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February 2024 Exclusive Story

Congressional Leaders Informed Of Threat To Marginal Wells

WASHINGTON—A coalition of U.S. oil and natural gas industry groups has written to the country’s congressional leaders, calling on them to help improve the U.S. Environmental Protection Agency’s federal methane initiatives that, they warn, threaten U.S. energy supply.

The letter expresses the group’s alarm about the impact of EPA’s new methane emissions regulations (Subparts OOOOb and OOOOc) and the Methane Emissions Reduction Program (methane tax) on marginal well owners. It says both actions threaten such wells’ viability by creating unfair, unworkable and uneconomic regulations.

“These small business energy producers need assistance to find a regulatory or legislative solution to mitigate these threats,” the coalition says.

The letter focuses on key regulatory terms and likely repercussions for producers regarding:

  • The regulatory applicability to marginal wells;
  • Subparts OOOOb and OOOOc; and
  • The methane tax.

“Collectively, the Subpart OOOOc regulations and the methane tax pose serious and direct threats to hundreds of thousands of marginal wells,” the industry groups advise. “These threats have not been remotely addressed in the current regulatory actions completed or pending at EPA. Congress needs to step up and step in to prevent irresponsible agency actions that would savage the nation’s marginal oil and natural gas wells.”

DOE Data Disregarded

The letter opens by asking policymakers to seek regulatory or legislative avenues to lighten the burden EPA plans to lay on marginal wells, which the coalition defines as those that produce no more than 15 barrels of oil equivalent or 90 Mcf a day. The letter cites U.S. Energy Information Administration data to show such wells number about 750,000. Moreover, it details, about 600,000 of those wells produce no more than 6 boe/d and about 300,000 top out at 1 boe/d.

“Operations of these wells differ from large wells,” the coalition observes. “Many do not operate continuously, particularly as their production declines. Wells may operate on timers such that they only pump a few hours a day; others may only operate a few days or one day per week.”

Moreover, it continues, although a dearth of analyses incorporating actual on-site emissions measurements means information on those wells’ emissions is scarce, the federal government is behind the best data on the matter. “The most notable effort was funded by the Department of Energy, ‘Quantification of Methane Emissions from Marginal (Small Producing) Oil and Gas Wells,’” the letter assesses. “This study produced key findings that are important regarding the potential regulatory burdens being imposed by EPA.”

The coalition emphasizes several of those findings:

  • Approximately 10% of the analyzed wells accounted for 90% of emissions.
  • Emissions from wells that produced less than 6 boe/d rarely exceeded the three tons a year regulatory threshold of methane emissions that EPA has proposed as the minimum for leak detection and repair (LDAR) requirements in its 2021 Subpart OOOOc proposal.
  • The predominant sources of emissions were from tanks (often because of open thief hatches or poor seals), faulty pneumatic controllers and inadvertently open vents.

“These results demonstrate that targeted actions to reduce emissions from these few sources from larger marginal wells would manage the meaningful environmental impacts of these wells,” the letter states. “Nevertheless, EPA continues to fail to use commonsense solutions.”

Subparts OOOOb And OOOOc

According to the coalition, Subpart OOOOc aims to define methane emissions guidelines (EG) for existing oil and gas facilities that would affect about 1 million U.S. wells, including the aforementioned 750,000 marginal wells. “States are supposed to take these EG and develop a plan to implement them,” the letter describes. “While the Clean Air Act provides significant flexibility for states to develop their own regulations, EPA wrote this regulation to limit that flexibility.”

The letter suggests that EPA’s rigid approach will limit states’ ability to adapt to unique situations and implement the regulations in a reasonable way. “If states are forced to adopt the EG without changes, there will be significant consequences for marginal wells,” the coalition cautions. “Earth Science Systems evaluated the impact of EPA’s regulations and concluded that 30% of existing wells would be shut down; these are likely the 300,000 wells producing 1 boe/d or less. Another report, by Enverus, estimates that 34% of existing wells would become uneconomic under the new EPA regulations, a conclusion consistent with the Earth Science Systems report.”

In particular, the coalition indicates, the rulemaking is problematic regarding its:

  • LDAR requirements;
  • Treatment of pneumatic controllers;
  • Associated gas management; and
  • Compliance timeline.

EPA divides its LDAR requirements between audio, visual, olfactory (OVO) and optical gas imaging (OGI) detection, the letter notes, and the latter technique is far costlier. Citing the rules’ four well categories and their accompanying LDAR requirements, the coalition highlights the difference between small well sites’ quarterly AVO obligations and large sites’ quarterly OGI and bimonthly AVO duties.

“Using EPA’s category definitions, the vast majority of wells will fall into the large well site category,” the coalition says. “At a recent House Energy and Commerce Subcommittee hearing, a producer from Michigan illustrated the challenge his operations face. His company produces primarily oil from 262 well sites averaging about 1.4 barrels/day/well. However, 231 of these well sites will be categorized in the large well site category for LDAR. The cost of quarterly OGI and bimonthly AVO will be prohibitive for marginal well owners.”

Turning to the subject of pneumatic controllers, the letter notes they are used at many marginal well sites because their often remote locations lack electricity. Therefore, it explains, gas produced by the wells activates the controllers and is discharged to the air.

“Rather than recognize that these controllers are part of the well site, and the costs of regulation affect the economics of the well, EPA treats them as a separate ‘facility,’ which allows the cost/benefit analysis to ignore the impacts on the whole well site,” the coalition describes. “Based on its analysis—using some questionable emissions data—EPA’s EG requires gas-driven pneumatic controllers to be eliminated. Many states have required that captured gas to be routed to 95% emissions control, but EPA rejected this option. Even the feasibility of complying with these requirements for small remote facilities is questionable.”

Turning to associated gas management, the coalition warns that the rules include an overarching requirement that—with very limited exceptions—marginal wells capture all associated gas, a cost that the letter deems too substantial for most marginal well producers to absorb. “Previous regulations allow for flaring and venting of a de minimis amount of associated gas, but these reasonable options are mostly eliminated under the new rule,” the letter observes. “EPA ignored the fact that associated gas capture may simply not be feasible for some rural well sites, wrongly forcing their premature closure.

“As wells age, the volume of associated gas diminishes, wells do not operate continuously, and therefore the volume of the gas is too small to be recovered and sold,” it continues. “From the standpoint of EPA’s requirements, intermittent gas cannot operate an incinerator without a supplemental gas supply. Consequently, the EPA requirement would result in the perpetual purchase of supplemental gas to burn continuously to eliminate an amount of methane that has not been shown to be significant.”

Meanwhile, the coalition relates, EPA’s compliance timeline—which provides state regulators two years to craft their plans and then allows companies three additional years for compliance—is unrealistic for marginal well owners, in large part because of practical considerations. “Even if a reasonable pathway to compliance can be found, there will be roughly 750,000 marginal well owners looking to make the same modifications within three years or fewer,” the industry associations point out. “The potential challenges from permitting, availability of equipment, availability of installers, pipeline siting and construction, and financial limits are tremendous.”

Although EPA’s regulatory impact analysis for OOOOb and OOOOc claims that the agency cannot estimate the final regulation’s impacts on marginal well owners, the letter predicts it will prompt many owners to plug producing marginal wells and strain the industry’s plugging capabilities.

Methane Tax

The letter’s section on the methane tax opens by citing a pair of key points in a letter Senator Joe Manchin, D-W.V., sent to EPA Administrator Michael Regan last summer.

  • The Inflation Reduction Act clearly intends to exempt marginal wells and smaller producers from the fee. EPA must state plainly that entities not subject to the current Subpart W Greenhouse Gas Reporting Program are not subject to Methane Emission Reduction Program fees.
  • EPA should draw reasonable boundaries around the definition of individual “facilities” (such as a pad site, compressor site or reporting field) for emissions intensity calculations to prevent aggregations of large amounts of disparate wells and gathering lines from imposing a fee on marginal wells.

“EPA has failed to address these issues in either its proposed Subpart W revisions or its proposed regulations to implement the tax calculation portions of the requirements,” the coalition asserts.

It goes on to attribute these issues to the fundamental problem of using Subpart W—a component of the Greenhouse Gas Reporting Program (GHGRP)—as the basis for calculating the methane tax.

“GHGRP is not part of the CAA and EPA created special regulations for its implementation,” the letter observes. “Among these is a definition of ‘facility’ that is not used anywhere else in regulations and is inconsistent with the concept of facility in the CAA. Essentially, the GHGRP defines a facility as all the operations within an American Association of Petroleum Geologists basin. For some basins, this is the entire state. Practically, this process means that all marginal wells in the basin must be added together and treated as if they were one large well.”

Under such a collectivized methodology, vast numbers of small wells become subject to the methane tax, a situation the coalition says is exacerbated by EPA’s proposed changes for calculating Subpart W.

“First, EPA is proposing to change the global warming potential for methane from 25 to 28,” the letter details. “This change would mean that, whereas 1,000 metric tons of methane would equal the 25,000 metric tons threshold in the current Subpart W, the future 25,000 metric tons threshold would be 893 metric tons of methane, roughly an 11% reduction in the threshold that was not considered during the legislative process.

“Second, EPA’s proposed revisions to Subpart W generally increase the emissions factors for oil and natural gas facilities,” the letter continues. “Taken together, these changes can move operations previously below the 25,000 metric tons threshold above it, thus raising the taxable status of these operations.”

EPA can resolve the matter by approaching the threshold calculation in a matter consistent with standard and realistic CAA definitions for what constitutes a facility, the coalition suggests.

“For example, in 2016, EPA clarified that its definition of oil and natural gas production facilities required them to be under common ownership and adjacent for multiple wells to be considered as one facility,” the associations recount. “This rational approach reflects the common understanding of a facility and would prevent the basinwide aggregation of wells that pulls a collection of small wells into the scope of the methane tax. Alternatively, EPA could exclude marginal wells from the calculation of Subpart W emissions, at least for the purpose of the methane tax.”

Although the methane tax exempts producers that comply with OOOOb and OOOOc, the letter says, utilizing those exemptions will be temporarily impossible, since the methane tax takes effect next year, while OOOOc regulations will not be in place for three-five years.

“Congress and EPA need to live up to the commitment not to expose ‘marginal wells and smaller producers’ to the methane tax,” the letter holds. “We urge immediate action to produce this result.

The coalition letter is signed by the Independent Petroleum Association of America, Arkansas Independent Producers & Royalty Owners Association, California Independent Petroleum Association, Domestic Energy Producers Alliance, Energy Workforce & Technology Council, Gas & Oil Association of West Virginia, Independent Oil & Gas Association of New York, Independent Petroleum Association of New Mexico, Indiana Oil & Gas Association, Kansas Independent Oil & Gas Association, Kentucky Oil & Gas Association, Louisiana Oil & Gas Association, Michigan Oil & Gas Association, Montana Petroleum Association, National Stripper Well Association, Oil & Gas Workers Association, Oil Producers’ Alliance, Panhandle Producers & Royalty Owners Association, Pennsylvania Independent Oil & Gas Association, Permian Basin Petroleum Association, Petroleum Alliance of Oklahoma, Southeastern Ohio Oil & Gas Association, Texas Alliance of Energy Producers, Texas Independent Producers & Royalty Owners Association, Utah Petroleum Association and the Western Energy Alliance.

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