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Analyst Says Impact Minimal From DOI Fracking Rule

An analyst with Barclays said the Department of Interior's (DOI) rule for hydraulic fracturing (fracking) on public and tribal lands would have a limited effect on oil and natural gas output, but states that currently have no laws governing fracking could use the federal rule as a template.

The DOI issued its long-awaited rule last Friday (see Shale DailyMarch 20). Among its stipulations, the rule requires oil and gas operators use the FracFocus registry to disclose the chemicals used in fracking, and use above-ground tanks to temporarily store produced water.

In a note Friday, Michael Cohen said the rule "would have limited applicability on existing U.S. oil and natural gas production, but the impact would be more extensively felt if states choose to adopt the standards.

"We assess that states that are the main sources of incremental growth, mainly in North Dakota and Texas, will be unlikely to impose more onerous standards than those already in place."

Last Friday, DOI Secretary Sally Jewell said she thought states that currently have no laws governing fracking, but have federal lands within their borders, would ultimately use the new federal rule as a guide to craft their own state regulations for drilling on state and private lands.

According to Cohen, data from the U.S. Energy Information Administration (EIA) shows that oil and gas production from federal onshore lands totaled about 600,000 b/d and 8.3 Bcf/d, respectively, in 2013, the most recent year with figures available (see Shale DailyJuly 8, 2014). The 600,000 b/d figure is 6.5% of total U.S. production, according to EIA figures from December 2014.

"The majority of federal land oil and gas production is in the offshore Gulf of Mexico, which is unlikely to be affected by these new regulations," Cohen said. "[But] the rulemaking is significant because states may choose to adopt the standards, though it is unlikely that the federal government will apply it broadly to private lands."

Cohen said an operator would not be required to submit two entries to FracFocus for a well drilled in a state that already uses the registry, such as North Dakota. He pointed out that Texas currently does not use FracFocus.

"Not all existing production, but a great majority of new drilling on federal lands, would be affected by the rule," Cohen said, adding that DOI's Bureau of Land Management (BLM) "estimates that about 90% of the approximately 2,800 new wells spudded in 2013 on federal and Indian lands were stimulated using [fracking] techniques.

"The new rule will have an impact on about 2,800 [fracking] operations per year, but it could impact up to 3,800 operations per year based on previous levels of activity on federal lands and growing activity on Indian lands, mainly in the Williston Basin's Fort Berthold area," (see Shale Daily,June 20, 2014).

During last Friday's rule announcement, Janice Schneider, BLM's assistant secretary for land and minerals management, said the bureau's economic analysis calculated that the above-ground tank standard would cost operators on average approximately $5,500 per operation. Cohen said the total cost for the new rule would amount to about $11,400 per well, or $32 million per year.

"On average this equates to approximately 0.13 to 0.21% of the cost of drilling a well," Cohen said.

Last week, Jewell said DOI was months away from unveiling standards designed to cut methane emissions from drilling on public lands (see Shale DailyMarch 17).

The BLM oversees about 700 million subsurface areas of federal mineral estate. It also carries out regulatory duties for the DOI secretary for an additional 56 million acres of Indian mineral estate across the United States. The bureau said there are currently more than 100,000 oil and gas wells on lands managed by the federal government.

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