The Obama administration released a new rulemaking on Friday that would have limited applicability on existing US oil and natural gas production, but the impact would be more extensively felt if states chose to adopt the standards, Barclays says in its new report.The US Bureau of Land Management published a long-awaited final rule on well integrity, water protection and chemical disclosure on Friday, justifying the rulemaking on the grounds that existing regulations are antiquated and last updated in 1988. We assess that states that are the main sources of incremental growth, mainly in North Dakota and Texas, will be unlikely to impose more onerous standards than those already in place, Barclays says.

Federal lands output onshore totals about 600 kb/d and 8.3 Bcf/d. The regulation covers only public Federal and Indian lands, in FY 2013 (latest data available) onshore oil production on those lands totaled about 600 kb/d, or less than 10% of oil production output. Onshore natural gas production totaled about 8.3 Bcf/d in (see EIA, June 2014). The majority of federal land oil and gas production is in the offshore Gulf of Mexico, which is unlikely to be affected by these new regulations.
• 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.

• BLM explains that the final rule is “intended to increase transparency for the public regarding the fluids used in the hydraulic fracturing process, provide assurance that wellbore integrity is maintained throughout the fracturing process and ensure that the fluids that flow back to the surface from hydraulic fracturing operations are properly stored, disposed of, or treated.”

• Disclosure of chemicals used in the hydraulic fracturing process is not doubly required to both the BLM and to the FracFocus website if a state already requires the submission to FracFocus. North Dakota does use FracFocus, but Texas does not.

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

• The new rule will have an impact on about 2,800 hydraulic fracturing operations per year, but it could impact up to 3,800 operations per year based on previous levels of activity on Federal lands and growing activity on Indian lands, mainly in the Williston Basin’s Fort Berthold area.

• BLM’s analysis indicates that the standards will cost companies about $11,400 per well, or about $32mn per year. On average this equates to approximately 0.13 to 0.21 percent of the cost of drilling a well.
Source: Barclays