New Mexico officials say a gas drilling proposal on federal lands threatens a pristine aquifer that could someday provide drinking water to 15 million households, but the state's protests have met with resistance from the federal office administering the project.

The Bureau of Land Management, which governs development on the 20 percent of New Mexico's lands owned by the federal government, approved drilling on the Otero Mesa, a 1.2 million acre wilderness grassland in southern New Mexico, earlier this month. Because the BLM relied on decade-old data in a four-year-old environmental review, neither the Environmental Protection Agency nor the state's environment departments were involved in the decision.

"The likelihood of contamination is just not there, that's our perspective," said Bill Childress, district manager for the BLM in Las Cruces, N.M.

But state officials in New Mexico's Department of Energy Minerals and Natural Resources say the BLM ignored evidence of unique risks in that area. They want the BLM to conduct a supplemental environmental impact statement, which, under federal law, would then require an EPA review.

In a sharply worded letter (PDF) from New Mexico Gov. Bill Richardson's Office of Energy Minerals and Natural Resources to the BLM, Secretary Joanna Prukop wrote that the BLM's review "fails to go beyond the preliminary discussion of soil contamination and provide any substantive discussion regarding the unique geology of the basin -- specifically the fractured, limestone character that renders the groundwater in the basin particularly vulnerable to contamination."

Prukop's office is seeking an additional scientific review and a 30-day public comment period, which it says the BLM skipped. Last week the BLM agreed to hear additional testimony from protesting parties, including the state.

The situation in New Mexico illustrates the often confusing overlap of federal and state oversight in protecting the environment from the harmful side effects of energy exploration.

The drilling industry is exempted from many major federal environmental statutes, including the Clean Water Act, the Safe Drinking Water Act, the Superfund law and the Toxic Release Inventory, which requires disclosure of hazardous waste.

Because of these exemptions, the lion's share of environmental oversight falls on the states. But in places like the Otero Mesa, says the BLM's Childress, states "don't have authority to prevent a decision carte blanche on federal land -- we use our federal authority."

In New Mexico, the state's Oil Conservation Division oversees gas and oil wells. But on federal land that agency's authority "is limited pretty much to how to manage that well and how engineers design it, how we deal with the waste, the whole pit process," Prukop told ProPublica. "Do we have authority to protect all aspects of the environment? No."

New Mexico has some of the most stringent regulations for oil and gas drilling in the country, and Prukop thinks they're sufficient to protect the water beneath the Otero Mesa. But she still expects a lengthy fight. The BLM's plan indicates that the gas company hoping to drill on the property will use an open waste pit for drilling fluids, something New Mexico doesn't allow.

"Should they (the driller) choose to continue to ignore that requirement, and should the BLM allow them to go forward, the state will have to decide what to do," Prukop said. "We'll have to sue...shut them in."

The issue arises at a time of increased scrutiny of natural gas drilling, which pumps potentially hazardous chemicals deep into the ground in a process called hydraulic fracturing, a standard procedure that uses high pressure fluids to break apart rock and release gas. The drilling fluids are not only shot underground but can end up in surface spills and in waste pits. In New Mexico alone, a review of waste pits at oil and gas sites found some 400 cases of contamination that affected groundwater, officials there said.

A provision in the 2005 Energy Policy Act exempted hydraulic fracturing from compliance with the Safe Drinking Water Act. Companies like Halliburton had been lobbying for such a reprieve since the early 1990s, when an Alabama court ruled that the EPA had to oversee contamination of water wells around gas drilling in that state. To get the exemption, industry convinced Congress that hydraulic fracturing was safe and that ample state laws existed to oversee the gas drilling industry.

"Our view was that hydraulic fracturing was effectively regulated by the states under their current authority," said Lee Fuller, vice president of government relations for the Independent Petroleum Association of America. Fuller argues that more federal regulations would be an unnecessary burden on business. "The risk is well controlled, therefore there was no need to change the regulatory process from what has been underway for 50 years."

In New Mexico the industry's exemptions have helped push the EPA to the sidelines as the Otero Mesa project moves ahead.

"EPA does not deny that oil and gas can result in [complaints of water contamination]," said Roy Simon, associate chief of the EPA's Drinking Water Protection Division's Prevention Branch in Washington, D.C., when asked about contamination incidents across the country. "However, addressing these types of complaints, including hydraulic fracturing and its associated fluids (other than diesel fuel), is beyond the authorities of the Safe Drinking Water Act."