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Administration Announces Far-reaching Air Regulations for Oil & Gas Exploration, Production, and Transportation Industry

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On May 12, 2016, the Obama administration announced sweeping initiatives to regulate air emissions from oil and gas exploration, production, and transportation facilities. Two final rules, which were originally proposed by the U.S. Environmental Protection Agency (“EPA”) in September 2015, modify how oil and gas sources will be permitted under the Clean Air Act (the “Aggregation Rule”) and add requirements to reduce methane leaks from new oil and gas facilities consistent with the EPA's New Source Performance Standards (“NSPS OOOOa”). In addition, the administration has begun a rulemaking process aimed at controlling methane emissions from existing oil and gas facilities.

Aggregation Rule

The Aggregation Rule addresses when wells or surface equipment should be considered a single source for Clean Air Act permitting purposes. Under the new framework, an operator must evaluate air permit requirements for a well or other equipment based not only on its level of emissions, but also on the emissions from other oil and gas facilities within one-quarter mile. Air permit requirements become more stringent as the emissions to be permitted increase. Thus, the Aggregation Rule may complicate and expand air permitting applicability for the oil and gas sector. This would increase compliance burdens on oil and gas operations and potentially delay projects requiring more extensive permitting reviews.

The Aggregation Rule expressly applies to all onshore activities within the oil and gas extraction industry as defined by the Office of Management and Budget (“OMB”). This definition of the industry is not strictly limited to oil and gas production operations. Many non-production oil and gas related operations, including midstream operations, could be affected by the rule based on their OMB classifications. Thus, the Aggregation Rule’s scoping language has the potential to expand the Aggregation Rule to operations beyond those intended by EPA.

Methane New Source Performance Standard

NSPS OOOOa aims to control methane emissions from new hydraulically fractured wells and new and modified compressors and other gas transmission equipment. A key feature of the new rule will require operators to deploy a leak detection and monitoring program to reduce “fugitive emissions” from leaking oilfield equipment. The program sets a minimum frequency for monitoring and a stringent timetable to repair leaks that are discovered. In some cases, operators may be able to use alternative leak monitoring technologies with EPA approval.

Another key component of the final NSPS requires “green completions” to capture natural gas from most new hydraulically fractured oil wells beginning six months after the final rule is published in the Federal Register. Some sources have predicted that there may be a scarcity of equipment needed to undertake green completions.

EPA received over 900,000 comments on the proposed NSPS and made a number of streamlining changes since the proposal. One significant change involved EPA’s removal of a proposed exemption for low-production wells with an average combined oil and natural gas production of less than 15 barrels of oil equivalent per well per day. While NSPS OOOOa will tend to increase costs for all wells, applying the same stringent controls on low-production wells as high-production wells could significantly affect the economics of low-production wells in various plays.

Draft ICR and New Rulemaking Targeting Methane Emissions from Existing Sources

Even as EPA finalized NSPS OOOOa, it commenced a new rulemaking process under Section 111(d) of the Clean Air Act focused on controlling methane emissions from millions of existing oil and gas sources. EPA initiated the rulemaking with a proposal to issue an “Information Collection Request” or “ICR” to oil and gas operators.

The draft ICR, justified as part of the Obama Administration’s initiative to better regulate methane emissions, seeks detailed information on oil and gas facilities around the country including the precise characteristics of equipment already in place, monitoring systems and frequency of operator visits to sites, air emission controls, and applicability of current environmental regulations.

Once the ICR is approved, EPA will likely issue a series of two information requests under Section 114 of the Clean Air Act to individual companies. The first will be issued to all known onshore operators and will request facility-level information within 30 days.

The second phase of the ICR will be distributed to a statistical sample of oil and gas facilities in various industry segments to obtain more detailed information on onshore production, gathering and boosting, processing, compression/transmission, pipeline, natural gas storage, and liquefied natural gas storage and import/export facilities. The second phase survey is expected to seek information that oil and gas companies consider confidential and may require collection of additional information not already available. Operators will have 120 days to complete this second part.

Companies anticipate that the ICR will place a significant burden on in-house staff and require additional expenditures for consultants and legal counsel. The information reported to EPA may in some cases be indicative of non-compliance with existing regulations and could therefore also increase the risk of enforcement action.

The Draft ICR must go through a public comment period and cost-burden analysis by the OMB. Accordingly, the public will have 60 days to comment on the ICR after publication in the Federal Register. EPA predicts that the first part of the ICR will be sent to operators by October 2016.

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