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BLM's Fracking Rule Seen Costing Billions

Regulating hydraulic fracturing (fracking) on public lands as the Interior Department's Bureau of Land Management (BLM) proposes to do would cost society $1.499 billion to $1.615 billion per year, according to an analysis commissioned by the Western Energy Alliance (WEA).

BLM's proposed fracking regulations are opposed by the energy industry. The agency recently relented on one point, striking a requirement that fracking fluid contents be disclosed prior to fracking operations, a requirement producers said would have delayed drilling (see NGI, June 4).

The [BLM] rule will divert productive resources away from energy development, job creation and economic growth into federal compliance redundant with state regulation, further disadvantaging western public lands states, WEA said Tuesday when it released the analysis conducted by economics firm John Dunham & Associates.

"...[A]ssuming a best-case scenario, where the BLM approves 100% of all applications and assuming capital costs of only 7%, these regulations -- if applied to all projects in the western states -- would cost at least $1.226 billion annually based on the carrying costs of the project," the analysis said. "Based on the discounted lost value of petroleum output, the proposed regulations would cost about $1.342 billion annually.

"Averaging these two methods together suggests that a reasonable estimate for the cost of this proposed rule as applied to drilling in the western states is just over $1.284 billion. The average cost per well is estimated at $253,800. This figure does not even include the cost of the regulations for existing wells that will require rework or re-stimulation. A conservative estimate of this cost is upwards of $233,100 per well or about $273 million per year. Total aggregate annual costs for new permits and workovers would be at least $1.499 billion and as high as $1.615 billion."

WEA and others in the industry contend federal rules are unnecessary anyway. "States have been successfully regulating fracking for generations, including on federal lands, with no incident of contamination that would necessitate redundant federal regulation," said WEA Vice President Kathleen Sgamma, who runs government and public affairs. "BLM's proposed fracking rule would impose a huge cost on society by diverting $1.615 billion annually away from investment in job creation into redundant regulation."

According to WEA, the rule is unnecessary, burdensome and unwanted by western energy states because operators developing on federal lands must obtain state permits and comply with all state regulations; states have the expertise to properly regulate hydraulic fracturing, and have done so for over 60 years; there have been no incidents of ground water contamination from fracking on federal lands that would necessitate the rule; and any new federal regulation prior to the release of Environmental Protection Agency's (EPA) ongoing scientific study examining fracking is premature.

In addition, WEA said the rule isn't necessary because BLM failed to conduct a full economic assessment required for rules with more than $100 million in annual cost, and therefore the rule violates the Paperwork Reduction Act, the Small Business Regulatory Enforcement Fairness Act, the Unfunded Mandates Reform Act, the Regulatory Flexibility Act, the Small Business Regulatory Enforcement Fairness Act, and Executive Order 12866 Regulatory Planning and Review; and several western governors, tribes, members of Congress and the Interstate Oil & Gas Compact Commission have publicly opposed BLM regulating fracking on public lands.

"The Interior Department is willing to rush forward with regulations that lack a scientific basis and a thorough economic analysis as required for major rules that exceed the $100 million cost threshold," Sgamma said.

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