Barclays: New fracturing regs will have limited effect on US oil, gas output

A recent US rule about hydraulic fracturing on federal and tribal lands will have limited effect on existing US oil and natural gas production, said a Barclays Research analyst in New York.

The US Department of the Interior issued a long-anticipated final rule to govern fracturing of onshore oil and gas wells (OGJ Online, Mar. 20, 2015).

Officials with the US Bureau of Land Management said the regulations, effective in 90 days, will improve safety and help protect groundwater by updating requirements for wellbore integrity, wastewater disposal, and public disclosure of chemicals.

Onshore oil production from federal and tribal lands accounted for less than 10% of US oil production according to statistics from 2013, the latest available data, said Michael Cohen, Barclay’s research analyst. Most oil and gas production from federal jurisdiction involves the offshore Gulf of Mexico, he said.

“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.

States that provide the main incremental production growth, mainly North Dakota and Texas, will be unlikely to impose more onerous standards than those already in place, Cohen said.

“Not all existing production but a great majority of new drilling on federal lands would be affected by the rule,” Cohen said. “BLM estimates that about 90% of the approximately 2,800 new wells spudded in 2013 on federal and Indian lands were stimulated using hydraulic fracturing.”

He said the new rule will apply to growing activity on the Williston basin’s Fort Berthold area in North Dakota.

Separately, a partner with the Dorsey & Whitney law firm in Washington, DC, said the new rule could make it more difficult for industry.

Thomas Lorenzen, formerly with the US Justice Department and now with Dorsey & Whitney, said the new rule will create a patchwork of regulatory regimes. Lorenzen worked for more than 10 years as assistant chief in the DOJ’s environment and natural resources division.

“Interior’s new rule governing hydraulic fracturing may have two near-immediate effects,” Lorenzen said. “First, because it applies only on federal and tribal lands, it will create a patchwork of regulatory regimes, making it more difficult for industry to devise uniform practices to limit any possible adverse effects on drilling water from fracturing operations.

“Second, it could well result in an increase in the price of natural gas, thus potentially putting a crimp in the administration’s effort to drive energy production away from higher carbon dioxide coal and toward cheap and lower-emitted natural gas-fired power.”

Contact Paula Dittrick at [email protected].

*Paula Dittrick is editor of OGJ’s Unconventional Oil & Gas Report.