EOG Says U.S. Fracking Rule to Cost $1.5 Billion a Year

The Obama administration’s plan to tighten regulation of hydraulic fracturing for natural gas on public land may cost more than 20 times U.S. estimates, energy companies and local governments said.

EOG Resources Inc. (EOG), the top oil producer in a Texas shale formation, and officials from Wyoming and Utah cite a study by John Dunham and Associates that said it will cost $253,839 per well to meet the proposal for disclosing chemicals being used and certifying the well is isolated to avoid leaks. The Bureau of Land Management estimated costs at $11,833 per well.

“The proposed rule is unnecessary, excessive and requires actions that no state currently regulating oil and natural gas production deems necessary,” Eric Dille, government affairs director for Houston-based EOG, said in comments posted on a U.S. website Aug. 31. “The proposed rule will also place undue economic burdens and time delays on independent oil and natural- gas producers that will inevitably drive many smaller companies away from exploring for oil and natural gas on federal lands.”

The rules for disclosing chemicals and well integrity were crafted after environmentalists and homeowners said hydraulic fracturing, or fracking, may taint drinking water supplies or cause earthquakes. Fracking helped boost U.S. oil production by 11 percent and natural gas output by 25 percent from 2006 through 2011, according to U.S. data.

The rules for disclosing chemicals were crafted after environmentalists and homeowners said the process, called fracking, may taint drinking water supplies or cause earthquakes. Photo: Spencer Platt/Getty Images Close

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The rules for disclosing chemicals were crafted after environmentalists and homeowners said the process, called fracking, may taint drinking water supplies or cause earthquakes. Photo: Spencer Platt/Getty Images

2,000 Comments

Regulators received more than 2,000 comments about the rule before a Sept. 10 deadline, from oil and gas companies, environmental groups and county commissioners in Wyoming and Colorado. Interior Secretary Ken Salazar in May said he wanted to issue a final rule this year governing activities on 38 million acres leased by the U.S. for energy development.

President Barack Obama and Republicans, led by presidential nominee Mitt Romney, disagree on the regulation of fracking after the process led to a record output and lower prices.

Environmental groups such as the Natural Resources Defense Council praised the land bureau, part of the Interior Department, for taking the first steps in 30 years to update regulation of the technology used for more than 90 percent of wells.

Fracking uses millions of gallons of chemically treated water and sand to free oil and natural gas from rock. The technology helped the U.S. cut dependence on imported fuels, lower power bills and cut unemployment in states from Pennsylvania to North Dakota.

Idled Rigs

The Bureau of Land Management’s per-well estimate didn’t account for the 72 hours that rigs would be idled to let drillers document for regulators that cement, required by the rule to assure the well’s integrity, has set properly. Maintaining the drilling gear, including rigs that are rented, while the cement cures would cost $140,400, according to a report from New York-based John Dunham and Associates posted on the website of Western Energy Alliance, a Denver-based oil-trade organization.

Dunham estimates total costs of the rule at $1.5 billion to $1.62 billion a year. The Interior Department didn’t estimate total compliance costs.

Americans for Prosperity, a group founded by billionaire brothers Charles and David Koch that often backs Republican policies, the Navajo Nation Oil and Gas Co. in Arizona and Exxon Mobil Corp. (XOM) also criticized the proposal. Republicans back state regulation of U.S. energy production.

Watery Mix

Under the rule, proposed on May 4, companies such as Exxon, BP Plc (BP/), Chevron Corp. (CVX) or Chesapeake Energy Corp. (CHK) when drilling on public lands would have to list the chemicals used in their watery mix and ensure that the well is designed and drilled to limit spill risks.

Environmental groups such as the New York-based NRDC, the Wilderness Society and League of Conservation Voters told the agency they want water to be tested and drillers to disclose chemicals before work starts.

“They have the ability to set a really high bar and sort of standard for operations across the country,” Briana Mordick, the council’s oil and gas science fellow in Washington, said in an interview.

North Dakota Governor Jack Dalrymple, whose state has become the second-largest energy producer because of fracking in the Bakken shale formation, and the Navajo oil company urged the Interior Department to delay the rule until the Environmental Protection Agency releases preliminary results of its study of the technology in December. Texas is the nation’s biggest oil producer by fracking in the Eagle Ford formation.

Three Hurdles

Exxon, the largest U.S. natural-gas producer, complained about an “onerous” permitting process in which operators need to clear three hurdles per well, including approval of a so- called cement bond log, test to ensure a well wouldn’t leak.

The Interior Department “provides no assurances that it has the technical skill or resources to evaluate and approve a cement bond log in a scientifically sound and ‘within hours’ manner,” the Irving, Texas-based company said in comments filed June 25.

Companies including BP, Halliburton Co. (HAL) and Schlumberger Ltd. (SLB) asked the Interior to specify who would review the cement logs, whether that staff would be available at night and over weekends and sought written guidelines on what constitutes a good cement log, according to notes from the meeting with Interior Department submitted on Aug. 28.

To contact the reporter on this story: Katarzyna Klimasinska in Washington at kklimasinska@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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