IPAA, WEA release federal onshore frac regulation cost estimates

This story was updated July 22.

US oil and gas producers would pay an additional $345 million/year—or an average $96,913/well—under the US Bureau of Land Management’s amended proposed federal onshore hydraulic fracturing regulations, a study commissioned by the Independent Petroleum Association of America and the Western Energy Alliance found.

The study, by John Dunham & Associates of Brooklyn, NY, reflects improvements BLM made in its original proposal, IPAA and WEA said. But the amended proposal’s estimated costs still exceed the $100 million threshold requiring an economic assessment, which BLM has not conducted, they added.

JDA estimated that the original regulations, which BLM proposed in May 2012, would cost producers more than $1.284 billion. Changes the US Department of the Interior agency made following comments from producers, environmental organizations, and other stakeholders included elimination of a requirement to regulate well maintenance; reduction in the number of affected wells to 3,566 from 5,058; reduction of permitting times; and modification of a cement well logging requirement so it would apply to representative, instead of all, wells, the new study noted.

“While there are improvements in the second version of the rule, it still remains fundamentally flawed from an engineering perspective, as well as bad regulatory policy,” said Kathleen Sgamma, vice-president of government and public affairs at WEA in Denver. “[BLM] still has not justified the rule from an economic or scientific point of view, and continues to lack the budget, staff, or expertise to implement it.”

The latest proposal also lacks a mechanism under which states and Indian tribes can have their own rules certified when they are more stringent than BLM’s, she added.

JDA’s latest analysis shows the proposed regulations’ potential impact on independent producers is still significant, according to Daniel T. Naatz, IPAA’s vice-president of federal resources and political affairs. “Despite the best efforts of producers, manufacturers, state regulators, and others impacted by the proposed rule, BLM continues to move forward with this misguided effort,” he said. “IPAA will continue to work with the Western Energy Alliance and others to stop the BLM from implementing this ill-conceived regulatory plan.”

BLM is reviewing the report, a spokeswoman told OGJ. She noted that the agency’s $12-20 million/year cost estimate was down from the original proposal’s $37-44 million/year estimate.

“The largest cost comes from the requirement to run cement evaluation logs on surface casings,” she continued in a July 22 e-mail. “When averaged over all hydraulically fractured wells on federal lands each year, the costs comes out to be no more than $5,100/well.”

Contact Nick Snow at nicks@pennwell.com.

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