Many oil and gas companies operate within incredibly tight margins and subject to ever-volatile commodity market prices. In such a competitive sector, the ability to innovate with improved extraction and transmission techniques can be make-or-break. As we have previously written, one way to gain an advantage in the process of hydraulic fracturing is to use specially chosen or designed chemical additives that can make a frack job more successful than it otherwise may be. Oil and gas companies often rely on trade secrecy to protect these special fracking fluid compositions. As can be expected, many environmental groups express concern that these chemicals could contaminate groundwater and, in turn, argue that landowners and the public have a right to know if potentially harmful chemicals are being injected into the ground.
These two concerns—protecting competitive advantage and allowing for public disclosure and oversight—seem to be mutually exclusive.
But what if they aren’t?
Legislators in Montana believe they have found a middle ground for requiring the full disclosure of chemicals used in hydraulic fracturing while still preserving the trade secret status of key ingredients. The bill, currently Senate Bill 299, stands poised to pass in the Montana legislature and be signed into law. Critically, the Montana Petroleum Association (MPA) testified in support of the bill, after having testified against an earlier bill that it claimed did not adequately protect trade secrets.
In its current form, SB 299 is intended “to provide a fair process for disclosure of fracturing fluids to facilitate transparency, while protecting valuable trade secrets and allowing well owners, operators, and service companies to protect their right to obtain an advantage over competitors.” The proposed statute achieves this goal by requiring oil and gas companies to report the contents of fracturing fluids to the Montana Board of Oil and Gas Conservation (BOGC), which will in turn publish the disclosures. Companies would be required to disclose the chemical compound and the chemical abstracts service registry number of the ingredients, along with any hazardous component listed on a material safety data sheet, the product names, and the type of additives used.
Unlike earlier bills in Montana that the oil and gas industry largely opposed, SB 299 provides a substantial carve-out for the protection of industry trade secrets. The proposed law allows oil and gas companies to request that the BOGC withhold publication based on confidentiality concerns. The BOGC is given discretion in making its determination of whether a given ingredient is deserving of confidentiality, and companies may appeal the BOGC’s decision to a court prior to disclosure. The proposed law requires that the BOGC keep all of its withheld disclosures confidential absent a judicial determination to the contrary – a substantial departure from its otherwise public proceedings and records. SB 299 also provides for disclosure notwithstanding a confidentiality determination in the event that fracking chemicals are discharged into state waters.
The Montana Environmental Information Center (MEIC) was the lone opponent to the bill, and the MEIC’s representative testified that its opposition was “reluctant.” Namely, the MEIC (and likely other environmental groups that did not rise in opposition to the bill in committee) is concerned that SB 299 does not ensure timely and adequate disclosure. The MEIC argues that, to many landowners seeking to learn the contents of chemicals injected beneath their land, the disclosure of complex chemical compositions may not be sufficient to inform them of potential risks. Instead, the MEIC argues that landowners should have access to information pertaining to the chemicals that could be injected into the ground before landowners even enter into a lease.
The fact that environmentalist opposition to a law that protects fracturing fluid trade secret status is lukewarm—and even characterizes itself as “reluctant”—may be indicative of the degree of compromise that this bill embodies. Although SB 299 is largely modeled after an earlier Wyoming statute, the fact that the proposed law allows for the independent review by a government board subject to judicial review should mitigate concerns of unbridled disclosure along with at least some concerns about unfettered environmental review.
Only time will tell if the implementation of SB 299 in Montana works to resolve the tension between disclosure and secrecy, but at a time where national politics appear fractured, it is promising to see developments at the state level that aspire to accommodate the interests of all parties involved. And as the legal landscape changes, Orrick will continue to monitor any new developments.