May 2019 Industry Digest

WASHINGTON–Oil and natural gas producer representatives are hailing the U.S. Environmental Protection Agency’s decision that waste materials from oil and gas operations will remain exempt from hazardous waste requirements under the Resource Conservation and Recovery Act. The announcement came after the agency reviewed states’ oversight as part of a consent decree it entered into with the Environmental Integrity Project and other plaintiffs that sued EPA for allegedly failing to meet RCRA’s triennial evaluation requirements (AOGR, February 2018, pg. 28).

In the 279-page document EPA released April 23, the agency indicated it reviewed waste programs in 28 states responsible for 99 percent of all U.S. oil and gas exploration and production, and determined they were meeting the challenges of increased oil and gas activity, noting that 24 of those states had updated their oil field waste regulations since 2013.

“Based on the information gathered for this review, EPA concludes that revisions to the federal regulations for the management of E&P wastes under Subtitle D of RCRA (40 CFR Part 257) are not necessary at this time. The oil and gas industry has undergone a significant transformation in recent years from the use of directional drilling and hydraulic fracturing to access unconventional formations, but states also have revised their regulatory programs to adapt to the challenges posed by these technological advancements; some within the last year,” the agency details. “Based on EPA’s review, current state programs incorporate the majority of elements that are important components of waste management programs, which indicates that the scope of existing regulatory programs is robust.”

Kansas Independent Oil & Gas Association President Edward Cross is among those lauding the announcement. “This is the action KIOGA has been advocating,” he affirms.

According to the Independent Petroleum Association of America, EPA’s decision seems likely to stem lawsuits. “In 2015, EIP initiated litigation to compel EPA to develop regulations or guidelines under Subtitle D, arguing it had failed to meet its triennial mandate to determine whether action was necessary for 27 years,” IPAA explains. “A key EIP objective in this effort relates to opening an opportunity for citizen suits against individual oil and natural gas producers. If EPA created guidelines but states did not adopt them, a producer that complied with the state regulations but not the federal guidelines would be open for citizen suits from environmental groups.”

EPA says its analysis shows uncontrolled releases of oil and gas site wastes can result in environmental damage, but the agency finds such releases to be unusual. “The primary causes identified for these releases were human error and noncompliance with existing state regulations,” EPA relates. “The available information does not indicate that new federal solid waste regulations would prevent or substantially mitigate these types of releases. Instead, human error and noncompliance can be appropriately and more readily addressed within the framework of existing state programs through increased inspections, improved enforcement and other targeted actions.”

DENVER–The Colorado Oil & Gas Conservation Commission has published a guidance document to begin implementing the mandates of SB 181, which passed the Colorado Legislature and was signed into law by Governor Jared Polis on April 16.

SB 181 amends Colorado’s Oil and Gas Conservation Act to premise oil and gas development in the state on the protection of public health, safety, welfare, the environment and wildlife resources, COGCC notes in its announcement.

“SB 181 provides that the amendments to the Conservation Act apply to conduct occurring on and after April 16, and include pending permit and hearing applications,” COGCC points out. “The commission has prepared this guidance to explain how the hearings and permitting units will process pending and new applications (including) applications for permits to drill, oil and gas location assessment permits, requests to vent or flare, intents to plug, centralized E&P waste management facility permits, pooling applications, drilling and spacing unit applications, and comprehensive drilling plans.”

Among the requirements for APDs and drilling and spacing unit applications is that the applicant must apply for a siting permit from the local government with jurisdiction over siting of the proposed location as well as the local government’s disposition of that application, COGCC says.

Included in the guidance, the COGCC continues, are objective criteria the commission will apply when considering whether a permit requires additional analysis to ensure the protection of public health, safety, welfare or the environment. Those criteria as well as the procedures the commission will follow in processing various permit applications may be viewed on the COGCC’s website at https://cogcc.state.co.us.

Once the COGCC has completed the rule makings required by SB 181, the temporary guidance will be withdrawn, the commission says.

LANSING, MI.–Michigan’s new governor has overturned her predecessor’s approval of legislation authorizing an underwater tunnel in the Straits of Mackinac between lakes Huron and Michigan, saying her attorney general has concluded the bill is unconstitutional.

The tunnel would house a replacement for Enbridge Inc.’s Line 5, a pair of 20-inch pipelines running along the lakebed that the company says has carried light crude and natural gas liquids through Michigan’s Upper and Lower peninsulas, connecting Superior, Wi., and Sarnia, Ontario, since 1953.

According to Governor Gretchen Whitmer, one of her first acts on assuming office in January was to ask the new attorney general, Dana Nessel, to rule on the legality of SB 1197. Michigan lawmakers passed the bill, introduced by Senator Tom Casperon, R-Escanaba, and signed by former governor Rick Snyder, amended the Mackinac Bridge Authority to allow it to construct and operate a utility tunnel connecting the peninsulas. The tunnel would house a 540,000 barrel a day light crude and natural gas liquids pipeline owned by Enbridge (AOGR, Jan 2019, pg 22).

After reviewing Nessel’s opinion that the legislation was unconstitutional because it went beyond the scope of the bill’s title, Whitmer signed an executive order requiring state agencies to stop any actions supporting the Mackinac Straits Corridor Authority.

“The Great Lakes are our most precious resource in Michigan, and because of their significance, I have instructed state departments and agencies to halt any further action in furtherance of this bill,” Whitmer says.

The Michigan Oil & Gas Association says the contested legislation pertains to building a new tunnel under the straits and says nothing about the continued operation of the Line 5 pipeline that runs on the lake bed.

Enbridge says the $500 million project to replace Line 5 will use a tunnel with a reinforced concrete liner dug as deep as 100 feet below the lakebed to reduce the chances of a leak into the Great Lakes. It adds construction and operation of the tunnel will not disturb the lakebed, fish or wildlife.

According to groups opposing any oil pipelines in the Straits of Mackinac, the lines would cross one of the world’s most ecologically sensitive areas, and that the Great Lakes represent 20 percent of the fresh surface water on the planet.

WEXFORD, PA.–A federal judge has ordered a Pennsylvania municipality to pay oil and gas producer Pennsylvania General Energy Co. LLC nearly $103,000 in attorneys’ fees and costs resulting from a lawsuit over the town’s so-called community bill of rights ordinance, which was intended to stop the company from constructing a wastewater disposal well in Grant Township, Pa.

In an opinion issued April 1, the Pennsylvania Independent Oil & Gas Association reports, the U.S. District Court for Western Pennsylvania ordered Grant Township to pay PGE $100,000 in attorney fees and $2,979.18 in costs, calling the company’s acceptance of that amount “infinitely reasonable,” since PGE’s total costs in the lawsuit came to more than $600,000.

PIOGA explains that in 2014, Grant Township adopted an ordinance prohibiting disposal wells. After that ordinance was ruled unconstitutional in 2015, Grant Township adopted a home rule charter containing the same provisions, PIOGA recounts, asserting it could invalidate state and federal rights to ensure its residents’ rights to freedom of activities that risked harming water, soil or air quality, such as an oil and gas wastewater disposal well.

In April 2017, PIOGA continues, the Pennsylvania Commonwealth Court similarly found Grant Township’s home rule charter unconstitutional.

“The ruling is yet another setback for the Community Environmental Legal Defense Fund, a nonprofit that has convinced Grant Township and other municipalities to enact rules that purportedly give them local control over oil and gas development and other undesired activities,” the association says, noting that earlier in the case, the U.S. district court had imposed $52,000 in legal sanctions against CELDF founder Thomas Linzey and another attorney with the organization.

DENVER–The Bureau of Land Management must consider the foreseeable indirect impacts of oil and natural gas combustion when it considers preliminary environmental assessments and environmental impact statements, a federal court has ruled.

The decision in the U.S. District Court in the District of Colorado in Citizens for a Healthy Community v. BLM involves the BLM’s analysis of the Bull Mountain Master Development Plan (MDP) and the adjacent 25-well project in the Piceance Basin. Court documents say Senior Judge Lewis Babcock concluded BLM violated the National Environmental Policy Act in two areas. In addition to failing to take a hard look at those indirect impacts, the bureau didn’t consider the project’s cumulative impacts on local mule deer and elk populations.

In 2014, SG Interests I Ltd. submitted an MDP for natural gas exploration at the Bull Mountain site–19,670 acres of federal and private land in Gunnison County, Co. In its proposal, the company said it planned to drill as many as 146 gas wells and four disposal wells, as well as develop associated infrastructure.

Several anti-development groups–including Citizens for a Healthy Community, High Country Conservation Advocates, Center for Biological Diversity and WildEarth Guardians–filed a lawsuit challenging the federal review of SG Interests’ MDP as well as an adjacent 25-well project proposed by SG Interests and another company.

According to the judge’s decision, BLM must clarify what area is studied in its EIS analysis of the master development plan’s impacts on the deer and elk.

Babcock sided with the bureau on several issues, and ruled that BLM did consider reasonable alternatives in its analysis, sufficiently examined the ecological, economic and social impacts of the project’s predicted greenhouse gas emissions, and took a sufficiently hard look at the impacts of hydraulic fracturing on water resources and human health.

His decision orders the parties to negotiate a settlement over the sections of the analysis not in compliance with NEPA; if a settlement proves impossible, he says he will accept briefs from both sides on proposed corrective measures.

WASHINGTON–The National Ocean Industries Association’s Board of Directors has elected Richard Clark as chairman and Galen Cobb as vice chairman for the 2019-20 term. According to NOIA, the two assumed their one-year positions April 11 at the association’s annual meeting in Washington.

Clark is president of the Gulf of Mexico business unit for Kosmos Energy, with the majority of his business experience in the deepwater Gulf. NOIA says he was one of the founders of Mariner Energy Inc., serving as executive vice president and on the board of directors. In 2004, he was a founder of Deep Gulf Energy, and served as president until it was acquired by Kosmos in September 2018.

Cobb is vice president of industry relations for Halliburton, and has worked for that company for 44 years, serving in executive management positions in operations, marketing, sales and business development, NOIA describes.

Appointed to the NOIA board’s Executive Committee are Tim Duncan, president and chief executive officer of Talos Energy LLC; Lee Jackson, chairman and CEO of Jackson Offshore Operators; and Steve Weyel, chairman and CEO of EnVen Energy Ventures.

“As the offshore energy industry continues to pick itself up from the economic doldrums of the past few years, NOIA is excited to have the leadership of Richard and Galen,” says NOIA President Randall Luthi. “The offshore industry is recovering into a more globally competitive market. NOIA and the offshore industry at large will need to find new ways to ensure the United States remains the global offshore leader.”

Clark and Cobb are two longstanding leaders representing the producer and service segments of the energy industry, Luthi says, adding, “Their combined decades of expertise and experience will position NOIA for a changing offshore world.”

WASHINGTON–In a reversal of a previous policy, the White House first announced it would not defend cancelling an oil and gas lease in the Badger-Two Medicine area, near Glacier National Park, Mt., and the Blackfeet Reservation, and then followed that step by asking an appeals court to dismiss a lawsuit over the lease because of a lack of jurisdiction.

In November, former Interior Secretary Ryan Zinke said the department would defend the cancellation, but the Bureau of Land Management now has filed for a voluntary dismissal of its appeal.

On April 17, at the U.S. Court of Appeals for the District of Columbia, the administration filed for an unopposed motion for voluntary dismissal in a lawsuit involving lessee W.A. Moncrief Jr. BLM has not indicated its plans for legal actions regarding a second Badger-Two Medicine lease held by Solenex LLC of Baton Rouge, La. The two leases were issued in 1982 but federal suspensions and legal actions blocked any development. Congress withdrew the area from leasing in 1997 and all but these two leases were relinquished.

According to media reports, after opposition from Native American groups, the Department of Interior cancelled those two remaining leases during President Barack Obama’s term, and Moncrief sued the department in April 2017. A federal court in Montana ruled in favor of Moncrief and Solenex in September (AOGR, October 2018, pg. 17). The department continued its appeal of that decision until President Donald Trump’s announcement.

Tim Davis, chairman of the Blackfeet Tribal Business Council, says the administration has gone back on its earlier pledge to defend the Badger-Two Medicine area from development. He adds the tribal group will continue to work with federal agencies to resolve the issue through negotiation, settlements and land exchanges. The Blackfeet tribe reportedly is negotiating with Moncrief Oil over providing other tracts of land on its reservation for drilling.

News reports point out Solenex had acquired a permit to drill on its acreage decades ago, although that permit has been challenged in court, while Moncrief never secured a permit for his lease.

In a motion filed later in April, media sources report BLM argued the court should not allow the case to continue based solely on an appeal from Native American groups opposing the leases. BLM’s motion states because the government is not pursuing an appeal the court should deny those groups seeking to intervene in the case.

LAKE CHARLES, LA.–A Louisiana appeals court says the state unfairly assessed additional severance taxes on an oil and gas production company operating in Beauregard County.

The Third Circuit judges affirmed the Board of Tax Appeals decision in a case involving the Louisiana Department of Revenue alleging Avanti Exploration LLC impermissibly reduced its gross receipts in transactions involving two oil purchasers.

According to the Louisiana Oil & Gas Association, the court rejected the department’s position that differential in the pricing formula was an improper transportation cost or other deduction, and found that it was an element of the pricing formula in the crude oil purchase agreements.

The revenue department had claimed that Avanti and the first producers conspired to manipulate Avanti’s severance tax liability by taking a producer’s transportation credit and hiding it in the pricing formula, LOGA explains. The appeals court found that the contracts called for oil delivery in the field at the lease, and Avanti took no transportation cost deduction.

“The opinion affirmed that since the sale was an arm’s length sale, the proper method to value the oil was the higher of the gross receipts received by the producer or the posted field price and noted that there was no posted field price and commented that the practice of posted field prices has been in disuse for many years,” the association says.

The court ruling says company documents show Avanti paid severance taxes on the full amount of funds it received, according to state tax laws, and didn’t take a transportation deduction from these amounts. While the differential in the pricing formula and in various e-mails between Avanti and the two purchases was referred to as a “transportation differential” or a “truck deduct,” the court held there was no evidence Avanti took the allowed deduction for transportation costs.

“To the extent that a purchaser incurred a trucking expense and this became an element of the negotiated price of the oil in an arm’s length transaction, that amount appears as just another fluctuating overhead expense in the cost of doing business. The question is whether the producer, Avanti, took the deduction, and the record shows that it did not,” the appeals court determined.

ANCHORAGE, AK.–A federal judge has reinstated a drilling ban for millions of acres off the Alaska coast, deeming unlawful President Donald Trump’s executive order allowing offshore drilling.

In 2015 and 2016, President Barack Obama issued three memoranda and an executive order withdrawing several parts of the Outer Continental Shelf from leasing. President Trump revoked those actions through Executive Order 13795, issued April 28, 2017, the White House says.

A week later, several groups, including the Alaska Wilderness League, Defenders of Wildlife, Greenpeace and Natural Resources Defense Council, filed a lawsuit against the executive order.

In a March 29 ruling handed down from the U.S. District Court for the District of Alaska, U.S. District Judge Sharon Gleason ruled the president lacked the authority to rescind the earlier memoranda and executive order, and ordered the withdrawals to “remain in full force and effect unless and until revoked by Congress.”

Gleason held the Outer Continental Shelf Lands Act, the regulatory basis for offshore leasing, allowed presidents to withdraw lands from drilling but didn’t provide authority for subsequent presidents to cancel that withdrawal. She explained when OCSLA was written, it included one concept–withdrawal–and excluded the converse–revocation.

According to the plaintiffs, Congress has written legislation that provides for both processes, including the Forest Service Organic Administration Act of 1897, and the Pickett Act of 1910. Bills such as those contain language authorizing the temporary withdrawal or reservation of land, along with the power to revoke such acts, they point out. “When enacting OCSLA, the Senate Committee on Interior and Consular Affairs expressed its intent only with regard to the president’s authority to withdraw it; it said nothing about any authority to revoke a prior withdrawal,” their lawsuit states.

Gleason wrote Congress’s silence regarding revocation authority likely was purposeful, noting had Congress intended to grant such power it could have done so explicitly. She dismissed defendants’ argument that the earlier legislation pertained to reservations, not withdrawals, saying Congress had used those terms interchangeably for decades.

Following the ruling, Senator Lisa Murkowski, R-Ak., expressed disappointment, calling it an incorrect ruling that could have catastrophic impacts on offshore development. She predicted the ruling would be appealed and immediately overturned by either the 9th Circuit Court of Appeals or by the U.S. Supreme Court.

Randall Luthi, president of the National Ocean Industries Association, urged President Trump to both continue leasing outside the protected areas and to mount an appeal to Gleason’s decision. “A court with more experience and knowledge of the full breadth of the executive branch may very well come to a different conclusion,” he said.

WASHINGTON–Underground natural gas storage in the United States stood at 1.462 trillion cubic feet on April 26, 17.8 percent below the five year average, according to the U.S. Energy Information Administration. That was 127 Bcf more than a year ago, when gas storage stood at 1.335 Tcf.

According to EIA, gas storage in the East Region was 279 Bcf on April 26, 5.7 percent below the five-year average, but 59 Bcf more than it was a year ago.

Gas storage in the Midwest Region stood at 290 Bcf on April 26, 17.4 percent below the five-year average and 70 Bcf more than a year ago.

In the Mountain Region, EIA says, gas storage was 75 Bcf on April 26, 37.0 percent below the five-year average and 11 Bcf less than a year ago.

Gas storage in the Pacific Region was 152 Bcf on April 26, 31.8 percent below the five-year average and down 34 Bcf from a year ago.

In the South-Central Region, gas storage levels on April 26 were 666 Bcf, 15.5 percent below the five-year average and up 43 Bcf from a year ago.