U.S. oil and gas producers will have to pay an extra $345 million per year, or about $96,913 per well on average, under new proposed regulation by the U.S. Bureau of Land Management (BLM) regarding onshore hydraulic fracturing on public land. The estimates were announced after the completion of a study commissioned by the Independent Petroleum Association of America (IPAA) and the Western Energy Alliance (WEA).
The study was based on amendments that the BLM made to its original proposal, the IPAA and WEA said. Despite the improvements, the proposal's estimated costs will still exceed the $100 million threshold requiring an economic assessment, they added. The BLM itself had calculated that the new rules would cost local oil and gas companies between $12 million and $20 million a year, Reuters reported. Authors of the research estimated that the initial regulations, proposed in May 2012, would cost producers a total of over $1.284 billion.
Kathleen Sgamma, vice-president of government and public affairs at WEA in Denver, commented that even though improvements have been made in the second version of the regulation, the rules are still "fundamentally flawed from an engineering perspective." Moreover, she stated that the regulation was a bad regulatory policy because the BLM has not provided any justification of the rule from an economic or scientific point of view and certainly lacks resources and expertise to implement it.
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Both the WEA and IPAA commented that an analysis they released on Tuesday showed that almost 90 percent of the extra $345 million in costs would have to go toward compliance with the enhanced casing in drilling wells requirement. Casing is usually placed close to the top of the well and is a protective measure against leaks. In addition, the casing, typically several metal linings, enhances the structure of the drilling well. The stability of the well is particularly crucial in fracking, as operators inject water mixed with a range of chemicals at high pressure underground, which could damage unstable wells. Improving well casing was one of the key recommendations for boosting fracking safety, the Department of Energy said in 2011.
However, Dan Naatz, a vice president of federal resources for the IPAA, stated that casing was a matter that states addressed on their own when regulating fracking operations in their jurisdiction. What the BLM wants to do is a duplication and as such would be absolutely unnecessary and would bring no environmental benefits, he added.
Researchers noted that other costs in the total sum include various administrative rules and possible delays in tapping resources.
When asked about what steps the U.S. oil and gas industry will be taking to stop the proposed regulation, Jon Haubert, a spokesman for the WEA, stated that while it was too early to answer that question in detail, he believed the industry would not "stop short of a lawsuit" if necessary, Reuters said.
The Obama administration hopes that the regulation of fracking on public land would serve as a benchmark for state control over fracking on private land. Public lands account for about 13 percent of the total natural gas and about five percent of oil produced in the United States.