December 2017 Industry Digest

Attorney General Says Guidance Documents May Not Create Laws

WASHINGTON–The U.S. Justice Department has promised to no longer use guidance documents to create new regulatory requirements. Attorney General Jeff Sessions issued a memo on Nov. 16 prohibiting the practice.

A Nov. 17 news release announcing the new policy notes, “In the past, the Department of Justice and other agencies have blurred the distinction between regulations and guidance documents. Under the attorney general’s memo, the department may no longer issue guidance documents that purport to create rights or obligations binding on persons or entities outside the executive branch.”

Also on Nov. 17, in a speech delivered to the Federalist Society’s 2017 National Lawyers Convention in Washington, Attorney General Sessions announced to end regulation by litigation.

“The days of ‘sue and settle’–when special interests could sue an agency, then get the agency to impose a new regulation in a settlement, often to advance an agenda–are over,” Sessions said. “The Department of Justice is duty bound to defend laws as they are written, regardless whether the government likes the results. Our agencies must follow the law–not make it.”

In his Nov. 16 memo, Sessions says agencies “may use guidance and similar documents to educate regulated parties through plain-language restatements of legal requirements or provide nonbinding advice on technical issues through examples or practices to guide the application or interpretation of statutes and regulations. But guidance may not be used as a substitute for rule making, and may not be used to impose new requirements on entities outside the executive branch. Nor should guidance create binding standards by which the department will determine compliance.”

The memo sets out five principles for issuing guidance documents:

  • Guidance documents should identify themselves as guidance, disclaim any force or effect of law, and avoid language suggesting the public has obligations to go beyond those set forth in applicable statutes of legislative rules.
  • Guidance documents should state clearly that they are not final agency actions, have no legally binding effect on entities outside the federal government, and may be rescinded or modified at the department’s discretion.
  • They should not be used to coerce entities into taking any action or refrain from taking any action beyond what is required by the applicable statute or regulation.
  • They should not use mandatory language such as “shall, must, required” or “requirement” to direct parties to take or refrain from taking action, except when restating–with citations–clear mandates contained in a statute or regulation. In all cases, guidance documents should identify clearly the underlying law they are explaining.
  • To the extent guidance documents set out voluntary standards (e.g., recommended practices), they should state clearly that compliance with those standards is voluntary and that noncompliance will not, in itself, result in any enforcement action.

DOJ says a regulatory task force led by Associate Attorney General Rachel Brand will review department documents and recommend candidates for repeal or modification in light of these principles.

Associations Seeking An Injunction Against BLM’s Flaring Rule

WASHINGTON–The Independent Petroleum Association of America and the Western Energy Alliance on Oct. 27 filed a request for a preliminary injunction in the U.S. District Court for the District of Wyoming, seeking to block the Jan. 17, 2018, compliance date for the Bureau of Land Management’s venting and flaring regulations.

“Our preliminary injunction request is necessary to ensure companies do not have to comply with a rule that is being completely rewritten by the agency,” comments Western Alliance President Kathleen Sgamma. “BLM is trying to do the right thing by suspending the rule through a rule-making process, but we cannot be sure that it will get that suspension done in time.”

Adds Dan Naatz, IPAA senior vice president of government relations and political affairs, “The Interior Department has signaled its intent to delay the impending compliance deadlines by one year, but must abide by a lengthy notice and comment process. While we applaud this step from BLM, our member companies need to know what rules they will be operating under in just a few months.”

As the associations note in their filing, BLM issued its Waste Prevention, Production Subject to Royalties, and Resource Conservation rule in November 2016 with a Jan. 17, 2017, effective date. However, compliance with key provisions, including performing initial leak detection and repair, storage tank controls, and replacing pneumatic pumps and controllers, was not required until Jan. 17, 2018.

IPAA and the Alliance requested a preliminary injunction at that time, but were turned down in January because “the key compliance deadlines were nearly a year away,” their latest filing points out.

On June 17, BLM announced it was postponing the rule’s compliance date indefinitely under Section 705 of the Administrative Procedure Act (AOGR, July 2017, pg. 30), but that decision was invalidated on Oct. 4 by the U.S. District Court for the Northern District of California (AOGR, November 2017, pg. 30). The next day, BLM published a notice of proposed rule making to suspend or delay for 12 months the January 2018 requirements while it rewrote the rule.

BLM’s NOPR called for issuing a final rule by Dec. 8, however there is no guarantee of that, IPAA and the Alliance note in their October court filing. They comment, “Unfortunately, BLM’s track record does not foster confidence in the agency’s timing. BLM did not publish the proposed suspension rule until nearly six weeks after its target date.”

That leaves operators faced “with a dangerous game of chicken,” the associations continue. “Expend upward of hundreds of thousands of dollars on a per-company basis to comply with a rule that may never take effect, or defer compliance until a few weeks before the January 2018 deadline, at which point timely compliance will be impossible.”

IPAA and the Alliance cite an estimate by John Dunham and Associates that meeting the January 2018 compliance deadline would cost industry $115 million.

The associations’ court filing also contends their lawsuit against the venting and flaring rule likely will succeed on the merits, and that an injunction is in the public interest.

DOI Gulf Lease Sale 250 Largest In U.S. History

NEW ORLEANS–The U.S. Department of the Interior is proposing the largest oil and gas lease sale ever held in the United States. Lease Sale 250, scheduled for March 2018, covers 76.9 million acres in federal waters of the Gulf of Mexico, offshore Texas, Louisiana, Mississippi, Alabama and Florida.

The proposed lease sale will be the second offshore sale under the National Outer Continental Shelf Oil and Gas Leasing Program for 2017-22, DOI says. Lease Sale 249, held in August, received $121 million in high bids.

Proposed Lease Sale 250 includes 14,375 unleased blocks, located from three to 230 miles offshore, in the Gulf’s Western, Central and Eastern planning areas, in water depths ranging from nine to more than 11,115 feet, DOI says. Excluded from the sale are blocks subject to the congressional moratorium established by the Gulf of Mexico Energy Security Act of 2006; blocks adjacent to or beyond the U.S. Exclusive Economic Zone in the northern portion of the Eastern Gap; and whole and partial blocks within the Flower Garden Banks National Marine Sanctuary.

According to DOI estimates, the lease sale will develop as much as 1.12 billion barrels of oil and 4.42 trillion cubic feet of natural gas. Most of the activity from the proposed sale is expected to occur in the Central Planning Area.

Terms and conditions for the lease sale are detailed in the Proposed Notice of Sale information package, which is available at http://www.boem.gov/Sale-250.

“If we are serious about energy dominance and long-term energy affordability, we must create certainty about future access in the OCS,” says Representative Rob Bishop, R-Ut., chairman of the House Committee on Natural Resources. “Congressionally, we will continue to move forward on a comprehensive overhaul of onshore and offshore federal lands energy policy to help Interior expand even greater access, streamline permitting, and increase revenues to both states and the U.S. Treasury.”

Nebraska PSC Backs Modified Route For Keystone XL Pipeline

LINCOLN, NE.–On a 3-2 vote, the Nebraska Public Service Commission approved an alternate route for TransCanada’s Keystone XL pipeline, which will move 830,000 barrels a day of heavy oil from western Canada to Gulf Coast refineries.

“We will conduct a careful review of the Public Service Commission’s ruling while assessing how the decision will impact the cost and schedule of the project,” says Russ Girling, TransCanada’s president and chief executive officer.

According to the PSC decision, the new route, running through Montana and South Dakota to pipeline connections in Steele City, Ne., will be five miles longer and require one additional pumping station. The commission says the alternative path will reduce impacts on the habitat of several endangered species, including the interior least tern, whooping crane, piping plover and river otter, while also reducing the number of river and stream crossings, and state highway and natural gas facilities to be crossed.

The pipeline’s application to cross the U.S.-Canadian border was considered for seven years before then-President Obama rejected it in November 2015. President Trump invited TransCanada to resubmit the application soon after his inauguration (AOGR, March 2017, pg. 28), but the project stalled while waiting for the PSC decision.

Media reports note that market conditions have changed since TransCanada proposed to build the Keystone XL pipeline in 2005, most notably the growth in U.S. oil production. The company is holding an open season to measure shippers’ commitments to the project.

A Wood Mackenzie analysis predicts TransCanada will evaluate the results of that open season before making a final investment decision, with the company’s latest earnings call suggesting it is satisfied with current commitment levels. The government of Alberta also continues to express support for the pipeline, Wood Mackenzie says.

Zachary Rogers, refining and oil markets research analyst at Wood Mackenzie, says the province’s decision greatly diminishes the project’s political risk, and likely clears the way for increased volumes of West Canadian heavy crude reaching the Gulf Coast.

“The pipeline’s commercial viability is strengthened as declining heavy oil production from Mexico and ongoing Venezuelan risk has tightened the heavy-crude market in the Gulf Coast,” he says. “Our current forecast points to take-away capacity potentially exceeding crude supply in the early 2020s, putting additional upward price pressure on Western Canadian crude and negatively impacting heavy refiners, especially in the U.S. Midwest.”

Energy Builders Offer Database For Tracking Infrastructure Attacks

WASHINGTON–A new database from Energy Builders–a coalition of workers, businesses and unions that work directly in or support the energy delivery supply chain–tracks criminal attacks on critical energy infrastructure. The Energy Infrastructure Incident Reporting Center uses public sources, independent reporting and verification, and first-hand accounts to document the attacks, the group says.

The release of the database follows publication of a letter from 80 members of Congress to Attorney General Jeffrey Sessions expressing concern about the increase in attacks on the country’s energy infrastructure.

“Incidents of eco-terrorism, sabotage, arson, vandalism and violence are on the rise as criminal tactics have become a regular feature of pipeline protests, leaving taxpayers on the hook for millions of dollars and potentially endangering lives, the environment and our national security,” says Toby Mack, president and chief executive officer of the Energy Equipment & Infrastructure Alliance, a member of Energy Builders.

According the Energy Builders, incidents recorded in the database include:

  • $70,000 in damages to a skid loader when it was set on fire, as well as $75,000 of arson damage to pipeline equipment in April;
  • Extensive damage caused to the Sabal Pipeline in Marion County, Fl., when an anti-pipeline activist shot it with a large-caliber rifle in February;
  • $2 million in damages to bulldozers and earth-moving equipment caused by arsonists at the Dakota Access Pipeline site in October 2016; and
  • Several private security officers assaulted by pipeline protestors at the DAPL site in September 2016, with one individual hospitalized.

While expressing their support for First Amendment rights to protest, the signers of the Sessions letter assert violence toward individuals and property destruction are both illegal and dangerous.

“Recent incidents of individuals attempting to shut down lines by turning valves at pump stations illustrate the danger. Operation of pipeline facilities by unqualified personnel could result in a rupture–the consequences of which would be devastating,” the letter warns.

The congressional writers ask Sessions if federal statutes, including the Patriot Act and Pipeline Safety Act, provide adequate legal means to prosecute criminal activity, and if the Department of Justice intends to pursue federal prosecutorial or investigative actions against individuals who willingly damage or destroy interstate or international pipeline infrastructure.

The Energy Builders is asking companies to report additional incidents. Visit the database at http://energybuilders.org/tracker.

Trump Moving Ahead With Plans To Cut Size Of National Monuments

WASHINGTON–President Donald Trump plans to reduce the size of several national monuments, including two Utah sites, a move that follows an executive order issued in April.

According to media reports, the president plans to cut Bears Ears and Grand Staircase-Escalante national monuments. Bears Ears encompasses 1.5 million acres, while Grand Staircase is 1.7 million acres in size. Both monuments surround state and private lands.

The April presidential directive ordered Interior Secretary Ryan Zinke to review 27 monuments designated under the Antiquities Act since Jan. 1, 1996, that are 100,000 acres or more, or any monument he believes was created without appropriate public input, the White House states.

“I spent a lot of time on the ground in Utah, talking with people and understanding the natural and cultural significance of the area,” Zinke says of Bears Ears. “There is no doubt that it is drop-dead gorgeous country and that it merits some degree of protection, but designating a monument that–including state land–encompasses almost 1.5 million acres where multiple-use management is hindered or prohibited is not the best use of the land, and is not in accordance with the intention of the Antiquities Act.”

The Navajo Nation expressed its opposition to any plans to reduce Bears Ears National Monument, saying Trump’s decision is based on political favoritism and the Washington mentality of padding the pockets of friends, rather than in doing what is right for the people.

“Originally, the Bears Ears Inter-Tribal Coalition sought a designation for 1.9 million acres, which was reduced to 1.3 million acres when the area was designated a national monument by presidential proclamation in 2016,” Navajo Nation President Russell Begaye says. “For the Nation, in order to protect all of our sacred sites that exist in the area, we are asking President Trump not to reduce this.”

The Navajo Nation says the reduction plan was made with little or no input from it, despite multiple requests to meet with the president or consult with Zinke.

Media reports quote Utah Governor Gary Herbert as saying Trump told him changes to Bears Ears would “honor” the state’s recommendation. During Zinke’s review, state officials urged reducing the monument to 120,000 acres. Herbert added that the president also promised to modify Grand Staircase to allow coal mining within its borders.

According to news reports, many legal analysts argue only Congress could take actions affecting monument boundaries.

Senate Votes To Confirm FERC Commissioners

WASHINGTON–The U.S. Senate has confirmed the nominations of Kevin McIntyre and Richard Glick to join the Federal Energy Regulatory Commission. FERC says McIntyre will serve as chairman.

McIntyre, co-leader of the Global Energy Practice at law firm Jones Day, will serve the remainder of a term that ends June 2018 and a full term that ends June 2023. Glick, general counsel for the Democrats on the Senate Energy and Natural Resources Committee, will serve the remainder of a term that ends in June 2022.

Independent Petroleum Association of America President and Chief Executive Officer Barry Russell lauds the confirmations, which fill FERC’s previously vacant seats. “The commission faces critical issues in approving infrastructure for getting natural gas to markets,” he reflects. “With a full slate of commissioners, these approvals will be even stronger to withstand opposition from those who fight to keep natural gas in the ground. A commission at full strength also will be needed to handle a notice of proposed rule making advanced by the Department of Energy on grid reliability and resilience pricing. This proceeding has far-reaching implications for electricity markets and for the energy markets fueling generators, and deserves the input of all five commissioners.”

Russell notes that IPAA had pressed the Trump administration repeatedly to restore FERC’s quorum through published pieces and letters to the White House and Senate leaders urging expedited action. The association maintains that a full FERC panel is critical to carrying out the Trump administration’s goals of improving U.S. infrastructure and encouraging continued production and use of natural gas.

Litigation Targeting LNG Export Facilities Loses In Federal Court

WASHINGTON–A federal appeals court rejected the Sierra Club’s petition to block U.S. exports of liquefied natural gas, saying the U.S. Department of Energy properly followed the National Environmental Policy Act and other federal laws in approving three LNG sites.

The U.S. Court of Appeals for the District of Columbia Circuit, ruling Nov. 1 in Sierra Club v. U.S. Department of Energy, follows a court decision issued in August involving a Freeport, Tx., LNG export facility. Court documents say this new ruling deals with three narrow issues not dealt with in the earlier case.

The latest petition covered Dominion Energy’s export terminal in Cove Point, Md., and Cheniere Energy’s Sabine Pass facility in Louisiana and its Corpus Christi, Tx., site

The Sierra Club claimed the DOE relied on an environmental assessment rather than an environmental impact statement in approving the three LNG projects. The appeals court held that it could only overturn an agency’s decision on using an EIS over an EA if that decision was arbitrary, capricious or an abuse of discretion. The court ruled against the Sierra Club.

The court also turned away the argument that DOE should have provided more localized analysis about where incremental production would occur because of increased LNG exports. Court papers say the “additional information” provided by the Sierra Club to support its stance did not pinpoint the location of additional production to allow meaningful analysis, “especially given the fungibility of natural gas and the existence of a national pipeline network.”

The Sierra Club’s allegations that DOE failed to evaluate public interest under the Natural Gas Act faced an identical rejection, with the appeals court holding it did consider distributional consequences of exports. The judges noted the department cited job creation and energy security as counteracting the potential negative distributional impacts the Sierra Club identified.

Charlie Riedl, executive director of the Center for Liquefied Natural Gas, says he hopes the decision will end the unnecessary and costly challenges by the Sierra Club that are delaying LNG projects across the nation. “The facts are clear and the court agrees: The regulatory review process for U.S. LNG projects provides a thorough review of both operational and environmental impacts before being approved,” he says.

Watford, Hinchman Voted IPAA’s New Top Officers

NAPLES, FL.–The Independent Petroleum Association of America has elected Michael Watford as its 43rd chairman and Steven Hinchman as vice chairman.

Watford, who is chairman, president and chief executive officer of Houston-based oil and gas producer Ultra Petroleum, previously served as IPAA chairman in 2013-15. Hinchman, who is president and CEO of Houston-based Scala Energy, has 35 years of experience in the upstream industry.

IPAA President and CEO Barry Russell says both men bring strong leadership to the group’s Board of Directors. “Their roles within the upstream industry reflect the diverse nature of independent oil and natural gas producers–with Mike as leader of a publicly traded company and Steve as the founder of a privately-held, technical oil and gas company,” he considers. “These distinct but complementary backgrounds, combined with strong records of civic engagement, will amplify IPAA’s voice as we advocate for America’s independent producers in Washington and beyond.”

Russell also expresses gratitude to outgoing IPAA Chairman Mark Miller for ensuring the industry’s voice was respected at all levels of government during his tenure. IPAA indicates Miller will remain active on IPAA’s Board of Directors.

According to IPAA, Watford has worked in both the upstream and downstream sectors. Prior to Ultra Petroleum, he was CEO of Nuevo Energy Co., and also has experience in the managed product marketing, processing, pipeline and chemical businesses. Watford serves on the boards of Axip Energy Services and America’s Natural Gas Alliance. He is also an appointed member of the National Petroleum Council. Watford lives in Houston. He earned a B.A. from the University of Florida and an M.B.A. from the University of New Orleans.

Before he founded Scala Energy, Hinchman served as CEO of HighMount E&P, chief operating officer of Callon Petroleum, and executive vice president of Marathon Oil Co. He also serves as chairman of Interfaith Care Partners, an educational, nonprofit organization helping U.S. congregations, businesses and individuals. Hinchman lives in Houston. He earned a B.S. from Pennsylvania State University and an M.S. from the Colorado School of Mines.

Sierra Club Goes After Gas-Fired Power Plant

DANIA BEACH, FL.–A Florida Power & Light request to build a natural gas-powered electric generation unit at its Dania Beach facility is drawing opposition from the Sierra Club. The utility says it plans to build the unit and renovate other generating facilities on the site to boost its output to 1,200 megawatts. It estimates the project will cost $888 million.

FPL officials say repowering the plant will cost $1.288 billion less than replacing the South Florida plant with solar cells, largely because the project will reuse substations, pipelines and transmission lines. If approved, the utility says, the project would be completed by June 2022. According to the company, the new plant will help it shut down outdated coal-fired plants.

Nevertheless, the Sierra Club is asking Florida Governor Rick Scott and FPL to cancel plans for the new plant, saying the Florida Public Service Commission should first determine if ratepayers need another “fracked gas” plant.

The PSC will hold a hearing on the FPL proposal on Jan. 18. According to media accounts, the Sierra Club is expected to argue that the proposed plant is unneeded, and that cleaner and less expensive generating alternatives are available.

In addition to the Dania Beach project, FPL says it is building eight solar energy plants in the state, and predicts that by 2020 solar power will outpace coal and oil combined in its energy mix percentage, reaching 4 percent of its generation capacity. In 2016, the utility notes, natural gas provided 70 percent of its generating power, followed by nuclear (23 percent) and coal and oil (5 percent).

According to FPL spokesman Dave McDermitt, the Sierra Club’s campaign is unrealistic and cynical. “It’s an absurd proposal solely designed to generate publicity and money, and demonstrates that organization’s head-in-the-sand approach to energy policy,” says FPL spokesman Dave McDermitt.