Last month, the Department of the Interior’s Bureau of Land Management (BLM) released the first major federal rules governing hydraulic fracturing or “fracking.” (http://www.gpo.gov/fdsys/pkg/FR-2015-03-26/html/2015-06658.htm) Although the new regulations will apply to operations only on federal and Native American tribal lands (which currently represent about 10% of fracking operations in the U.S.), they are being met with wide-spread criticism and alarm that the regulations could serve as a de facto standard for state legislatures dealing with their own fracking rules.  Key regulatory changes, which are set to take effect in June, include:

• Provisions requiring a validation of well integrity and cement barriers between the wellbore and water zones. Operators will be required to monitor cementing operations on any casing used and submit a verification report to the BLM at least 48 hours before commencing fracking operations.

• Provisions designed to lower the risk of cross-well contamination by requiring operators to submit information on the geology, depth and location of preexisting wells. Before commencing operations, operators will be required to submit detailed information for BLM approval, including geological information and other data on planned fracturing zones, estimated depths of usable water, estimated volumes of fracturing fluids to be used, and plans for recovery of used fluids.

• Increased standards for storage and disposal of recovered waste fluids. Operators will now be required to manage wastewater onsite in closed containers rather than waste pits.

• New reporting standards requiring operators to publicly disclose chemicals used in the fracking process. Operators will be required to disclose the base fluid and each additive to the BLM via the website www.fracfocus.org within 30 days of completing fracking operations. An operator may withhold chemical information on the basis of trade secret protection; however, if the BLM questions the validity of the claim, it may require the operator to submit the information in order to determine whether to make the information available to the public.

The new regulations are already facing legal challenges. On the day the final rule was released (March 20, 2015), and before the rule was even published in the Federal Register, two industry groups—the Independent Petroleum Association of America and the Western Energy Alliance—filed suit in Wyoming federal court claiming that “BLM’s rulemaking represents a reaction to unsubstantiated concerns and the administrative record lacks the factual, scientific, or engineering evidence necessary to sustain the agency’s final rule.”  The State of Wyoming has also filed suit in the same court claiming that the final rule “exceeds the agency’s statutory jurisdiction, conflicts with the Safe Drinking Water Act, and unlawfully interferes with the State of Wyoming’s hydraulic fracturing regulations.” Earlier this month, the State of North Dakota filed a motion to intervene in the Wyoming case, also arguing that the federal rules encroach on the states’ regulatory authority.

In addition to concerns over conflicts and redundancy between the new rules and existing laws on fracking, commentators have voiced concerns over the new federal disclosure requirements.  Under the new rules, operators will be required to disclose the chemicals used in their fracking fluids, with limited disclosure exceptions for trade secret information. Operators seeking such an exception will be required to substantiate their claims through affidavits submitted to the BLM.  While environmental groups have complained that the new disclosure procedure is inadequate, industry groups have argued that the procedure is burdensome and places proprietary fracking information at risk.

Some states have already attempted to address the trade secrets issue. California, for example, has taken a restrictive approach. California law requires the disclosure of every chemical used in the fracking process and expressly excludes well-stimulant additives from trade secret protection.  Just last week, a Pennsylvania appellate court in Haney v. Range Resources-Appalachia, Inc. upheld an order compelling an operator to disclose such chemicals and reasoned that any trade secret protection belonged to the manufacturers of the chemicals and not to the operator. (http://law.justia.com/cases/pennsylvania/superior-court/2015/1130-wda-2014.html)

Other states appear to be moving in the opposite direction. Last year, North Carolina adopted legislation designed to protect the information operators are required to submit to state regulatory bodies. Although North Carolina law generally presumes that fracking information is non-confidential and discoverable, it allows operators to make an affirmative showing to state regulators that information should be protected as a trade secret. Notably, the new legislation also imposes civil and criminal penalties for the wrongful disclosure of protected fracking information.

The application of trade secret protection across the states is varied and complex, and the interplay between state trade secret laws and the new federal rules is unclear.  Operators should be aware of the risks associated with state and federal disclosure requirements, and should take all appropriate measures to protect the confidentiality of their proprietary information.