Produced Water Ban Creates Regulatory Conflict in Oklahoma’s STACK Play

Commentary

The balance between local and state regulatory authority is currently at issue in Kingfisher County, Okla., at the heart of the mostly-oil STACK play. In April 2018, the Board of County Commissioners of Kingfisher County revised its pipeline crossing permit to prohibit the use of produced water in temporary lines in the public roadway right of way. Temporary lines, or “lay-flat lines,” are high-density polyethylene lines that typically run adjacent to public roadways in active oil and gas areas. They serve the function of transporting water to well sites for drilling and completions, then taking away by-products such as flowback and produced water (usually to disposal or treatment facilities). The revised permit went into effect May 1, and considering the large volumes of produced water and disposal needs in Kingfisher County, it is causing considerable consternation among operators.

Local authorities, such as a board of county commissioners, are considered political subdivisions of the state, and as such they have no inherent powers except those granted to them by the state. Oklahoma statute expressly authorizes a board of county commissioners to “grant to any citizen the right to lay pipes and conduits under the surface of any road or highway under their jurisdiction, subject to such rules, regulations and conditions as shall be prescribed by the board of county commissioners.”

In 1982, the Oklahoma attorney general issued an opinion interpreting this statute and found “there is specific statutory authority for a board of county commissioners to permit a private citizen to place a saltwater disposal pipeline in the right-of-way of a section line road.” Though the opinion stated that saltwater disposal lines were covered under the statute, it offered no clarification on the scope of the commissioners’ regulatory authority incidental to oil and gas activity.

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The balance between local and state regulatory authority is currently at issue in Kingfisher County, Okla., at the heart of the mostly-oil STACK play. In April 2018, the Board of County Commissioners of Kingfisher County revised its pipeline crossing permit to prohibit the use of produced water in temporary lines in the public roadway right of way. Temporary lines, or “lay-flat lines,” are high-density polyethylene lines that typically run adjacent to public roadways in active oil and gas areas. They serve the function of transporting water to well sites for drilling and completions, then taking away by-products such as flowback and produced water (usually to disposal or treatment facilities). The revised permit went into effect May 1, and considering the large volumes of produced water and disposal needs in Kingfisher County, it is causing considerable consternation among operators.

Local authorities, such as a board of county commissioners, are considered political subdivisions of the state, and as such they have no inherent powers except those granted to them by the state. Oklahoma statute expressly authorizes a board of county commissioners to “grant to any citizen the right to lay pipes and conduits under the surface of any road or highway under their jurisdiction, subject to such rules, regulations and conditions as shall be prescribed by the board of county commissioners.”

In 1982, the Oklahoma attorney general issued an opinion interpreting this statute and found “there is specific statutory authority for a board of county commissioners to permit a private citizen to place a saltwater disposal pipeline in the right-of-way of a section line road.” Though the opinion stated that saltwater disposal lines were covered under the statute, it offered no clarification on the scope of the commissioners’ regulatory authority incidental to oil and gas activity.

State and Local Conflict

In 2015, Oklahoma enacted a law expressly limiting municipal, county or other political subdivision regulatory authority relating to oil and gas operations to “reasonable” rules and regulations (1) concerning road use, traffic, noise and odors; (2) setbacks and fencing requirements for well sites; and (3) for development of oil and gas within floodplains. The law provides that such regulatory authority “may not effectively prohibit or ban any oil and gas operations, including . . . produced water disposal . . . flow and gathering lines or pipeline infrastructure.” The law also states that, “all other regulations of oil and gas operations shall be subject to the exclusive jurisdiction of the Oklahoma Corporation Commission.”

Notably, the Oklahoma Corporation Commission already has statutorily conferred “exclusive jurisdiction” to regulate the “handling, transportation, storage and disposition of saltwater, mineral brines, waste oil and other deleterious substances produced from or obtained or used in connection with the drilling, development, producing and operating of oil and gas wells,” including “the construction and operation of pipelines and associated rights-of-way.”

In an opinion issued shortly after the passage of the statute, the Oklahoma attorney general acknowledged that it limits the regulatory power of political subdivisions to the aforementioned three exceptions, and to the extent that any local regulations conflict with statewide oil and gas regulations the local regulations are invalid.

Thus, although earlier interpretations of Oklahoma law suggest that county commissioners have authority to permit and otherwise regulate produced water pipelines within public roadway rights of way, more recent law and existing OCC rules and regulations indicate the OCC has exclusive authority to regulate the transportation and disposal of produced water. Although it appears the 2015 law supplants the commissioners’ more general authority, it remains to be seen how this local versus state regulation conflict will be resolved.

In the meantime, operators in Kingfisher County will be forced to truck produced water to recycling or disposal facilities or otherwise negotiate private produced water pipeline easements with landowners to avoid using the public roadway right of way.

Produced Water Working Group

What remains clear is that the management of produced water in oil and gas operations is a pressing issue in Oklahoma. In an ongoing effort to better manage water resources related to oil and gas and further address water disposal issues raised by the induced seismicity, Gov. Mary Fallin formed the Produced Water Working Group in 2015 composed of 17 stakeholders, including members of the OCC, Oklahoma Department of Environmental Quality and Oklahoma Oil and Gas Association, to study and recommend appropriate reuse and recycling options for produced water. The group met in 2016 and 2017 and developed a number of produced water management scenarios ranging from de-brining and evaporation to surface discharges. The group evaluated costs and obstacles (including regulatory) associated with those scenarios.

Through the course of these analyses, the group repeatedly raised the issue of regulatory uncertainty around ownership of produced water and obtaining rights of way for larger water transfer systems and urged agencies to promulgate rules related to produced water. Aside from failed proposed legislation in 2017 (the Oil and Gas Produced Water Recycling and Reuse Act), which mostly related to ownership and compensation related to produced water, Oklahoma has yet to develop statewide regulations for the management of produced water other than the OCC’s current disposal well and pollution abatement regulations.

Some might argue that the OCC’s current pollution abatement regulations sufficiently cover the environmental and public health risks associated with transporting produced water. However, in the absence of statewide regulations for the management and disposition of produced water, including use of public roadway rights of way, concerns such as those raised in Kingfisher County will continue and local authorities may attempt to intervene under questionable legal authority.