In March 2015, the Bureau of Land Management (“BLM”) issued regulations applying to hydraulic fracturing on federal and Indian lands. 80 Fed. Reg. 16,128–16,222 (Mar. 26, 2015) (the “Fracking Rule”). The states of Wyoming, Colorado, North Dakota, Utah; the Ute Indian Tribe; the Independent Petroleum Association of America; and the Western Energy Alliance, all asserted that the Fracking Rule should be set aside because, among other things, it is in excess of the BLM’s statutory jurisdiction and authority. On June 21, 2016, the United States District Court for the District of Wyoming ruled that the BLM lacked Congressional authority to promulgate the Fracking Rule.

This case is important because it highlights the limited authority federal agencies have to regulate hydrocarbon exploration and production activities, even if they occur on federal or Native American lands.

Factual Background Oil and natural gas production in the United States has increased every year since 2008. Operators were able to steadily increase production by using hydraulic fracturing, a well-stimulation technique that has been in use in the United States for at least 60 years, in combination with more recent horizontal drilling technology. Hydraulic fracturing (or “fracking”) is the process of injecting water, sand and certain chemicals into shale or other tight-rock formations to create fissures in the rock and allow oil and gas to be recovered at the wellhead. Over the years, the public has grown more concerned about whether fracking can lead to or cause the contamination of underground water sources. As a result, the Fracking Rule focused on three aspects of hydrocarbon development: wellbore construction, chemical disclosures, and water management. The Fracking Rule’s stated focus was to (1) provide disclosure to the public chemicals used in hydraulic fracturing; (2) strengthen regulations related to well-bore integrity; and (3) address issues related to water produced during oil and gas operations.

As noted, the Western oil and gas producing states, the Ute Nation, and various oil and gas industry groups all attacked the regulation as being beyond the BLM’s Congressionally mandated jurisdiction and authority.

District Court’s Ruling An administrative agency’s power to promulgate legislative regulations is limited to the authority delegated by Congress. When Congress has directly spoken to the precise question at issue, a court must give effect to the unambiguously expressed intent of Congress.

In this case, the BLM relied on various statutes to argue it has the broad authority to regulate all oil and gas operations on federal and Indian lands, including the Federal Land Policy and Management Act of 1976 (“FLPMA”), 43 U.S.C. §§ 1701-1787; the Mineral Leasing Act of 1920 (“MLA”); the Indian Mineral Leasing Act of 1938 (“IMLA”), 25 U.S.C. §§ 396a-396g; and the Indian Mineral Development Act of 1982 (“IMDA”), id. §§ 2101-2108. 80 Fed. Reg. at 16,217. While the FLPMA, MLA, IMLA and IMDA all allow for the regulation of certain aspects of hydrocarbon exploration and production activities on federal and Indian lands, the district court reasoned that they do not speak directly to the regulation of hydraulic fracturing.

The district court noted, however, that in 1997, the Eleventh Circuit Court of Appeals held that the Safe Drinking Water Act (“SDWA”), codified at 42 U.S.C. §§ 300h through 300h-8, vested the Environmental Protection Agency (“EPA”) with the authority and duty to regulate hydraulic fracturing on all lands, federal, state and tribal. In response, in 2005, Congress passed the Energy Policy Act of 2005 which, in part, removed the EPA’s authority to regulate “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.” According to the district court, there could be no question that Congress intended to remove hydraulic fracturing operations (not involving diesel fuels) from EPA regulation under the SDWA. Therefore, the district court framed the issue as whether the Energy Policy Act of 2005’s explicit removal of the EPA’s regulatory authority over non-diesel hydraulic fracturing likewise precludes the BLM from regulating that activity. The district court held that it did.

Conclusion The district court concluded that “[i]f agency regulation is prohibited by a statute specifically directed at a particular activity, it cannot be reasonably concluded that Congress intended regulation of the same activity would be authorized under a more general statute administered by a different agency.” The SDWA clearly indicates Congress’s intent to remove hydraulic fracturing from federal regulation unless it involves the use of diesel fuels. As a result, the district court held that the Fracking Rule was in excess of the BLM’s statutory authority and ordered that it is set aside.

The BLM is appealing the district court’s ruling to the Tenth Circuit Court of Appeals.

Client Alert 2016-168