The Western Energy Alliance (WEA) and the Independent Petroleum Association of America (IPAA) have released a faulty analysis of the proposed Department of the Interior (DOI) hydraulic fracturing (fracking) rule that overestimates the annual cost of the rule by 90 percent, or over $310 million.[1]

The economic analysis, which was completed by the private firm John Dunham & Associates, claims that the proposed rule will cost companies $345 million annually to comply.  The analysis is flawed, however, as 90 percent of the costs claimed by WEA and IPAA can be attributed to what is either a misunderstanding or a misrepresentation of one aspect of the proposed DOI rule.

 

temp-chart

DOI’s proposed fracking rule will guide drilling and fracking operations on nearly 760 million acres of federally managed mineral rights.[2] In one portion of the rule, DOI provides a definition of “usable water” which drillers are to isolate and protect from contamination with cement and casing requirements. According to DOI, the definition of “usable water” in the proposed rule is in line with a policy adopted in 1988, in part, to protect water supplies (referred to below as “BLM Onshore Order No. 2”).[3]

 

This element of the proposed rule, therefore, imposes no additional cementing and casing requirements and no new costs.

According to the preamble of the proposed rule:

“The BLM has casing and cementing requirements to protect and/or isolate usable water zones, found in Onshore Order No. 2, that are consistent with the final rule. Operators on Federal and Indian leases who are drilling in compliance with Onshore Order No. 2 would also be in compliance with this rule; accordingly the rule poses no additional burden for drilling and cementing operations…”[4]

 

WEA and IPAA’s economic analysis wrongly presumes that the definition of “usable water” in the proposed rule will require drillers to take additional and costly precautions to protect water supplies. According to the analysis:

“The simple fact is that the definition of ‘usable water’ in the proposed rule is extremely broad, and could require operators to run and cement casings to depths far beyond any economically usable water.”[5]

 

Despite DOI being very explicit in the matter, the industry analysis asserts that the definition of “usable water” imposes $310 million in new cementing and casing costs.

 

WEA and IPAA Cost Estimated for Proposed Federal Fracking Rule

Estimated Annual Cost of Proposed Rule Percent of Total
Enhanced Casing Costs $   310,063,700 89.7%
Cost of Tanks over Pits $   19,613,000 5.7%
Cement Log Delay Costs $   5,914,436 1.7%
Initial Delay Costs $   5,632,585 1.6%
Administrative Costs $   1,765,170 0.5%
Cement Log Costs for “Well Types” $   2,603,465 0.8%
Total Costs $   345,592,357 100.00%

 

After removing the nonexistent “enhanced casing costs” from WEA and IPAA’s economic analysis, the estimated annual cost of the proposed rule comes to approximately $35.5 million. If this cost were applied to all 3,566 projects currently under development in the western United States[6], the anticipated average cost per well would be less than $10,000. This is 90 percent lower than the estimate of $97,000 per well provided in the industry analysis.

 

It is impossible to know the intent of WEA and IPAA’s inaccuracy. DOI has remained clear that it is not the intent of the federal fracking rule to impose new cementing and casing costs. So either the industry is purposefully misleading to inflate the costs of a rule which it opposes. Or alternatively, it is misreading or misunderstanding certain aspects of the rule and DOI can clarify and, if necessary, refine—which would take the entire cost issue off the table.

Written by on Monday, July 29th, 2013