by Samuel B. Boxerman, Sidley Austin LLP with Ben Tannen, Sidley Austin LLP
The scope and extent of disclosure of hydraulic fracturing fluids continues to be an issue with which regulators are wrestling on both the state and federal levels. In the most recent addition to the discussion, on February 24, 2014, the U.S. Department of Energy’s (DOE) Secretary of Energy Advisory Board (SEAB) N1 released its Task Force Report on FracFocus 2.0 (“Report”). This Report makes recommendations related to FracFocus, the web-based, publicly available national hydraulic fracturing chemical constituent registry, on topics ranging from trade secret claims to future funding. The Report was developed in response to a November 2013 request by Secretary of Energy Ernest J. Moniz asking SEAB to create a task force to focus on seven discrete issues related to FracFocus. N2 In 2011, a SEAB subcommittee had previously studied the potential environmental impacts of unconventional gas production. N3
FracFocus, operated by the Ground Water Protection Council and Interstate Oil and Gas Compact Commission, started in April 2011. N4 In its first year of operation, it publicized information on over 14,000 wells from 231 companies. N5 Since then, the number of wells registered on the website has more than quadrupled, to over 62,000. N6 By the end of 2013, 14 states required some sort of disclosure on FracFocus, while companies located in other states voluntarily disclosed information on the site. N7 According to the Report, “FracFocus has greatly improved public disclosure quickly and with a significant degree of uniformity.” N8
The issue the Report examines most closely is the extent to which companies rely on the trade secret exemption in making disclosures on FracFocus. The current FracFocus disclosure exemption is based on an OSHA regulation. N9 The task force asserted its belief that, as a general principle, “full disclosure of all known constituents added to fracturing fluids is desirable.” N10
To achieve that goal, the task force endorsed a three-step process for reducing use of the trade secret exemption. First, it recommended that DOE’s Office of Fossil Energy study the use of the exemption, focusing on “(1) trends in trade secret claims; (2) the percentage of wells with one or more hydraulic fracturing chemicals that are claimed to be trade secret; (3) for wells with trade secret claims, the average number of claims…,” and other related issues. N11 Second, the task force recommended that states use the State Review of Oil and Natural Gas Environmental Regulations (STRONGER) process to develop a mostly uniform, “very high” standard for qualifying for the trade secret exemption. N12 Finally, the task force suggested that state and federal regulators develop a method to ensure that companies are complying with the trade secret standard, as well as a process by which third-parties can challenge a claim for the exemption. N13
Although the task force claims that it “has no wish to constrain innovation,” its recommendations to narrow the use of the trade secret exemption on FracFocus could well hamper innovation in the use of hydraulic fracturing. Anticipating this concern, the task force suggested future submissions could be organized by separate lists of products and chemicals, without reference to the product in which those chemicals were contained. N14 Known as the “systems” approach, this allegedly would “make it extremely difficult to reverse engineer” fracturing fluid compositions. N15 It remains to be seen whether the systems approach would ensure protection of proprietary fracturing fluid formulas.
The task force also made a variety of other recommendations, most of which relate to increasing the breadth and quality of data available on FracFocus. For example, the Report suggests that FracFocus should ensure the “accuracy and completeness” of the Chemical Abstracts Service (CAS) numbers of reported chemicals and should inform the relevant company and the public when it believes that an error exists in a company’s submission. N16 It also recommended that DOE’s Office of Fossil Energy hire an audit or consulting firm to conduct an independent audit of FracFocus, which would look at the accuracy of data entry. N17 Finally, the task force suggested further study of the possibility of expanding the scope of FracFocus to cover the chemistry of flow-back water and produced water. N18 However, the task force explicitly did not make any recommendations on widening the website’s scope, noting, “the success of FracFocus to date is very much a consequence of its narrow focus and therefore we do not endorse any specific extensions at the present time” (emphasis in original). N19
The task force’s final recommendation related to funding. The Report asserted that the website’s current annual funding of about $700,000, from sources including DOE and the American Petroleum Institute, was inadequate. N20 It recommended that annual funding double to $1.5 million and that DOE either increase its grant or establish a $50 user fee per well to cover the increase. N21
Given the task force’s recommendations to expand FracFocus and increase its funding, the website is likely to grow in prominence in the coming years—and continue to be the principal way in which information concerning hydraulic fracturing fluids will be disclosed.
1. The SEAB is an advisory board which counsels the Secretary of Energy on a variety of issues. It forms ad-hoc task forces to study particular topics as “directed by the Secretary.” Secretary of Energy Advisory Board, U.S. Dep’t of Energy.
2. Sec’y of Energy Advisory Board, U.S. Dep’t of Energy, Task Force Report on FracFocus 2.0 app. A (2014) (“Task Force Report”).
3. Id. at 3.
5. Id.; Task Force Report at 6.
6. Task Force Report at 6.
7. Id. The Bureau of Land Management has also proposed to use FracFocus in its proposed rule for hydraulic fracturing. 78 Fed. Reg. 31636 (May 24, 2013).
8. Id. at 2.
9. Id. at 11. The relevant regulation is found at 29 C.F.R. §1910.1200(i)(1), which states, “Trade secrets. (1) The chemical manufacturer, importer, or employer may withhold the specific chemical identity, including the chemical name, other specific identification of a hazardous chemical, or the exact percentage (concentration) of the substance in a mixture, from the safety data sheet, provided that:(i) The claim that the information withheld is a trade secret can be supported; (ii) Information contained in the safety data sheet concerning the properties and effects of the hazardous chemical is disclosed; (iii) The safety data sheet indicates that the specific chemical identity and/or percentage of composition is being withheld as a trade secret; and, (iv) The specific chemical identity and percentage is made available to health professionals, employees, and designated representatives in accordance with the applicable provisions of this paragraph (i).”
10. Task Force Report at 10.
11. Id. at 13-14.
12. Id. at 14.
13. Id. at 15.
14. Id. at 13.
16. Id. at 8.
17. Id. at 9.
18. Id. at 7, 19.
19. Id. at 19.
20. Id. at 20.