Several of our previous posts have covered the trade secrets implications of laws that require disclosure of hydraulic fracturing fluid ingredients. As today’s method of hydraulic fracturing combined with horizontal drilling in shale formations rose to prominence in recent years, so too did the public’s concern over chemicals contained within fracturing fluid. Even before the existence of state mandatory disclosure laws, like the one enacted in Wyoming in 2010, there was a fair amount of general information publicly available about the composition of hydraulic fracturing fluid. However, much information remains confidential as trade secrets.
But what exactly is hydraulic fracturing fluid anyway? The hydraulic fracturing fluid used today consists of three types of ingredients: a “base fluid” (usually water), small solid particles (often sand) called “proppants,” and a cocktail of various chemical additives that help to make a fracture more successful and more productive. Typically, the base fluid and the proppants together comprise approximately 99% of the fracturing fluid. So, it is really only this last 1% of fracturing fluid composition, i.e., the cocktail of chemical additives, that has been the subject of recent controversy.
Over the past decade, public support has grown substantially for regulations that would require companies to disclose their fracturing fluid ingredients. As fracking, or “fracing” as industry insiders spell it, became more common and widespread, some people began to worry that fracturing fluids could find their way into groundwater. In response, many people began to ask questions about what was contained within fracturing fluid, and although there was already significant information available to the public, many companies balked at the idea of revealing the specific contents of fluid recipes that they had spent considerable sums of money to develop.
It was only a matter of time before state legislatures responded to the public concern for disclosure.
As we have previously written, in Wyoming, the first state to enact a mandatory fracturing fluid composition disclosure law, the law goes so far as to require operators of wells to disclose their fracturing fluid ingredients on a well-by-well basis. Even still, many companies seek special exemptions from disclosure, usually claiming trade secret status, including one company that claimed it had spent $1.4 billion over the last five years developing special, more productive fracking fluid components.
While President Obama has called for a comprehensive, nationwide mandatory fracking fluid disclosure law, the Department of the Interior’s Bureau of Land Management (BLM) has recently imposed rules that require companies to publicly disclose chemical additives used in fracking if the wells are located on lands managed by the BLM or on Indian reservations. However, this only affects roughly one-fifth of fracking operations nationwide. Additionally, in 2011 the Ground Water Protection Council and Interstate Oil Gas Compact Commission launched FracFocus, an online public forum for voluntary disclosure of hydraulic fracturing fluid composition. FracFocus, however, only contains voluntary disclosures for wells that have been hydraulically fractured after January 1, 2011. Some sources estimate that approximately 35,000 wells per year on average have been fractured over the past 12 years. As of June 1, 2015, FracFocus maintains fluid composition disclosures for 94,360 wells, meaning that the public database only accounts for roughly 22% of the wells fractured within the last 12 years.
Given that the trend with disclosure laws seems to be rapidly moving toward complete disclosure, with many states having already passed mandatory disclosure laws (today, 27 states require operators to disclose the chemicals used in fracking, but only 18 of the 27 states require operators to use FracFocus), many operators still insist on utilizing trade secret protection to prevent the disclosure of their own hydraulic fracturing fluid composition. It is, of course, only natural that operators would not want to disclose what ingredients they are using to make their operations successful—the protection of such information may help to give one operator a competitive advantage over another. A fracturing fluid formula that creates longer fractures, requires lower pressure levels in order to perform, or that maintains qualities that could make a well perform better for longer is an innovation that an operator would want to protect. In other words, the contents of a specific fracturing fluid formula have a direct and measurable impact on the production value of a well, strengthening the argument that the formula is a trade secret because it has “independent economic value.”
Brie Sherwin, an assistant professor at Texas Tech University School of Law, has a forthcoming article in the Ohio State Law Journal, arguing that the trade secret protection sought for the composition of hydraulic fracturing fluid is quite similar to the protection sought by Coca-Cola or, formerly, the tobacco industry. As Professor Sherwin writes, prior to 2005, Part C of the Safe Drinking Water Act (“SDWA”) had been one of the few ways in which the federal government was able to regulate hydraulic fracturing—even though fracking had not reached the level of ubiquity it enjoys today. However, the Energy Policy Act of 2005 removed the SDWA’s regulation of hydraulic fracturing fluids with what has come to be known by proponents of disclosure as the “Halliburton Loophole.”
As long as the public remains concerned with the composition of fracturing fluid and public opinion supports disclosure laws, it is likely that more and more states will enact disclosure laws. This creates a complex patchwork of state-centered regulation, working in tandem with the new federal regulations that affect public federal lands and Indian reservations. Most states, such as Colorado and Oklahoma, retain the standard for trade secrets set forth in the Uniform Trade Secrets Act (“UTSA”). Two states (New York, and Massachusetts) have not adopted the UTSA, but each of these states has adopted a definition of what constitutes a trade secret that is similar to, but somewhat different from, that contained within the UTSA, further complicating the matter.
States are continuing to develop disclosure mechanisms and new legal requirements. For example, starting in March 2016, Pennsylvania will require oil and gas operators to disclose the chemicals they use in hydraulic fracturing fluids on a new electronic database run by the Pennsylvania Department of Environmental Protection, ending the state’s partnership with FracFocus. Pennsylvania, in creating another state-specific hurdle for those wishing to perform hydraulic fracturing there, cites a public need for ease of information access as the motivation behind this measure.
The legal maze created by such a wide variety of state and federal regulations and the new existence of a comprehensive law affecting hydraulic fracturing on federal public lands and Indian reservations may imply the imminence of a uniform body of law on the disclosure of trade secrets in hydraulic fracturing fluid compositions. In the meantime, however, it is crucial for those who are navigating disclosure laws to seek legal counsel.