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July 2016 Sneak Peek Preview

U.S. District Court In Wyoming Rejects BLM’s Fracturing Rule

While oil and gas groups hailed a federal judge’s decision to revoke the Bureau of Land Management’s hydraulic fracturing rule as a victory for industry, others viewed it as a further rebuke of the Obama administration’s propensity for accomplishing by regulatory fiat that which Congress refused to do legislatively.

On June 21, U.S. District Judge Scott W. Skavdahl in Cheyenne, Wy., struck down the BLM rule, the Independent Petroleum Association of America reports, ruling that “Congress has not delegated to the Department of Interior the authority to regulate hydraulic fracturing. The BLM’s effort to do so through (its fracturing rule) is in excess of its statutory authority and contrary to law.”

“This is a huge win for independent producers and our industry,” responds IPAA President and Chief Executive Officer Barry Russell. “IPAA has long said federal regulations are unnecessary, duplicative, and would further drive independent producers from federal lands.”

Adds Kathleen Sgamma, vice president of government and public affairs for the Western Energy Alliance, which along with IPAA filed the initial challenge to the BLM rule: “We are overjoyed with the ruling. States have shown they have successfully regulated fracturing with no incidence of contamination in its 70-year history. BLM failed to show any gap in state regulation. In fact, the agency couldn’t point to a single incident on public lands to justify the new rule.”

Sgamma recalls that the Alliance and IPAA filed their challenge in U.S. District Court for the District of Wyoming on March 20, 2015, only moments after BLM announced its final rule to regulate hydraulic fracturing on federal and Indian lands. That regulation required companies to disclose frac fluid constituents on the FracFocus website, mandated aboveground tanks for storing produced water, and established minimum well construction standards (AOGR, April 2015, pg. 54).

Attorney Mark Barron, who is a member of BakerHostetler’s energy and shale practice in Denver, and along with Poe Leggette and Alexander Obrecht served as lead attorney for the associations, explains that their lawsuit challenged BLM’s assertion of jurisdiction despite specific congressional actions to remove hydraulic fracturing from federal regulation.

IPAA and the Alliance filed for a preliminary injunction in May, at which point their lawsuit was consolidated with suits brought by the states of Colorado, Utah, Wyoming and North Dakota, and the Ute Indian Tribe. The states and tribe contended BLM’s rule infringed on their respective sovereignty, Barron points out.

Judge Skavdahl stayed the BLM rule on June 23, 2015, the day before it was to become effective, and then issued a preliminary injunction against the rule on Sept. 30 (AOGR, October 2015, pg. 18).

No Congressional Intent

In writing his opinion in the case, which was consolidated as State of Wyoming v. U.S. Department of the Interior Secretary et al (No. 2:15-CV-043-SWS) Judge Skavdahl noted that BLM based its authority to regulate fracturing on seven federal statutes, including the Federal Land Policy & Management Act of 1976 and the Mineral Leasing Act of 1938. However, the judge noted that underground injection was controlled by the Safe Drinking Water Act.

Skavdahl reasoned, “For two decades after enactment of the SDWA, the (Environmental Protection Agency) took the position that hydraulic fracturing was not subject to the UIC program because that technique . . . did not, by its interpretation, fall within the regulatory definition of ‘underground injection.’”

Furthermore, Skavdahl observed, the Energy Policy Act of 2005 included an amendment “expressly and unambiguously revising the definition of underground injection to exclude ‘the underground injection of fluids or propping agents (other than diesel fuels) pursuant to hydraulic fracturing operations related to oil, gas or geothermal production activities.’

“There can be no question that Congress intended to remove hydraulic fracturing operations (not involving diesel fuels) from EPA regulation under the SDWA’s UIC program,” Skavdahl concluded, adding that while BLM was not claiming authority to regulate fracturing under the SDWA, “it makes no sense to interpret the more general authority granted by the MLA and FLPMA as providing the BLM authority to regulate (fracturing) when Congress has spoken directly to the ‘topic at hand’ in the (Energy Policy Act).”

Slow Regulatory Overreach

“The judge could not have been more clear when he ruled, ‘Congress has not directed the BLM to enact regulations governing hydraulic fracturing. Indeed, Congress has expressly removed federal agency authority to regulate the activity, making its intent clear,’” exults IPAA’s Russell.

Adds Congressional Western Caucus Chairwoman Cynthia Lummis, R-Wy., “(Skavdahl’s ruling) is a victory not only for state management and responsible stewardship of our natural resources, but also for states’ rights. The rule undermined the careful and efficient regulation of fracturing that states have put in place.”

Thomas Pyle, president of the Institute for Energy Research, calls the ruling “a big victory for American families, businesses, and anyone who cares about affordable energy.”

But in a larger sense, Pyle goes on, “This ruling, along with the (U.S.) Supreme Court’s stay of EPA’s carbon rule (see “High Court Freezes Clean Power Plan,” AOGR, March 2016), is an encouraging sign that the administration’s out-of-the-mainstream agenda is finally being called into check.”

BakerHostetler’s Barron explains that federal agencies–especially under the Obama administration–have increasingly relied on Chevron U.S.A. Inc. v. Natural Res. Def. Council “to stretch the outer limits of (their) ‘delegated’ statutory authority by revising and reshaping legislation.”

Chevron is a 1984 Supreme Court ruling that holds when reviewing federal agency authority, if Congress has not specifically addressed the question, “the reviewing court must respect the agency’s construction of the statute, so long as it is permissible,” according to Skavdahl’s opinion in Wyoming v. DOI.

However, Barron says Skavdahl counters, “If this court was to accept (BLM’s) argument, there would be no limit to the scope or extent of congressionally delegated authority (that) BLM has, regardless of topic or subject matter.”

U.S. Senate Environment and Public Works Chairman Jim Inhofe, R-Ok., cheered that aspect of Skavdahl’s ruling, according to published reports, stating, “Time and again the courts are blocking action by the Obama administration that flagrantly goes against the will of Congress and the American people.”

Anticipating Appeal

However, the final chapter on hydraulic fracturing regulations has yet to be written, others warn. H. Sterling Burnett, an environment and energy policy research fellow at The Heartland Institute, comments, “While I applaud the ruling and am thankful a federal court decided to uphold Congress’ standing as the solely authorized entity with the power to write laws, I wouldn’t be surprised if the Obama administration largely ignores the ruling and hampers existing fracturing projects on public lands and stalls future ones through executive orders and rules. The evidence shows this administration is an avowed enemy of using fossil fuels.”

Barron says he expects BLM or special-interest-group intervenors to appeal to the U.S. Court of Appeals for the 10th Circuit, which already has before it a Justice Department appeal of Judge Skavdahl’s preliminary injunction (AOGR, January 2016, pg. 14).

Indeed, one published report quotes White House spokesman Josh Earnest calling Skavdahl’s ruling a temporary setback and saying, “We obviously believe we have a strong argument to make about the important role the federal government can play in ensuring that hydraulic fracturing done on public lands doesn’t threaten the drinking water of people who live in the area. We will continue to make our case in the courts.”

Another report says Earthjustice has announced its intent to appeal the ruling on behalf of “a coalition of six environmental organizations backing the BLM rule.”

(Editor’s Note: According to published reports, on June 24, government attorneys from the Justice Department’s Environment and Natural Resources Division filed notice that they intended to appeal Judge Skavdahl’s ruling to the 10th Circuit in Denver.)

Nevertheless, the Western Energy Alliance’s Sgamma emphasizes that Skavdahl ruled solely on BLM’s statutory authority, and didn’t mention the associations’ arguments that the agency’s rule making violated the Administrative Procedures Act, “which we believe are still strong and represent another line of defense.”

Says Barron, “Even if the 10th Circuit was to reverse the ruling, a remand to the district court likely still will be necessary to decide IPAA’s and the Alliance’s multitude of technical and administrative challenges to BLM’s unlawful rule–the same technical and administrative challenges that the district court concluded likely would be successful on the merits at the preliminary injunction stage.”

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