-bearing formations to include “usable water” that does not take into account the potential for high levels of salinity.

The IPAA and WEA further argue that the final rule lacks a rational justification because the BLM has not substantiated the existence of a problem the rule is meant to address, the rule is contrary to other existing law, and it suffers from procedural deficiencies.

To that end, the industry groups contend they are likely to succeed on the merits of their suit and that their members will be irreparably harmed if the Wyoming federal court does not issue an injunction. The BLM will now have an opportunity to respond to the arguments set forth by the IPAA and WEA. The court has not yet set a hearing date for the preliminary injunction motion.

In the State of Wyoming’s related case challenging the BLM’s final hydraulic fracturing rule, the State of Colorado has now joined in that suit as a petitioner, along with the State of North Dakota.

UPDATE: Governor Gary Herbert indicated yesterday (May 19), that the State of Utah intends to also seek to intervene in the State of Wyoming’s case against the BLM concerning its final rule regulating hydraulic fracturing.

Mineral Law Blog will continue to monitor and report on these legal developments as they progress.

New Federal Oil-By-Rail Regulations Published

Today, May 8, 2015, the Pipeline and Hazardous Materials Safety Administration published a final rule for rail transport of crude oil in the Federal Register. These rules come after several high-profile oil train derailments, including one recently in North Dakota that caused the evacuation of a nearby town.

The final rule applies to “high-hazard flammable trains,” defined as trains with a continuous block of 20 or more tank cars loaded with a flammable liquid or 35 or more tank cars loaded with a flammable liquid dispersed through a train. The final rule regulates: (1) tank car design standards, (2) braking systems, (3) speed restrictions, (4) routing restrictions, (5) classifications of unrefined petroleum-based products, and (6) notification requirements.

Tank Car Design

New tank cars constructed after October 1, 2015 are required to meet new design criteria. Tank cars must be constructed with 9/16 inch steel walls and a head shield with a minimum thickness of 1/2 inch. The entire protection system must be covered with a metal jacket of at least 11 gauge steel. Tank cars must also include improved pressure relief valves and bottom outlet valves. All existing tanks must be retrofitted according to a risk based schedule in the next three to five years. Continue Reading

New Rules on MLPs & Qualifying Income: What Oil Services and Exploration Companies Need to Know

On Tuesday, May 5, 2015, the Internal Revenue Service (“IRS”) released proposed regulations defining qualifying income for Master Limited Partnerships (“MLPs”). MLPs are publicly traded partnerships that are taxed as a partnership rather than a corporation.

Being taxed as a MLP has many advantages. While shareholders in a corporation face double taxation  ̶  paying taxes first at the corporate level, and then at the personal level when those earnings are received as dividends  ̶  owners of a partnership are taxed only once, when they receive distributions. The absence of taxes at the company level gives MLPs a lower cost of capital than is typically available to corporations, allowing the MLPs to pursue projects that might not be feasible for corporations.

To qualify as a MLP, at least 90% of the entity’s gross income must be “qualifying income.” Previously, there had been no detailed list of what constitutes qualifying income.

These proposed regulations use the term “qualifying activities” to describe activities relating to minerals or natural resources that generate qualifying income. The IRS has now provided an exclusive list of operations that constitute qualifying activities. The activities addressed include exploration, development, mining or production, processing, refining, transportation, and marketing of any natural resource. Continue Reading

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