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A Texas Oil and Gas Attorney Reviews Proposed New Onshore Drilling Regulations

As a Texas oil and gas lawyer, I have followed with interest the proposals to add new regulations for onshore, as well as offshore, drilling in the wake of the Gulf of Mexico oil spill. Several initiatives to tighten federal regulation of offshore drilling are making their way through the halls of Congress. These bills are perhaps inevitable, considering the magnitude of the spill, the confused federal and BP response to the spill and the adverse public reaction to both the spill and the subsequent mitigation and clean up efforts. At the same time, however, environmental groups and some in Congress are using the push for new offshore drilling regulations to call for tighter federal rules for onshore oil and gas drilling. These new regulations are designed to make it more difficult for oil and gas companies to start drilling in the first place, and to more closely monitor their post-drilling operations for alleged threats to public health and the environment.

It’s perhaps a little too simplistic to blame the BP spill for the new regulatory push onshore. Given the Obama administration’s stated goals of favoring alternative energy and the environment over the pro-drilling energy policies of the Bush administration, perhaps new regulations were inevitable. But the debate appears to have taken on greater urgency in some quarters. As Kevin Book of Clear View Energy Partners says (referring to shale drilling), “the perception of risk has changed, and the reason for it can be summed up in one word-Macondo.”

The first signal of new regulations to come surfaced in May, when Interior Secretary Ken Salazar announced tighter regulations for oil and gas drilling on public lands. These new rules make it much more difficult for oil and gas companies to obtain drilling approval, and drilling on certain public lands would require a period of public comment. While environmental groups praised the regulations as reversing the allegedly destructive Bush administration drilling policies, the Independent Petroleum Association of the Mountain States (now the Western Energy Alliance) stated in a press release that the new rules would “delay the development of clean, domestic natural gas on Western federal lands.”The desire for tighter regulations focused Congress’ attention on two bills introduced over a year ago. One, the Consolidated Land, Energy, and Aquatic Resources Act (the CLEAR Act), passed the House on July 30, 2010 and went to the Senate. Among other things, the bill requires oil and gas companies engaged in drilling on federal lands to adopt “best management practices” designed to minimize threats to health and the environment; requires public disclosure of the chemicals used in drilling or hydraulic fracturing (often referred to as “fracing” in the oil industry or “fracking” by the media); and repeals 2005 legislation allowing companies to drill on public lands without a full environmental review process. Another bill, the Fracturing Responsibility and Awareness of Chemicals Act (the FRAC Act), originally introduced last summer, specifically targets the practice of hydraulic fracturing by removing the exemption of the practice from regulation by the EPA under the Safe Drinking Water Act. This bill and a companion bill introduced at the same time in the Senate have never come up for a vote. Similar language was stripped from the CLEAR Act, but the Clean Energy Jobs and Oil Company Accountability Act, introduced in the the Senate by Majority Leader Harry Reid (D-Nev.) would require companies to make their fracing formulas public on the Internet.

While the ultimate fate of all these bills has yet to be determined, these initial efforts to increase federal regulation of onshore drilling spurred calls for even further regulation. In late July 2010 a number of environmental groups, including the National Audubon Society, the Natural Resources Defense Council, and the Sierra Club, sent a letter to Senate Majority Leader Harry Reid and Speaker of the House Nancy Pelosi, urging the passage of new onshore drilling regulation to target what they call the damaging environmental and health effects of current practices. In addition, they urged an end to tax benefits for oil and gas companies, more federal money for research into public safety and environmental protection, and an end to “fast-track” approval of oil and gas drilling on federal lands.

What impact will increased federal regulation have on domestic oil and gas drilling? Only time will tell. Oil and gas companies oppose federal regulations, saying that existing state regulations are quite sufficient to protect the environment and public health and safety. Marc Smith, the executive director of the Western Energy Alliance, points out the folly of giving more oversight of onshore drilling to the same federal regulators who failed to prevent the BP oil spill: “It doesn’t make sense to take more control away from state oil and gas regulators and give it to the federal agency that just oversaw the worst environmental catastrophe in the history of our nation.” Here in Texas, for example, we have the Texas Railroad Commission, which does an excellent job of regulating oil and gas drilling and production. Industry representatives also claim that the regulations embodied in the CLEAR Act will make drilling on public lands more expensive, increase Government control over the market, and create a new and unnecessary layer of bureaucracy.

There is an economic and national security aspect of these proposed regulations that sometimes gets lost in the debate. If regulations for onshore drilling are increased, oil companies will need to spend more time and money in compliance. That means the cost of oil and gas and the products derived from oil and gas will increase for consumers. In addition, increased regulation will almost certainly mean fewer wells will be drilled, and this will result in even greater unemployment for workers in the oil and gas industry and all the many industries that service the oil and gas companies (the majority of which are small businesses). Ultimately, if the higher regulatory cost leads to lower domestic production, we will have to increase, rather than decrease, our reliance on Mid-East oil. This factors should make us consider carefully: is increased reulation is really the direction we should be heading?

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