CBD v. Salazar and the Way Forward for Fracking in Federal Minerals
On March 31, 2013, a magistrate judge with the U.S. District Court for the Northern District of California ruled that the U.S. Bureau of Land Management (BLM) violated the National Environmental Policy Act (NEPA) in issuing several oil and gas leases without first adequately analyzing the impacts of horizontal drilling and multistage hydraulic fracturing (fracking). Center for Biological Diversity (CBD) v. BLM, No. C 11-06174-PSG (N.D. Cal. Mar. 31, 2013). Recognizing that land-use planning for public lands has been outpaced by developments in drilling technology, the court held that additional NEPA review of fracking is required before BLM may issue leases that would constrain the agency’s ability to prevent surface disturbance on the leased land. The ruling, which remains subject to appeal, is one of the early takes at the thorny legal pathway that lies ahead for parties seeking to develop federal shale oil and gas reserves. Significantly, while the court ruled against BLM on NEPA and called for further environmental review of fracking, the opinion leaves open several ways forward for parties seeking to drill in federal minerals.
The Multistep Management Process for Oil and Gas Activities on Federal Land
The CBD v. Salazar decision addresses complications that recent advancements in drilling technology raise for BLM’s multistep management process for oil and gas activities on public lands. The Federal Land Policy and Management Act (FLPMA) and Mineral Leasing Act of 1920 (MLA) provide for three distinct levels of BLM decision-making that oil and gas interests must navigate before drilling in federal minerals: (1) the planning level; (2) the leasing level; and (3) and the drilling level.
At the first level, BLM develops a “land use plan”—usually called a Resource Management Plan or RMP—for a geographic region, which establishes broad planning goals. 43 U.S.C. § 1712(a); see generally Norton v. S. Utah Wilderness Alliance, 542 U.S. 55, 59, 69–70 (2004) (addressing BLM’s land-use planning process). Among other things, the RMP typically determines what parts of the planning area will be open to oil and gas leasing, and establishes conditions that apply to drilling within those areas. 43 C.F.R. § 1601.0-5(k). In developing or revising the RMP, BLM must provide for public participation and generally must prepare a detailed Environmental Impact Statement (EIS) under NEPA.
At the second level, BLM develops, sells, and executes oil and gas leases for parcels within the planning area. As with all other decisions approving site-specific projects within the planning area, leasing decisions must be consistent with the standards set forth in the governing RMP. 43 C.F.R. § 1610.5-3(a); see generally Pennaco Energy, Inc. v. U.S. Dep’t of the Interior, 377 F.3d 1147, 1151 (10th Cir. 2004) (summarizing BLM’s multistep decision-making process for management of federal oil and gas resources). BLM may impose reasonable measures or stipulations in the lease to minimize impacts to other resources and ensure consistency with the RMP. See 43 C.F.R. § 3101.1-2; see also id. §§ 3162.1(a), 3162.5, 3164.1. BLM’s leasing decision requires additional NEPA review, unless the site-specific environmental impacts of the leasing decision were sufficiently analyzed in the EIS that accompanied the RMP, or the lease terms provide BLM with sufficiently broad discretion to deny development of the parcel at the drilling stage. See Salmon River Concerned Citizens v. Robertson, 32 F.3d 1346, 1356 (9th Cir. 1994); Conner v. Burford, 848 F.2d 1441, 1446 (9th Cir. 1988).
At the final stage before drilling may proceed, BLM reviews an Application for a Permit to Drill (APD) a well, which it must approve before any “drilling operations” or “surface disturbance preliminary thereto.” 30 U.S.C. § 226(g); 43 C.F.R. § 3162.3-1(c). BLM may condition its approval of an APD on additional reasonable terms and conditions that ensure consistency with the RMP. See 43 C.F.R. § 3162.3-1(h). BLM’s decision to grant an APD typically requires additional environmental review under NEPA and other applicable laws, such as the Endangered Species Act and National Historic Preservation Act. In some cases the APD will qualify for a Categorical Exclusion under NEPA, but that does not exempt the APD from compliance with other laws. See 40 C.F.R. §§ 1508.4, 1507.3(b)(2); see also Energy Policy Act of 2005, 42 U.S.C. § 15942 (establishing five statutory categorical exclusions for oil and gas development).
The CBD v. BLM Decision
The CBD v. BLM decision primarily addresses the second stage of decision-making described above, but its ramifications also reach the planning and drilling stages in unconventional sources like shale. The case involves a challenge by a coalition of municipal and environmental groups to four oil and gas leases issued by BLM for parcels covering a total of 2,700 acres of land in Monterey County and Fresno County in California, within the Monterey Shale Formation. BLM prepared an Environmental Assessment (EA) under NEPA and made a Finding of No Significant Impact. BLM concluded that a more detailed review in an EIS was not required at the leasing stage, because a 2006 EIS issued by BLM contained a Reasonable Foreseeable Development Scenario (RFDS) that predicted that fewer than 15 wells would be drilled in the planning area, including just one well on the parcels at issue, during the next 15 to 20 years. Accordingly, BLM found that “very little (if any) disturbance to the human environment” would occur. BLM noted that it would conduct additional analysis of the impacts of fracking when and if the lessees submitted APDs for individual wells. BLM reasoned that analyzing site-specific impacts, including those associated with fracking, would be more feasible at the drilling stage and that it retains sufficient authority to protect sensitive resources even after lease issuance.
BLM included its “standard” stipulations and two special stipulations related to protection of endangered species and cultural resources in all four leases. BLM also included a “No Surface Occupancy” (NSO) stipulation in two of the four leases, which precludes the lessee from using the surface of the leased land without additional specific authorization from BLM.
Reviewing this record of NEPA compliance and evidence related to advancements in drilling techniques, the court held that “BLM violated NEPA in its environment assessment of the leases by unreasonably relying on an earlier single-well development scenario[, which] did not adequately consider the development impact of hydraulic fracturing techniques popularly known as ‘fracking’ when used in combination with technologies such as horizontal drilling.” Order at 1−2. The court explained that “it was unreasonable for BLM not to at least consider reasonable projections of drilling in the area that include fracking operations, or else limit its sale to leases with NSO provisions that would permit it to prohibit all surface disturbances until more specific information becomes available.” Id. at 24. In other words, the court found that the BLM’s 2006 prediction of how many wells would be drilled in the area had been outpaced by drilling advancements, which the court indicated have significantly changed the development potential of both the parcels subject to the lease and of the larger Monterey Shale Formation. According to the court, because these changed conditions were not addressed in the 2006 EIS, postponing detailed NEPA review to the drilling stage was only appropriate for the two NSO leases. Id. at 17. The court reasoned that even strict stipulations enabling BLM to deny all surface-disturbing activities if certain resources like endangered species would be adversely impacted are insufficient bases to delay NEPA review if BLM “will not be able to unilaterally deny the permit.” Id. Accordingly, the court held NEPA analysis of the foreseeable impacts of fracking was required before issuing the two leases that did not contain the NSO provisions. See id.
The Outdated Resource Management Plan/EIS ProblemThe decision reflects the fact that recent advancements in fracking appear to have significantly changed the oil and gas development potential of many federal planning areas. While both horizontal drilling and hydraulic fracturing have existed for many years, the decision found that the “evidence shows that in just the past few years fracking has been combined with horizontal drilling and other modern technologies to provide access to previously unattainable shale oil such as that in the four parcels of Monterey shale at issue” in the case. Order at 22; see also id. at 2.
As a result of these recent advancements, the Resource Management Plans and associated EISs for many federal planning areas—particularly those that include “unconventional” sources like shale—may be outdated. As the CBD v. BLM case illustrates, many of these RMPs and EISs, most of which were prepared well over five years ago, may have been based on anticipated levels of development that are much lower that the development potentials that now exist. This issue appears to be widespread. For example, another pending federal district court case challenges BLM’s and the Forest Service’s management of federal oil and gas reserves in the Fayetteville Shale Formation in Arkansas. See Ozark Soc’y v. U.S. Forest Serv., No. 4:11CV00782 SWW, 2012 WL 994441 (E.D. Ark. Mar., 2012) (denying the plaintiffs’ motion for a preliminary injunction). Like the RMP at issue in CBD v. Salazar, the RFDS that informed the 2005 Plan and EIS at issue in the Ozark Society case predicted that fewer than 15 wells would be drilled across the entire Ozark-St. Francis National Forest during a 10-year planning period. Id. at *1. But, just a few years later, BLM issued a new RFDS for this same area that predicted up to 1,730 wells could be drilled during this period—an over 100-fold increase. Id. FLPMA does not require RMPs to be amended or replaced due to the increased development potential of planning areas resulting from drilling advancements. See id. at *3; S. Utah Wilderness Alliance, 542 U.S. at 59, 69–70. Nonetheless, additional hurdles are raised under NEPA to the extent that technological advancements have rendered many RFDSs obsolete. As the CBD v. Salazar decision held, because “the emergence of fracking raises potential concerns that were not considered by the 2006 [EIS],” BLM could not “tier” to or rely on the 2006 EIS for NEPA compliance. Order at 23. These “potential concerns that were not considered” at the planning level trigger several of NEPA’s “significance factors,” the presence of which can require detailed review in an EIS rather than in an EA or through a Categorical Exclusion. Id. at 20, 24–27.
Some Ways Forward for Fracking in Federal Minerals
While the CBD v. Salazar decision ruled against BLM and indicated the need for more detailed and up-to-date NEPA review of fracking, the opinion allows for various ways forward for parties seeking to drill federal shale formations.
First, the decision held that BLM may issue oil and gas leases without further environmental review so long as the lease includes an NSO stipulation or “absolute right to deny exploitation of [the] resources.” Order at 17. Following Ninth Circuit precedent, the court found that such leases do not mark “irreversible and irretrievable commitments of resources,” and thus NEPA review can wait until the drilling stage. Id. (citing Conner, 848 F.2d at 1448–49). The court was not convinced by plaintiffs’ argument that even leases with NSO stipulations should be considered “irreversible commitments of resources” requiring NEPA review due to advancements in horizontal drilling and hydraulic fracturing. Order at 16–18; see also Conner, 848 F.2d at 1447. Securing NSO leases, however, likely only postpones NEPA requirements until the drilling stage. Accordingly, at least to the extent that surface disturbance of the leased land is necessary to develop the NSO lease, a lessee would likely not be able to move forward before BLM completes further NEPA analysis of the potential effects of fracking. Second, to the extent a lessee with an NSO lease can horizontally drill into the leased federal minerals from nearby state or private land, and thus avoid surface disturbance of the leased federal land, drilling may be allowed without additional NEPA review. Under existing regulations, no further federal approval triggering NEPA would likely be needed to drill from state or private lands.
Third, consistent with CBD v. Salazar and Conner v. Burford, NSO lessees may be able to enter into “unitization” or “communitization agreements” with nearby federal lessees and thereby directionally drill into the leased federal minerals from other leased land that is not encumbered by an NSO provision. See 43 C.F.R. § 3217.11 (describing communitization agreements); id. § 3180 (describing unitization agreements). BLM’s approval of an APD for a well on the nearby federal lease, however, would be subject to NEPA and would face some litigation risk to the extent an adequate environmental review of fracking has not yet been completed for the larger area.
Finally, the oil and gas industry could work with BLM (and, where applicable, the Forest Service) to expedite more comprehensive and current NEPA reviews of fracking, and thus remedy the outdated RMP/EIS issue discussed above. Such a review may be more efficiently conducted at the regional level and address multiple RMPs than piecemeal at the leasing or drilling levels. These NEPA reviews likely would take the form of a programmatic EIS on fracking or new or supplemental EISs analyzing proposed RMP amendments specific to mineral management. Given tight federal budgets, industry may need strong support from Congress and agency leadership to move this process forward. As long as NEPA’s conflict-of-interest provisions are not violated, industry may also be able to help fund independent contractors to complete the EIS process under the supervision of agency staff and decision-makers.
The CBD v. Salazar decision illustrates the thorny agency decision-making process that may lie ahead for parties interested in drilling in unconventional federal oil and gas reserves. While additional, updated NEPA analyses of fracking may ultimately be necessary before fracking on federal public lands hits full steam, the oil and gas industry may be able to tap into federal shale formations now by drilling horizontally from nearby leases. Tyler Welti, who recently joined Perkins Coie’s Washington, D.C. office, was the fracking litigation lead for the U.S. Department of Justice, Environment and Natural Resources Division’s Natural Resources Section.
 BLM manages public lands pursuant to FLPMA, 43 U.S.C. §§ 1701–1785, while the Forest Service administers the National Forest System pursuant to the National Forest Management Act,16 U.S.C. §§ 1600–1687 (NFMA). NFMA similarly requires the Forest Service to issue “land and resource management plans” for units of the national forest system. 16 U.S.C. § 1604. Under the MLA, 30 U.S.C. §§ 181 et seq., BLM has authority to manage oil and gas resources on both BLM-managed public lands and Forest Service-managed national forests. 30 U.S.C. § 226. This discussion focuses on BLM’s management of public lands but applies equally to management of national forest lands.
 The decision is unclear whether all four leases are deficient under NEPA because all four relied on the same EA, or whether the holding is limited to the two leases without NSO stipulations. The court requested further briefing on the remedy.
 The court pointed out that a 2010 U.S. House of Representatives Appropriation Conference Committee noted that recent advancements in fracking have resulted in a significant spike of natural gas production and that an EPA study predicted that by 2020 shale gas would comprise over 20% of the total U.S. gas supply. Order at 22–23.
 The court found that the degree of controversy regarding fracking, potential effects of fracking on public health and safety (especially water pollution), and level of uncertainty regarding the impacts of fracking all supported the need for an EIS. Order at 25–27.
 Other circuit courts have held similarly. See N.M. ex rel. Richardson v. BLM, 565 F.3d 683, 718 (10th Cir. 2009) (ruling that in oil and gas leasing, “assessment of all ‘reasonably foreseeable’ impacts must occur at the earliest practicable point, and must take place before an ‘irretrievable commitment of resources’ is made”); Sierra Club v. Peterson, 717 F.2d 1409, 1411−12 (D.C. Cir. 1983) (finding an “irreversible, irretrievable commitment of resources” when leases “d[id] not authorize the [agency] to preclude any activities which the lessee might propose”) (emphasis in original).
 Further complicating budget concerns is the fact that in areas where BLM manages the mineral estate and a different agency analyzes the surface estate, there may be disagreement between agencies about who should fund and staff the analyses. The line between “down-hole” impacts managed by BLM and surface impacts managed by other agencies can be unclear, particularly with respect to resources like water.
© 2013 Perkins Coie LLP