July 2020 Industry Digest

The Trump administration’s new definition of “waters of the United States” subject to federal Clean Water Act jurisdiction batted .500 in the first two of its court challenges heard.

The Navigable Waters Protection Rule was announced by Environmental Protection Agency Administrator Andrew Wheeler on Jan. 23 in Las Vegas and was published in the April 21 Federal Register. It replaces the Obama administration’s 2015 Clean Water Rule and delineates four categories of federally regulated waters as well as variety of nonjurisdictional waters (AOGR, February 2020, pg. 14). The rule became effective June 22.

On June 19, according to published reports, The U.S. District Court for the Northern District of California denied a motion filed by California and 16 other states and cities for a nationwide preliminary injunction. But on the same day, in what the Environmental Law and Policy Monitor terms a “seemingly opposite conclusion,” the U.S. District Court for the District of Colorado granted the state of Colorado’s motion to prevent the rule from taking effect in that state.

In California, according to published reports, Judge Richard Seeborg concluded EPA’s and the U.S. Army Corps of Engineers’ interpretation of WOTUS was entitled to deference. “The court emphasized that Congress failed to clearly define the term in the statute and that there had been a shifting interpretation of the term between administrations,” the reports say. “The court acknowledged that interpretative changes motivated by a change in administration were inherently unreasonable and concluded the agencies’ current interpretation–even if it was inconsistent with the agencies’ 2015 interpretation–likely was not inconsistent with the text, structure and purpose of the CWA.”

In Colorado, however, Judge William J. Martinez found the Navigable Waters Protection Rule contradicted the U.S. Supreme Court’s 2006 ruling in Rapanos v. United States, the reports continue.

They say, “Judge Martinez concluded the rule impermissibly implements the jurisdictional test put forth by the four-justice plurality in Rapanos . . . rather than Justice (Anthony) Kennedy’s concurring opinion. Given the rule’s contradiction of Justice Kennedy’s concurring opinion . . . Judge Martinez determined the plaintiffs likely would succeed in challenging the rule and halted its implementation in Colorado.”

The reports note the Navigable Waters Protection Rule faces additional challenges in Arizona, Washington, South Carolina and Massachusetts as well as in New Mexico where the New Mexico Cattle Growers Association contends the new rule doesn’t go far enough in paring back the CWA’s reach. 

WASHINGTON–A federal judge has ordered the Dakota Access Pipeline emptied and shut down while the Army Corps of Engineers prepares an environmental impact statement on DAPL’s crossing of the Missouri River.

The North Dakota Petroleum Association reports Judge James Boasberg in the U.S. District Court for the District of Columbia on July 6 gave Energy Transfer Partners 30 days to empty the pipeline and cease operations.

In March, Boasberg ruled an environmental assessment the Corps completed in 2018 violated the National Environmental Policy Act and did not justify the easement granted DAPL to cross beneath the Missouri River (AOGR, April 2020, pg. 18). He allowed DAPL to continue operating, however, pending filing of briefs on whether the easement should be vacated and the pipeline shut down until the Corps completed the EIS. NDPC estimates a full EIS will take 13-42 months to complete.

As of June, published reports say, the pipeline from Stanley, N.D., to Patoka, Il., was carrying 570,000 barrels a day of crude oil.

In 2017, Boasberg ruled the Corps “largely complied” with NEPA when it permitted the pipeline, but nevertheless ordered additional review to address concerns raised by the Standing Rock Sioux and Cheyenne River Sioux tribes (AOGR, July 2017, pg. 14). DAPL crosses the Missouri River just north of the Standing Rock Sioux reservation.

In August 2018, the Corps affirmed its earlier determination that the pipeline posed no significant environmental threats, a finding the tribes disputed.

In ordering DAPL be shut down, Boasberg says he is “mindful of the disruption such a shutdown will cause,” but contends it is necessary.

“Given the seriousness of the Corps’ . . . error, the impossibility of a simple fix, the fact that Dakota Access did assume much of its economic risk knowingly, and the potential harm each day the pipeline operates, the court is forced to conclude that the flow of oil must cease,” the judge’s ruling says.

NDPC calls Boasberg’s order “an extreme action and one not required by law.”

“This is a serious attack on our industry and will impact all levels of operations in North Dakota as well as to other industries,” NDPC declares. “DAPL moves 40% of Bakken oil.”

Referencing Boasberg’s ruling as well as Dominion Energy’s announcement the day before that it was cancelling the Atlantic Coast Pipeline (see story page 26), American Petroleum Institute President and Chief Executive Officer Mike Sommers says API is “deeply troubled by these setbacks for U.S. energy leadership.”

“Our nation’s outdated and convoluted permitting rules are opening the door for a barrage of baseless, activist-led litigation, undermining American energy progress and denying local communities the environmental, employment and economic benefits modern pipelines provide,” Sommers insists. “The need to reform our broken permitting system has never been more urgent.” 

SACRAMENTO, CA.–The plaintiffs in two failed attempts to overturn President Trump’s rescission of Obama era fracturing regulations are taking their challenge to a higher court.

On June 12, California Attorney General Xavier Becerra and the Sierra Club on behalf of itself and seven other environmental organizations filed separate notices of appeal with the U.S. Court of Appeals for the 9th Circuit. Both groups are appealing the March 27 ruling by the U.S. District Court for the Northern District of California that the Bureau of Land Management’s repeal in December 2017 of regulations governing hydraulic fracturing on federal and tribal lands that was issued in March 2015 did not violate the Administrative Procedure Act, National Environmental Policy Act nor the Endangered Species Act.

Ruling in California v. Bureau of Land Management and Sierra Club v. Ryan Zinke, District Judge Haywood S. Gilliam Jr., determined that “BLM adequately articulated a reasoned explanation for its change in position” (AOGR, April 2020, pg. 14).

In a statement announcing his notice of appeal, AG Becerra says he intends to argue that Judge Gilliam:

• Failed to consider that BLM’s justification for repealing the Obama-era rule was arbitrary and capricious under the Administrative Procedure Act;
• Did not fully address whether BLM neglected to consider more narrowly tailored alternatives to a full repeal; and
• Incorrectly determined that NEPA did not apply in this case because the Obama rule never went into effect.

Becerra says he will ask the 9th Circuit to reinstate the 2015 fracturing regulations. 

WASHINGTON–The U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration, in consultation with the Federal Railroad Administration, has issued a final rule authorizing the bulk transportation of liquefied natural gas by rail.

PHMSA says the new rule, which was announced June 19 and will become effective 30 days after its publication in the Federal Register, will permit LNG to be transported in DOT-113C120W9 specification tank cars with enhanced outer tank requirements. The prepublication version of the final rule is available at https://www.phmsa.dot.gov/news/usdot-final-rule-safe-transportation-lng-rail-tank-car.

“The department’s new rule carefully lays out key operational safeguards to provide for the safe transportation of LNG by rail to more parts of the country where this energy source is needed,” stated Transportation Secretary Elaine Chao in announcing the rule.
She adds that the rule incorporates newly designated safety requirements. Among them:

• Enhanced thicker carbon outer tanks;
• Remote monitoring of the pressure and location of LNG tank cars;
• Two-way, end-of-train or distributed-power-system braking when a train is transporting 20 or more LNG tank cars in a row or 35 or more such cars in total; and
• A requirement that railroads conduct route-risk assessments to evaluate safety and security.

Previously, PHMSA notes, LNG could be moved by rail in a portable tank secured to a rail car under a special-use permit. The agency adds its final rule responds to Executive Order 13868, “Promoting Energy Infrastructure and Economic Growth.” The EO, which was issued by President Donald Trump in April 2019, gave DOT 100 days to commence a rule making “that would permit LNG to be transported in approved rail tank cars” (AOGR, May 2019, pg. 28).

The Texas Independent Producers & Royalty Owners Association points out that the Association of American Railroads petitioned for the regulatory change in January 2017.

In separate and apparently non-coordinated actions, the attorneys general for Minnesota and the District of Columbia on June 24 filed lawsuits seeking damages from energy companies for climate change.

The two lawsuits are different from previous such claims, published reports indicate, in that they were filed under state consumer protection laws rather than claiming public nuisance, and especially in Minnesota’s case, include environmental justice as a key component.

Minnesota AG Keith Ellison’s lawsuit names ExxonMobil Corp., the American Petroleum Institute and three Koch Industries entities.

According to a statement from his office, Ellison’s lawsuit includes “claims for fraud, failure to warn, and multiple separate violations of Minnesota statutes that prohibit consumer fraud, deceptive trade practices and false statements in advertising.” Ellison contends, “Starting in 2015, internal experts in the field of climate change at these companies were issuing warnings to company leaders about what was coming. But rather than warn the public . . . the complaint details a multipronged campaign of deception that the companies and API conducted over the past 30 years.”

It seeks “restitution for the harms Minnesotans have suffered,” and asks the court “to require defendants to fund a corrective public education campaign on the issue of climate change.” Although the lawsuit doesn’t specify an amount, one published report quotes Ellison saying damages “could be akin to Minnesota’s $7 billion 1998 settlement with the tobacco industry.”

The District of Columbia’s lawsuit names ExxonMobil, BP, Chevron Corp. and Shell. AG Karl A. Racine claims those companies “knew as early as the 1950s that emissions from burning oil and gas posed an existential threat to humanity. In response, the companies embarked on a multidecade, multimillion dollar public relations campaign to foment doubt and hostility toward climate research in order to protect profits.”

Later, Racine continues, “The companies exaggerated their commitments to reducing reliance on fossil fuels and concealing their products’ harm.”

His lawsuit asks the court “to order the companies to end their disinformation campaigns, provide relief for district consumers and pay civil penalties.”
Filed under D.C.’s Consumer Protection Procedures Act, Racine says the lawsuit alleges the defendants:

• Executed long-term communications campaigns to undermine climate change science;
• Misrepresented the scale of their investments to reduce carbon emissions; and
• Obscured the damaging impacts their products have had on the environment.

Filing the lawsuits under consumer protection rather than public nuisance laws is significant, published reports indicate, because it will make it more difficult for defendants to move them into federal jurisdiction. One report quotes University of Houston law professor Victor Flatt saying, “There is less likelihood of a federal statutory pre-emption. Consumer protection is definitely, historically, a state thing.”

Defendants in numerous other state and city lawsuits seeking climate damages from oil companies in public nuisance lawsuits have attempted to shift them to federal courts because in 2011, the U.S. Supreme Court ruled the Clean Air Act blocked litigants from using federal common law against greenhouse gas polluters. However, last October, SCOTUS refused to stay state proceedings in climate lawsuits brought by Rhode Island, Colorado and the city of Baltimore (AOGR, November 2019, pg. 83).

The two lawsuits also are the first climate cases to specifically mention the disproportionate impact of global warming on low-income communities and people of color, the published reports add, another significant departure from other climate complaints, according to Loyola University law professor Karen Sokol.

WASHINGTON–The Federal Energy Regulatory Commission has announced it will no longer allow pipelines to begin construction until after all requests to rehear the order approving such a project are dealt with.

An instant final rule issued on June 9 precludes FERC from issuing authorizations to proceed with construction on natural gas facilities authorized pursuant to Sections 3 or 7 of the Natural Gas Act “until either the time for filing a request for rehearing of such order has passed (without a request being filed) or the commission has acted on the merits of any rehearing request.”

Prior to this order, the Energy Equipment & Infrastructure Alliance (EEIA) explains, FERC would issue authorizations to proceed with construction, including on lands subject to eminent domain challenges, while the challenge was being considered. “We believe this opens the door to objecting landowners coordinating and stringing together multiple sequential challenges, potentially slowing construction starts significantly,” EEIA worries.

In announcing the new rule, FERC Chairman Neil Chatterjee says it builds on two previous agency efforts to increase transparency and fairness to the public. In September 2019, Chatterjee recalls, he pledged FERC would strive to act on landowner-related rehearing requests within 30 days. Then in February, he announced a new rehearing section within FERC’s Office of the General Counsel to help ensure rehearing requests were considered as quickly as possible.

Although the order does not take effect until 30 days after it is published in the Federal Register, Chatterjee says FERC will not authorize construction to proceed pending rehearing before that time. 

In a related, though perhaps moot, development, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion on June 30 that, the Sierra Club claims, forbids FERC from issuing tolling orders.

WASHINGTON–Underground natural gas storage in the United States stood at 3.078 trillion cubic feet on June 26, 17.8% above the five year average, according to the U.S. Energy Information Administration. That was up 714 Bcf more than a year ago, when gas storage stood at 2.364 Tcf.

According to EIA, gas storage in the East Region was 639 Bcf on June 26, 18.1% above the five-year average and 121 Bcf more than it was a year ago.

Gas storage in the Midwest Region stood at 740 Bcf on June 26, 24.2% above the five-year average and 181 Bcf more than a year ago.

In the Mountain Region, EIA says, gas storage was 173 Bcf on June 26, 6.8% above the five-year average and 41 Bcf more than a year ago.

Gas storage in the Pacific Region was 304 Bcf on June 26, 5.9% above the five-year average and up 52 Bcf from a year ago.

In the South-Central Region, gas storage levels on June 26 were 1.222 Tcf, 19.2% above the five-year average and up 319 Bcf from a year ago.

ANCHORAGE, AK.–As part of a broader transaction that also includes its midstream assets in Alaska, bp reports it has transferred the Prudhoe Bay oil field and its other upstream assets in the state to Hilcorp,

In August 2019, bp announced it would exit Alaska by selling its businesses there to Hilcorp for a total consideration of $5.6 billion. The sale covers bp’s entire upstream and midstream businesses in the state, including BP Pipelines (Alaska) Inc.’s interest in the Trans Alaska Pipeline System.

William Lin, bp’s executive vice president, regions, cities and solutions, says the deal marks a new era for Prudhoe Bay. “It is a world-class field, and Hilcorp is well-positioned to take it into the future and maximize value for Alaska,” he adds.

When Hilcorp announced the transaction last August, company President Jason Rebrook said, “This investment will help drive growth in local energy production, jobs and state and local revenue for many years. Hilcorp has a proven track record of bringing new life to mature basins, including Alaska’s Cook Inlet and the North Slope, and we have a clear understanding that an experienced local workforce is critical to success.”  

LONDON–Pantheon Resources PLC says two re-evaluations of older wells could boost Alaska’s oil production by 120,000 barrels a day.

Its more recent discovery prospect, the Talitha, could hold 1.8 billion barrels, with ultimate production of nearly 90,000 bbl/d, predicts Pantheon Chief Executive Officer Jay Cheatham. The field is along the Dalton Highway and Trans-Alaska Pipeline System corridor. According to media reports, the company combined a new evaluation of the Pipeline State-1 exploration well drilled by Arco in 1988 with data from adjacent drilling.

The Talitha discovery follows Pantheon’s second evaluation of a 2015 exploration well that indicates an Alaskan field may hold as much as 76 million barrels of recoverable oil. The company estimates the Greater Alkaid prospect, 20 miles south of Prudhoe, Ak., could produce 30,000 barrels a day.

Great Bear Petroleum drilled the Alkaid-1 well. Pantheon bought Great Bear and its 200,000 acres of North Slope leases in January 2019.

COVINGTON, LA.–LLOG Exploration Offshore LLC says it has sanctioned its Taggart discovery and signed a production handling agreement for development via tieback to the Williams-owned Devil’s Tower Spar in Mississippi Canyon in the Gulf of Mexico.

The Taggert discovery is on Mississippi Canyon Block 816 in 5,650 feet of water, LLOG notes. The Mississippi Canyon 816 No. 1 discovery well was drilled in 2013 to a depth of 11,562 feet and encountered 97 feet of net pay in two Miocene objectives. Two subsequent appraisal wells were drilled in 2015 and 2019 and encountered 147 feet and 84 feet of net pay, respectively.

LLOG President and Chief Executive Officer Philip LeJune says the company is looking forward to the successful development of the deepwater asset. “We are proud to have finalized an agreement with Williams for the recovery and processing of Taggart’s reserves via subsea tieback to its nearby Devil’s Tower Spar,” he affirms. “LLOG is looking forward to beginning the successful execution of this depwater Gulf of Mexico development project.”

LLOG and its affiliates own 100% of the Taggart development; initial development plans at Taggart include the completion and tie back of two wells with first production expected in 2022.

TULSA–WPX Energy has completed its acquisition of Felix Energy, which operated in the eastern portion of the Permian’s Delaware Basin. With the transaction, WPX’s daily production of 60,000 barrels of oil equivalent from the Delaware and Willison basins will increase to more than 150,000 boe/d, the company says.

WPX shareholders approved the acquisition at a special meeting, where more than 99.6% of votes cast were in favor of the transaction.

“We remain absolutely convinced about the accretive nature of the transaction and the outstanding quality of these assets. They overlie a tremendous resource that clearly gives us the means for accelerating our ability to achieve our five-year targets for shareholders,” says WPX Chairman and Chief Executive Officer Rick Muncrief.

The company says it has built its Permian Basin position through acquisitions of RKI Exploration & Production and Panther Energy in addition to the Felix Energy transaction, as well as its formation of a midstream joint venture with Howard Energy Partners. 

DALLAS–Align Midstream Partners II LLC reports it has completed the TOPS Pipeline and formed a joint venture agreement in the pipeline with Osaka Gas USA subsidiary Sabine Oil & Gas. The TOPS pipeline is a 30-mile, 16-inch diameter gas gathering pipeline in the Carthage area with interconnections to key downstream takeaway markets.

 “We are excited to partner with Sabine and grow our relationship in East Texas,” says Align Chief Executive Officer Fritz Brinkman. “The TOPS Pipeline will bolster our existing East Texas footprint and enhance our ability to serve the growing Haynesville production, providing our customers with greater access to a number of attractive markets across the Carthage Hub.”

“Given the long-term view of Sabine and its parent Osaka, the TOPS investment is another step in vertically integrating Sabine and advancing our strategy of capturing value from the well head to the burner tip; for our East Texas assets,” commented Sabine CEO Doug Krenek. “We are pleased to be expanding our relationship with Align as it is a very competent East Texas midstream company.”