The controversy over hydraulic fracturing has ushered in an unprecedented wave of scrutiny over the oil and gas industry from nearly every angle—new lawsuits, more state regulations, constant press (often misleading as captured well in this recent Forbes article), local protests, and city council moratoriums. At the same time the President has reeled off a series of positive statements about the future of natural gas (the most recent being his support for tax credits and other incentives to spur natural gas truck fleets), other factions in the administration are undermining the message. Companies trying to make intelligent business decisions and major capital investments—in addition to trying to gauge the whims of the market and project future demand—are being forced to navigate what is quickly becoming an increasingly uncertain and unclear regulatory environment. To try and make sense of what’s going on in Washington D.C., here are four key federal initiatives every company should be watching.

#1 – TSCA Rulemaking

The TSCA Section 8 rulemaking, announced on November 23, 2011, may well have the most immediate impact on day-to-day activity. Manufacturers and processors (some of whom may be drilling companies, depending on how EPA defines the scope of the rule) will likely have to begin complying with data and other reporting obligations on hydraulic fracturing chemical and mixture use before the end of next year. Such reporting will almost certainly overlap, and potentially conflict, with the various disclosure requirements now law in most states. If they haven’t already, companies operating in multiple states should be charting each state’s disclosure requirements, and putting in place policies and safeguards to ensure compliance across the board. With respect to the TSCA rulemaking, it is critical that EPA fully hear and evaluate industry’s concerns. This will require robust participation on the part of the industry. Critical issues will be defining a workable scope, encouraging consistency with the state programs, protecting the necessary use of legitimate trade secrets and confidential business information, and limiting potential retroactive regulatory liability.

#2 Congressional Oversight

Last week, Congressman Darrell Issa (D-CA), Chairman of the House Committee on Oversight and Government Reform, sent letters to both DOE [PDF] and EPA [PDF] as part of the Committee’s ongoing oversight of the development of domestic energy resources. Rep. Issa asserted that EPA has “prejudg[ed] that hydraulic fracturing poses an environmental threat, even before the agency has completed a congressionally mandated review of the practice.” These claims are corroborated both by EPA’s premature TSCA rulemaking, and the Agency’s scientifically questionable interjection in both Dimock, PA (see e.g., Energy In Depth discussing the many problematic EPA actions at Dimock, PA and Pavillion, WY (see e.g., WY Governor Matt Mead questioning the objectivity of EPA’s Pavillion study and warning against predetermined outcomes). While elections are inherently uncertain, there is a good chance Rep. Issa will be chairing this oversight effort for several more years. As companies continue to face extreme pressure, and complex public relations environments, they should look to leverage this oversight.

#3 Clean Water Act Clues

As EPA embarks on setting pretreatment limits for wastewater generated at hydraulic fracturing operations, several clues have emerged as to where the Agency is going. EPA’s most recent comments [PDF] to New York’s revised Draft Supplemental Generic Environmental Statement (DGEIS) on Hydraulic Fracturing focused almost exclusively on levels of naturally occurring radioactivity in wastewater. EPA’s comments in 2009 [PDF], included a discussion of radioactivity in addition to total dissolved solids and metals. Notably, when similar concerns about levels of radioactivity in fracking wastewater were raised last spring in Pennsylvania, subsequent testing showed no elevated levels and no cause for concern. Regardless, EPA is committed to developing national pre-treatment standards.  Reading between the lines of the Agency’s comments in New York, industry should anticipate a focus on radioactivity, total dissolved solids, and other metals.

#4 Department of Interior

A day after the State of the Union speech, the Secretary of the Interior, Ken Salazar, announced in an e-mail statement that DOI’s new fracking regulations will focus on three areas: (1) public disclosure; (2) improving well-bore integrity; and (3) water-management plans for produced and flowback water. Juxtaposed with EPA’s schizophrenic reactions to hydraulic fracturing, Salazar and DOI appear to be taking a measured, reasoned approach. DOI’s focus seems to be appropriately limited and, at least initially, reflects an understanding of how oil and gas is extracted, where improvements may be needed, and where such improvements will actually provide public benefits in terms of risk reduction. While the upcoming DOI regulations are important, the bigger public lands/drilling issue is the time lag from lease procurement to actual production (up to a decade—as illustrated recently by Mark Green at API). Given the sizeable amount of oil and natural gas production on federal lands (roughly 30% and 38% respectively), there is no doubt that emerging new DOI regulations, and the continued debate over federal leasing, will have a large impact on the future of the industry.

The professionals in Kelley Drye’s Environmental, Energy, and Government Relations and Public Policy practice have years of experience navigating complex and time sensitive “Washington D.C.” regulatory, legislative, and litigation issues like those highlighted above for a broad swath of industrial and manufacturing clients. Feel free to contact any of the professionals affiliated with this blog should you have any questions or concerns.