U.S. rules on fracking on public lands seen costing drillers dearly
* Industry says rules would cost at least $345 mln/year
* U.S. says rules would cost only $12 mln to $20 mln
* Too soon to say whether industry would sue -spokesman
WASHINGTON, July 22 (Reuters) - Oil and gas companies in the U.S. West would face at least $345 million a year in extra costs if rules on hydraulic fracturing on public lands proposed by the Obama administration are finalized, industry groups said on Monday.
The Bureau of Land Management has estimated the rules it proposed in May would cost drillers only $12 million to $20 million per year. The BLM proposal scaled back some measures from a plan it issued last year that would have cost energy companies about twice as much.
"While there are improvements in the second version of the rule, it still remains fundamentally flawed from an engineering perspective, as well as bad regulatory policy," Kathleen Sgamma, a vice president of government affairs for the Western Energy Alliance, said in a release.
The groups estimated the costs of the original proposed rules would be $1.284 billion a year.
The WEA and the Independent Petroleum Association of America said an economic analysis they released on Thursday showed that requirements for enhanced casing in drilling wells accounted for nearly 90 percent of the $345 million the new rules would cost.
Casing, which is found near the top of drilling wells, involves a series of metal liners that strengthen well holes and keep them from leaking. In fracking, drillers shoot water laced with chemicals and sand deep underground to crack rock and release vast deposits of oil and natural gas. Other costs included administrative rules and delays in tapping the resource.
A special advisory panel on natural gas drilling to the Department of Energy recommended in 2011 that better casing was one of the things needed to make fracking safer.
But Dan Naatz, a vice president of federal resources for the IPAA, said states were already regulating casings.
"The effort by BLM is really a duplication of state efforts and is redundant without any real environmental benefits," he said.
The BLM proposed the rules on public lands in May after scrapping its draft last year that both environmentalists and drillers criticized. The agency was not immediately available to comment on the industry cost estimates.
Jon Haubert, a spokesman for the WEA, said it was too early to say whether industry groups would sue the BLM over the proposed rules.
"But i don't think industry would stop short of a lawsuit if they felt it was needed," he said.
The Obama administration hopes the rules on public lands will serve as a model for state oversight of drilling on private lands. Fracking is mostly exempt from several federal rules. About 13 percent of U.S. natural gas and 5 percent of oil is produced on public lands.
(Reporting by Timothy Gardner. Editing by Andre Grenon)