BMP of Oil and Gas Development

Oil and Gas Case Law: Water Law and the Clean Water Act

Oil and gas development sites may either use, produce, or affect the quality of a great deal of water, depending on the production methods used. Federal and state law govern the use and discharge of this water and, consequently, both federal and state court cases help interpret the laws and how they are applied.

Federal Law

The Clean Water Act (CWA) is the primary federal law that regulates the activities of the oil and gas industry affecting water quality. Under the CWA, discharges into navigable waters are governed by the National Pollutant Discharge Elimination System (NPDES) that requires any site discharging pollutants to seek a permit and comply with applicable state and federal discharge requirements. In addition to the CWA, the Safe Drinking Water Act (SDWA) also places restrictions on oil and gas producers through the Underground Injection Control Program (UIC) that is designed to prevent the contamination of drinking water supplies.

There are, however, important exemptions for oil and gas operations from both of these laws.  For example, storm water runoff from oil and gas construction activity is excluded from NPDES discharge requirements, however, the EPA rule implementing this exclusion has been challenged as discussed below.  Second, fluids used in the hydraulic fracturing process are currently excluded from the terms of the SDWA’s UIC program.  The controversy over this policy is being played out in Congress, agency studies and other public forums. Learn more about this controversy on the Red Lodge Clearinghouse web site: http://rlch.org/content/oil-and-gas-resource-development#hydraulic

For more information on the role of the CWA and SDWA in oil and gas development, see the Federal Water Quality page.

Federal Case Law

Federal courts are commonly called upon to review federal statutes and regulations that impact the production of oil and gas in the intermountain west. The following cases represent some recent federal decisions addressing oil and gas issues arising under the CWA and other applicable federal laws.

Sediment Contaminated Stormwater

In 2006, EPA revised its regulation of sediment contaminated stormwater under the National Pollutant Discharge Elimination System (NPDES) following passage of The Energy Policy Act of 2005.  The new rules exempted discharges of sediment from oil and gas construction activities from permitting requirements under NPDES. In Natural Resources Defense Council v. United States Environmental Protection Agency, 526 F.3d 591 (9th Cir. 2008), the Ninth Circuit Court of Appeals held that the EPA had acted arbitrarily and capriciously in promulgating a rule under NPDES which exempted oil and gas construction activities from certain CWA permitting requirements. Because the EPA had changed its position on what amounted to sediment under the CWA, the court held that the agency had acted arbitrarily and capriciously. As a result, the EPA rule exempting sediment contaminated storm water runoff from NPDES requirements was vacated and remanded to the EPA for further review. Following the court’s ruling, the EPA reinstated the groundwater rules in effect prior to the passage of the Energy Policy Act of 2005 and implemented the portions of the Energy Policy Act that remained intact after the ruling. This included clarification of the activities covered by the CWA 402(l)(2) exemption.

Coalbed Methane Water Discharges

In Northern Plains Resource Council v. Fidelity Explorations, 325 F.3d 1155 (9th Cir. 2003), the Ninth Circuit Court of Appeals addressed water discharged in the production of coal bed methane (CBM). Fidelity Exploration and other CBM producers would directly discharge water produced in the extraction of CBM into local streams and rivers. This practice was initially permitted because the groundwater being discharged was unaltered from its original state. Northern Plains Resource Council challenged the practice because the water being discharged contained pollutants regulated under the CWA. The court held that water extracted from the ground during the production of coal bed methane was subject to the restrictions of the CWA because the water negatively impacted the rivers and streams where it was discharged. Despite the fact that the water being discharged was unaltered groundwater, the court held that it was still subject to the restrictions of the CWA.

Water Quality and Quantity in the Planning Process

Prior to the development of CBM in the Powder River Basin of Wyoming and Montana, the Bureau of Land Management issued an environmental impact statement (EIS) and record of decision (ROD) that allowed for the development of up to 51,000 CBM wells. As a result of this development, the BLM anticipated that up to 1 trillion gallons of groundwater would be pumped out as part of the CBM production process. The EIS and ROD were challenged as being inadequate in Western Organization of Resource Councils v. Bureau of Land Management, 591 F.Supp. 2d 1206 (D.Wyo. 2008). The court held that the BLM had satisfied all statutory requirements in authorizing the drilling because the BLM had taken a hard look at the environmental impacts and had considered reasonable alternatives to development. Because BLM had met all of the statutory and administrative requirements, the court applied a deferential standard of review to the agency’s actions. The court held that the agency’s actions were neither arbitrary nor capricious and affirmed the EIS and ROD.

Discharge of Dredge and Fill Materials

In order to contain and treat the water produced in the CBM extraction process, many producers create reservoirs at the drill site to impound extracted water prior to discharge. The creation of these impoundment reservoirs creates a large amount of dredge and fill materials that must be disposed of. To accommodate the large amount of CBM development in Wyoming, the Army Corps of Engineers issued a general permit under the CWA which allowed oil and gas producers to discharge dredge and fill materials associated with the construction of roads, well pads, containment ponds, and other construction activities. Producers could fill no more than .30 acres of wetlands and were required to replenish the wetlands at a 1:1 ratio. This permit was challenged in Wyoming Outdoor Council v. United States Army Corps of Engineers, 351 F. Supp. 2d 1232 (D.Wyo. 2005). The court held that the Army Corp of Engineers had acted arbitrarily and capriciously in granting a general discharge permit because the Corp had failed to consider a number of factors including: (1) failing to consider the impact on non-wetland resources, (2) failing to consider the impact to private ranchlands, (3) relying on unsupported mitigation measures, and (4) finding under the CWA that the cumulative effects on the aquatic environment were minimal without assessing impacts to areas other than wetlands. The court further held that the Corp had not acted capriciously with regard to: (1) its consideration of the impact to water quality, (2) its consideration of endangered species, (3) its analysis of impacts to wetlands, and (4) the conclusion under CWA that the impacts of the general discharge permit were both similar in nature and similar in impact. As a result of the court’s findings, the matter was remanded to the Army Corps of Engineers for further proceedings.

State Law

In addition to federal regulations, individual states also regulate oil and gas activities affecting water quality. State regulations range from constitutional amendments to state level regulations adopted by individual environmental agencies. EPA may also grant primacy to individual states under the CWA and SDWA. States that have assumed primacy may administer those provisions of the federal acts for which they have assumed responsibility . States can assume primacy so long as the state has an adequate system for the issuance of permits, is capable of enforcing the applicable laws, and fulfills other administrative requirements. Under the CWA, states can assume primacy for NPDES permitting under section 402 . Colorado, Montana, Utah, and Wyoming currently have primacy under NPDES and New Mexico is currently seeking primacy. Under the SDWA, Colorado, Montana, New Mexico, Utah, and Wyoming all have primacy under the SDWA to regulate Class II wells as a part of the UIC program. Class II wells address the injection of fluids associated with the production of oil and gas.

For a summary of the various state water quality laws, click on your state of interest from the Law and Policy index page.  

Regardless of the quality of water at issue, the production of oil and gas can either require or produce a large quantity of water. For example, the environmental impact statement prepared by the BLM in advance of CBM development in the Powder River Basin estimated that more than 1 trillion gallons of groundwater would be pumped from the subsurface over the course of the project. In contrast, a closed loop drilling system utilizing synthetic drilling mud will use and create very little water as the drilling mud and fluids are constantly recirculated in the well. Oil and gas producers who require water must purchase or establish the rights to the necessary water under state water law. Producers whose operations create water must dispose of any produced water in a way that conforms to state and federal environmental standards.

State Case law

Legal challenges at the state level frequently address the authority of state agencies and the application of state laws and constitutions to the oil and gas operations within individual states. The following cases examine the role of state environmental regulations and constitutional provisions on water quantity and water quality controversies arising from the production of coal bed methane.

Coal Bed Methane Evaporation Pits and Beneficial Use

In Tongue and Yellowstone Irrigation District v. Montana Board of Oil and Gas Conservation, 2010 Mont. Dist. LEXIS 116 (2010), the plaintiffs challenged the constitutionality of using evaporation pits to dispose of coal bed methane discharge water under the Montana constitution. The Montana constitution requires that all water extracted from the ground be put to a beneficial use. CBM producers were storing and evaporating produced water in large impoundment reservoirs. The minerals in the produced water would precipitate out of the produced water as the water evaporated creating far less volume of waste that required disposal. The state court granted summary judgment to the parties holding that evaporation pits used to store CBM were unconstitutional because the water being evaporated was not being put to beneficial use. Accordingly, the final order of the state agency permitting the pits was remanded for further review and consideration. As a result of the decision, producers in the state are currently using a number of other disposal methods as outlined on the Montana State University CBM webpage.

Beneficial Use and the Production of Coal Bed Methane Water

In Colorado, water being used for a beneficial purpose is subject to the Colorado Water Right Determination and Administration Act of 1969. Additionally, when water is extracted from the ground and put towards a beneficial use, it is subject to the Colorado Ground Water Management Act. In Vance v. Wolfe, 205 P.3d 1165 (Colo. 2009), the Colorado Supreme Court held that water extracted during the production of CBM was put to a beneficial use and was subject to administration and permitting under Colorado law. The case was brought forward by ranchers who challenged the diversion of groundwater for the production of CBM. The ranchers claimed that the water was being used for a beneficial purpose and that the producers were required to establish appropriative water rights and were subject to permitting and regulation under the applicable Colorado laws. The court agreed and held that the extraction of groundwater for the production of CBM amounted to a beneficial use. Despite the fact that producers of CBM consider the water to be a nuisance, the court held for the ranchers because the water is an integral part of the CBM production process itself.

Water Rights and Oil Shale Development

In Colorado, an oil shale developer filed a hexennial application to maintain conditional water rights on more than 10,000 acres of land in Garfield County. The local water conservancy district challenged the application claiming that the developer had not diligently developed its conditional water rights. After the lower water court held for the developer, the Colorado Supreme Court affirmed and held that the developer was entitled to the conditional water rights. The court in Municipal Subdistrict v. OXY USA, 990 P.2d 701 (Colo. 1999), held that the developer had diligently developed the water right under the “can and will” standard used to assess such rights. The developer possessed the requisite technology to develop the shale and had invested time and resources into the project’s development. The project was being restricted only by the low price of crude oil and the developer stated that the project would move forward as soon as it was financially feasible. The court held that the developer was entitled to renew the conditional water rights because the developer had taken steps towards development and was simply waiting for the price of oil to justify production costs.

Discharge of Produced Water

In Pennaco Energy v. Montana Board of Environmental Review, 2008 MT 425 (2008), Pennaco Energy contested the authority of the MBER to regulate the sodium absorption ratio (SAR) and electrical conductivity (EC) of water discharged from CBM sites. MBER sought to monitor and restrict the SAR and EC levels of the water in an effort to control the salinity and usability of the water. The Montana Supreme Court held that the MBER and the Montana Department of Environmental Quality had the authority to regulate the SAR and the EC of the water discharged. MBER had authority to regulate these water properties in order to ensure that downstream users had access to water that was suitable for farming and ranching. Because high SAR and EC can lead to water that is of little agricultural value, the court held that MBER was entitled to regulate CBM discharge.

Intermountain Oil & Gas
BMP