Even a cursory review of relevant news stories today reveals that hydraulic fracturing (“fracking”) is one of the most hotly debated subjects in the energy sector. Both environmentalists and regulators are keeping concerns about fracking at the forefront of their agendas. Since late May of this year, there have been a number of key legal developments related to the issue that merit the attention of the oil and gas industry.

State Regulators Squabble Internally Over EPA Fracking Guidance
Numerous state environmental and energy regulators have found themselves at loggerheads over whether the United States Environmental Protection Agency (“EPA”) should be allowed to implement its controversial draft “Permitting Guidance for Oil and Gas Hydraulic Fracturing Activities Using Diesel Fuels – Draft: Underground Injection Control Program Guidance #84,” EPA 816-R-12-004 (May 2012). The driving issue behind the guidance is EPA’s attempt to regulate those fracking operations that utilize “diesel fuels,” the only form of fracking left open to such regulation since a 2005 amendment to the federal Safe Drinking Water Act (“SDWA”) exempted fracking using fluids or propping agents “other than diesel fuel” from regulation under the Underground Injection Control (“UIC”) program. 

EPA claims the guidance would only apply in states where EPA directly oversees underground injection control permits for the fracking operations. But state regulators with regulatory primacy have expressed concerns about language in the guidance document itself that implies its applicability could extend to state programs. Several state regulators fear that the guidance could expose them to potential citizen suits under the SDWA.

From Pennsylvania to Alaska, at least six states’ environmental agencies have split with their energy or corporate state regulatory counterparts on the issue. The split is being played out in the comments filed with EPA on the guidance. EPA published its draft guidance in early May, and accepted comments until August 23, 2012.

Generally speaking, the environmental agencies favor the guidance document, while the energy regulators who usually hold the permitting authority have voiced numerous concerns-- some even suggesting that they may pursue legal action against EPA over the guidance document. The energy commissions argue that the guidance, if required, would mandate changes that cannot legitimately be implemented without formal notice and comment rulemaking in accordance with the federal Administrative Procedure Act.

North Dakota’s Industrial Commission (“NDIC”) and Kansas’ Corporation Commission (“KCC”) have argued that EPA’s claim that diesel fracking fits best in the UIC Class II rules for wastewater disposal and enhanced oil recovery is fatally flawed. NDIC and KCC point out that application of the Class II UIC rules would necessitate removal of equipment and production stoppages at fracking operations and that the Class II rules were intended for long-term injection operations, whereas fracking usually takes place over only a few hours to days. NDIC has also argued that UIC permitting of diesel fracking should only apply if fracking fluids contain more than 10% diesel. EPA’s position is that the SDWA has a zero threshold limit for diesel component elements (benzene, toluene, ethylbenzene and xylene or “BTEX” compounds) and therefore no threshold should apply.

IOGA has joined in the comments filed by the Independent Petroleum Association of America which raise the foregoing issues, as well as many other comments in opposition to the EPA guidance.

EPA Holds off on Cancer Limit for Fracking Compound TMB (for now)
On June 26, EPA announced that it lacked a sufficient empirical basis to establish a cancer limit for three isomers of trimethylbenzene (“TMB”) found in some fracking fluids. Because the TMBs are volatiles, EPA believes the principle exposure vector is through respiration.

FracFocus, a voluntary reporting website for fracking composition, confirms TMB as a component in some fracking fluids. Thus, the three TMB isomers (1,2,3-TMB, 1,2,4-TMB, and 1,3,5-TMB) have joined the list of compounds over which some regulators and environmentalists have concerns about potential contamination to drinking water from fracking fluids.  EPA’s comment period for the subject closed on August 28, 2012.

EAB Decision Increases Permitting Burden for Fracking Wastewater UIC Permits
On June 28, 2012 EPA’s Environmental Appeals Board (“EAB”) issued an adverse decision against EPA over the Class II UIC permits EPA had issued for injecting fracking wastewater from two Pennsylvania wells. The EAB ruled that EPA’s review was insufficient to establish that drinking water supplies would be protected from the UIC activity. The case, In Re: Bear Lake Properties, LLC, held that EPA Region III did not adequately ensure that accurate data on drinking water wells near the injection wells were properly identified and considered in the permitting decision. Discrepancies existed in the number of drinking water wells identified in the various well surveys for the permit. The EAB remanded the permits back to EPA ordering more “adequate support to substantiate [EPA’s] conclusions.”

The Bear Lake decision will likely increase the complexity and time requirements for permitting underground injection of fracking wastewater, particularly in the Marcellus and other eastern regional shale gas plays. EPA has stated that it anticipates increased UIC permitting for fracking wastewater in the east. However, additional fracking wastewater UIC permitting may be kept on hold until EPA resolves with EAB in the Bear Lake case the degree of review and substantiation that will be adequate for drinking water protection.

EPA Claims Existing Statutory Authority to Regulate Fracking
In an August 9 article, INSIDEEPA.COM disclosed a previously unreleased letter from EPA dated March 8, 2011, which discussed existing statutory options that the agency sees for regulation of fracking. Last year, Congressional Democrats called for Congress to pass new statutory authority for EPA to regulate fracking. Several Congressional Democrats have sponsored legislation to end existing regulatory exemptions for fracking in the SDWA, Clean Water Act and Clean Air Act.

In the letter responding to an inquiry from Senate Democrat Benjamin Cardin of Maryland, EPA lists a number of claimed statutory sources for fracking regulatory authority, including (1) the Clean Water Act (“CWA”), (2) the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), (3) the Resource Conservation and Recovery Act (“RCRA”), (4) § 4 toxicity testing and significant new use rules under the Toxic Substances Control Act (“TSCA”), and (5) the Clean Air Act’s (“CAA”) New Source Review/aggregation requirements and §112(r) (commonly referred to as the “general duty” clause). Historically, fracking has been regulated by state, not federal, legal requirements. EPA also cited the existing statutory provisions in its letter as grounds for potential enforcement actions.

In practice, however, EPA has struggled to take successful permitting or enforcement action under the statutes identified. On August 15, 2012, EPA was dealt a major blow when the U.S. Court of Appeals for the Sixth Circuit struck down EPA’s attempt to aggregate Summit Petroleum’s natural gas facilities under Title V of the CAA. In Texas, EPA was forced to withdraw a SDWA enforcement action in the face challenges by the defendant on constitutional grounds. CERCLA’s petroleum exemptions also have created significant evidentiary hurdles for the agency. Under pressure from environmentalists, however, EPA has announced on its website that the agency will propose a rule under TSCA that will require oil and gas operators to provide substantial health and safety information related to fracking compounds.

The EPA’s focus on fracking is unlikely to decrease as the industry continues to expand production footprint from shale formations to other regions of the country. EPA appears inclined to adopt environmentalists’ positions on fracking issues. The oil and gas industry should pay close attention to these developments and take legal and political steps, as necessary, to protect its interests.