GUIDA, SLAVICH 8: Hoses fl The Environmental Law Firm? Dalila-s ?Austin VIA EMAIL Dan Smith Senior Counsel Environmental Enforcement Section Environment and Natural Resources Division. United States Department of Justice 13.0. Box 76] 1 Washington, DC 2004436] dart. smith@.usdoj . gov Elizabeth Morrisseau Assistant Attorney General Wyoming Office of the Attorney General Water and Natural Resources Division Pioneer Building, 2nd Floor 2424 Pioneer Avenue Cheyenne, WY 32002 elizabeth.mcrrisseau@wyo.gov I RE: Revised Devon settlement proposal for the Beaver Creek Gas Plant Dear Dan and Elizabeth: Arromew and Counselors 106 E. 912:!) Ausrm, Tame T3701 February 22, 201? TEL 512.475.6300 FAX 511476.633] This letter sets out Devon?s settlement proposal for discussion at our meeting in Cheyenne, Wyoming set for March 2. To reiterate from my prior emails, Devon is no longer proposing to implement either NSPS 0000 as a SEP or enhanced LDAR as a mitigation project. Due to the (lemma-n in the natural gas market, sour gas processing operations at the plant have been discontinued and there has been with a reduction in the number of employees at the plant. Dallas O?ice T50 N. ST. PAUL STREET. SUITE 200 DMLAS, Texas 75201 TEL - 214.692.0009 FAX 2] 4.6916610 Dan Smith Elizabeth Morrisseau Page 2 This has resulted in a signi?cant reduction in the amount of gas processed and a 23% reduction in the overall number of components in service. For an older, smaller, marginal plant such as Beaver Creek it is simply not feasible for Devon to commit to implement the kinds of projects previously discussed. The Beaver Creek plant operation in and of itself loses money for Devon. It currently remains open only because it still costs Devon less to process the gas produced from nearby production operations at the plant than to have it processed by a third-party. The added compliance costs of the previously discussed? proposals (the costs of the enhanced LDAR program would equal 20 percent of the current plant operating budget), while not necessarily causing the plant to immediately shut down, would render the plant without any margin to address contingencies. Devon cannot place the plant in. this posture. As a settlement alternative, Devon proposes to implement an emission reduction project which consists of replacing one of the existing older gas ?red compressors at the plant with a newer electrically powered compressor. Devon estimates that this wiil result in a permanent reduction of VOC emissions from the plant of around 5 tons per year. In addition CO emissions will be reduced by around 8 tons per year and NO): emissions reduced by at least 4 tons and up to 10 tons per year, depending on the Speci?c compressor which is replaced. The total cost of this project will be at least $110,000. These permanent emissions reductions should provide an adequate offset for any increased emissions (discussed below) that may have occurred due to the alleged failure to timely fully implement Subpart (These reductions would be in addition to any reductions already achieved due to reduced operations of the plant.) In reevaiuating its settlement posture, Devon has also revisited the underlying factors which are relevant to an appropriate penalty and believes a signi?cantly lower penalty than that which has been previously discussed is warranted in this case. First, Devon has recalculated the potential emissions that may have occurred due to its alleged failure to comply with NSPS Subpart As set forth in the attached analysis prepared by Devonis LDAR contractor Dexter, Devon believes that EPA signi?cantly overestimated the amount of VOC emissions that may have warned due to the alleged violations. Dexter?s analysis yields potential excess emissions of 24 tons per year of rather than the 80 tons per year calculated by EPA. Second, Devon continues to believe that calcuiation of the economic benefit of noncompliance of over $100,000 greatly overstates the possible economic bene?t. Devon previously determined the potential economic bene?t of delayed compiiance was approximately $25,000, based on an avoided cost of $8,320 per year for three years. We believe this ?gure (which we are in the process of re-verifying) is more accurate than estimate and re?ects the actual LDAR monitoring cost. Moreover, neither calculation accounts for the value of the lost product, which should be deducted from any avoided compliance-costs in determining the overall net economic bene?t of alleged noncompliance. Finally, Devon reiterates its position that the totality of the circumstances in this case does not warrant a signi?cant penalty. As we Dan Smith Elizabeth Morrisseau Page 3 have emphasized from the outset, Devon?s alleged noncompliance stems from a misinterpretation of complicated regulations, not a deliberate attempt to circumvent the rules. As we have previously documented, own attorneys admitted that the rules were unclear and experienced state regulators were unsure about the applicability of NSPS Subpart in circumstances such as Devon?s. Given all these factors, Devon does not believe that a six ?gure civil penalty is justi?ed in this case and would urge the government to look to prior administrative settlements with gas plants in EPA Region 8 for NSPS violations as examples of an appropriate penalty. Devon also restates its position that mitigation as a remedial concept as envisaged by the government is not applicable in this case. Putting aside the questionable legal basis for such a remedy, own mitigation enforcement memorandum provides adequate flexibility for the government to settle this case without insisting on the extensive LDAR program previously discussed and now rejected by Devon. The emission reductions embodied in Devon?s current settlement proposal should be suf?cient to satisfy any need for mitigation required for resolution of this case. Finally, the government has recently raised questions about certain aspects regarding delay of repair under Devon?s LDAR program. Devon has reviewed these issues with its LDAR contractor Dexter and believes its procedures are appropriate and in compliance with the regulatory requirements. Devon will be prepared to discuss these issues if necessary at the meeting in Cheyenne. We look forward to productive discussions which Devon sincerely hopes will bring this matter to a resolution. While we would not necessarily characterize this proposal as Devon?s last best offer, we are approaching that point in our discussions. Sincerely, .5 14919166." Carrick Brooke-Davidson Direct: 4?6-6326 Email: Lou keris, Constantinos From: Smith, Dan (ENRD) Sent: Tuesday, September 08, 2015 9:54 AM To: Ostrand, Laurie; Morris, Brenda; Loukeris, Constantinos Subject: RE: Beaver Creek consent decree Attachments: Yes, this is it. Thanks. From: Ostrand, 'Laurie [maiitonstrandiaurie @epa.gov} Sent: Tuesday, September 08, 2015 9:55 AM To: Smith, Dan (ENRD) Morris, Brenda Loukeris, Constantinos Subiect: RE: Beaver Creek consent decree Hi Dar The CD that Devon sent does not track changes. l?d like to be able to do a compare of the Devon?s marked up CD with the CD we sent them on 6/18/14. However, the CD we sent them on 6/18/14 was a pdf. Do you have a word copy of the CD we sent them on 6/18/14? it looks like Devon is agreeing to keep all of the drill and tap provisions. Laurie Ostrand US. EPA Region 8 Mail Code SENF-AT 1595 Wynkoop Street Denver, CO 8070? 303-312-5437 fax; 303-312-6409 From: Smith, Dan RD) [mailtozDan.Srnich@usdoiepv] Sent: Friday, August 28, 2015 1:20 PM To: Morris, Brenda; Ostrand, Laurie; Loukeris, Constantinos Subject: FW: Beaver Creek consent decree This just in from Devon. From: Carrick Brooke-Davidson Sent: Friday, August 28, 2015 2:06 PM To: Smith, Dan Subject: Beaver Creek consent decree Dan, As we discussed last week, attached is a proposed new draft of the consent decree. This draft incorporates language from the en't Energy consent decree. The language regarding compliance requirements is still under discussion, and assuming there is agreement on the SEP, we will need to draft additional language to address its implementation. For the other sections of the decree, however, Devon would propose the attached. Let me know if you have any questions. JUSTICE NEWS Department of Justice Office of Public Affairs FOR IMMEDIATE RELEASE Friday, May 1, 2015 Natural Gas Processor Merit Energy Agrees to Comprehensive Program to Reduce Harmful Air Pollution from Leaking Equipment to Resolve Clean Air Act Violations in Michigan Merit Energy Company, a Texas-based oil and natural gas exploration and production company, has agreed to pay an $885,000 civil penalty and to improve leak detection and repair work practices to settle alleged violations of the Clean Air Act at its natural gas processing facility in Kalkaska, Michigan, the Department of Justice and the Environmental Protection Agency (EPA) announced today. Emissions of volatile organic compounds (VOCs) from leaking equipment impact the environment and may cause serious health effects. VOCs are a key component in the formation of smog or ground-level ozone, a pollutant that irritates the lungs, exacerbates diseases such as asthma and can increase susceptibility to respiratory illnesses, such as pneumonia and bronchitis. "This comprehensive compliance program continues our efforts to control fugitive emissions and will require Merit Energy to upgrade its monitoring and maintenance practices to help prevent future violations," said Assistant Attorney General John C. Cruden for the Department of Justice's Environment and Natural Resources Division. "Compliance with the clean air laws is essential to maintaining safe, responsible, and reliable sources of domestic energy." "People in northwest Michigan will breathe cleaner air as a result of this settlement," said EPA Regional Administrator Susan Hedman. "Merit Energy will be making changes at the company's natural gas processing facility in Kalkaska that will prevent emissions of pollutants that pose risks for people with asthma and other respiratory diseases." "My office is pleased with this settlement. Prevention or immediate detection and repair are critical when protecting health and the environment," said U.S. Attorney Patrick Miles Jr. for the Western District of Michigan. "We and the EPA are vigilantly ensuring compliance with the Clean Air Act and other environmental laws." In addition to paying a penalty, Merit Energy will implement a comprehensive leak detection and repair (LDAR) program to reduce emissions of VOCs from leaking equipment such as valves and pumps. These emissions, known as "fugitive" emissions because they are not discharged from a stack but rather leak directly from equipment, are generally controlled through work practices, like monitoring and repairing leaks. The settlement requires Merit Energy to implement enhanced work practices, including more frequent leak monitoring, better repair practices and innovative new efforts designed to prevent leaks. In addition, the enhanced LDAR program requires Merit Energy to replace valves with new "low emissions" valves or valve packing material, designed to significantly reduce the likelihood of future leaks of VOCs. This settlement imposes the first enhanced LDAR program at a natural gas processing facility. According to the complaint, filed simultaneously with the settlement today in the Western District of Michigan, Merit Energy allegedly violated Clean Air Act requirements to monitor and repair leaking equipment and demonstrate compliance with regulations applicable to onshore natural gas processing plants. The consent decree is subject to a 30 day comment period and final approval by the court. A copy of the consent decree is available on the Department of Justice web site at www.justice.gov/enrd/Consent_Decrees.html. Component(s): 7,191. .E?wy: .. a ,9 . ..4 ,wmnu?? . u1,p. Hf. A Erna. I . . .rtu??il?i?ma?5?5 Wil??l?u 11m. ENE. dill PL CQFAGUTY LINE SYSTEM mm:- mm m. u. ma mummuvml AREKW FJE ?~aasmom my. If 3105-29-14 RAE, I .I .. - sou FACILW aw U, 4" I . xmwa-u mg. - - TRIBAL WELL ALTERNATIVE NAME 4-01 MV 42-38 4-02 MV 33?38 4-03 MV 4-4-38 4-04 MV 13-31 405 NW 22-31 406 NW 24-31 407 NW 31-1 408 MV 11-6 507 HV 23-31 508 NW 34?31 509 MV 21-31 510 21-36 511 UV 23-36 512 UV 21-1 513 NW 4-1?1 514- MV 21-5 515 NW 32-1 516 MV 12-6 517 MV 32-6 518 43?1 519 NW 23?6 520 43-6 521 NW 34-1 522 IN 14?6 523 MV 54-6 524- 41-12 T.34N. T.33N. lf 337-24 ul-n?v 1h?! 1. HF saw-H [I'm-2h" 15B pm 00 Inc 12!- . mm?m?Io ESE WELL LOCATIONS SHOWN ON THIS MAP ARE BASED ON THE RECORDS OF THE DEVON ENERGY 00., LP. WYOMING OIL AND GAS COMMISSION. BEAVER CREEK FIELD m? RWERTON DOME FIELD Rt 511-. FEMS, pT?LmEs, AND ROADS 1118.. AND AND R.5E.. IRE. AND ROAD T33N. AND mam. Ream. AND 3.97m. 61:11 PROPOSED ACCESS ROAD ONET COUNTY noma DEVON ENERGY GAS PIPEUNE I PROPOSED GAS PIPELINE In: t! DEVON ENERGY WATER PIPELINE .. APEX SURVEYING INC. 407 Arum-$3151 $05209 'j a. 53%??ny AND unun' SCALE: 1 =2000 momma mun W6 Po: RAGA /1110VREPUBLICAN ATTORNEYS GENERAL ASSOCIATION California Host Committee Bayer CommunityChoice at&t FINANCIAL You r world. Delivered. CVS/pharmacy? Mallinckrodt Pharmaceuticals SOUTHERN AL? COMPANY Energy to Serve Your World' entertainment software devon association MCM midland credit management, inc. TRACFONE wireless, inc. CI U.S. CHAMBER Institute for Legal Reform Paid for by The Republican Attorneys General Association (RAGA), www.republicanags.com . News Releases from Headquarters › Air and Radiation (OAR) EPA Releases First­Ever Standards to Cut Methane Emissions from the Oil and Gas Sector Agency finalizes commonsense standards for new, modified and reconstructed sources and takes the first step on the path to regulate existing oil and gas operations 05/12/2016 Contact Information:  Enesta Jones (jones.enesta@epa.gov) 202­564­7873, 202­564­4355 WASHINGTON – As a further step in the Obama Administration’s commitment to take action on climate change and protect public health, the U.S. Environmental Protection Agency (EPA) is announcing comprehensive steps to address methane emissions from both new and existing sources in the oil and gas sector.  For new, modified and reconstructed sources, EPA is finalizing a set of standards that will reduce methane, volatile organic compounds (VOCs) and toxic air emissions in the oil and natural gas industry. EPA is also starting the process to control emissions from existing sources by issuing for public comment an Information Collection Request (ICR) that requires companies to provide the information that will be necessary for EPA to reduce methane emissions from existing oil and gas sources. “Today, we are underscoring the Administration’s commitment to finding commonsense ways to cut methane—a potent greenhouse gas fueling climate change—and other harmful pollution from the oil and gas sector,” said EPA Administrator Gina McCarthy. “Together these new actions will protect public health and reduce pollution linked to cancer and other serious health effects while allowing industry to continue to grow and provide a vital source of energy for Americans across the country.” Today’s actions are part of the Administration’s strategy under President Obama’s Climate Action Plan to reduce methane emissions, and keeps the Administration on track to achieve its goal of cutting methane emissions from the oil and gas sector by 40 to 45 percent from 2012 levels by 2025. Methane, the key constituent of natural gas, is a potent greenhouse gas (GHG) with a global warming potential more than 25 times greater than that of carbon dioxide. Methane is the second most prevalent GHG emitted in the United States from human activities, and nearly one­third of those emissions comes from oil production and the production, transmission and distribution of natural gas. The final standards will significantly curb methane emissions from new, reconstructed and modified processes and equipment, along with reducing VOC emissions from sources not covered in the agency’s 2012 rules. These sources include hydraulically fractured oil wells, some of which can contain a large amount of gas along with oil, and equipment used across the industry that was not regulated in the 2012 rules. After reviewing the more than 900,000 comments received on its August 2015 proposal, EPA updated a number of aspects in the final rule that increase climate benefits, including removing an exemption for low production wells and requiring leak monitoring surveys twice as often at compressor stations, which have the potential for significant emissions. The final rule also provides companies a pathway to align the final standards  with comparable state­specific requirements they may have.   The final standards for new and modified sources are expected to reduce 510,000 short tons of methane in 2025, the equivalent of reducing 11 million metric tons of carbon dioxide. Natural gas that is recovered as a result of the rule can be used on site or sold. EPA estimates the final rule will yield climate benefits of $690 million in 2025, which will outweigh estimated costs of $530 million in 2025. Reductions in VOCs and air toxics are also expected to yield benefits; however EPA was not able to quantify those benefits. The standards also are expected to reduce 210,000 short tons of ozone­forming VOCs in 2025, along with 3,900 tons of air toxics, such as benzene, toluene, ethylbenzene and xylene. Ozone is linked to a variety of serious public health effects, including reduced lung function, asthma attacks, asthma development, emergency room visits and hospital admissions, and early death from respiratory and cardiovascular causes. Air toxics are known or suspected to cause cancer and other serious health effects. Today’s final actions also include two rules that clarify permitting requirements for the oil and natural gas industry: the Source Determination Rule and a final federal implementation plan for the Minor New Source Review Program in Indian Country.     Over the past year, new science and data have shown that methane emissions from existing oil and gas sources are substantially higher than was previously understood. To build on the agency’s current knowledge, EPA is issuing an ICR that seeks a broad range of information, including the types of technologies that could be used to reduce emissions and their associated costs. The information the agency receives in response to the ICR will provide the foundation for developing regulations to reduce methane emissions from existing oil and gas sources. EPA will collect the information through a general survey for all owners/operators of existing sources and a more detailed survey for specific facilities. EPA anticipates receiving data from the operator survey later this year and expects to conclude all aspects of the ICR in the first part of 2017. In addition, the agency is Page 1 of2 EPA letter Draft i Whitsitt, Bill ' ' ~' to: patrick.wyrick@oag.ok.gov 09/02/2011 02:55 PM Cc: '"Crystal Drwenski (Crystal.Drwenski@oag.ok.gov)'", "Ferate, AJ" Hide Details From: "Whitsitt, Bill" To: "patrick.wyrick@oag.ok.gov" , Cc: '"Crystal Drwenski (Crystal.Drwensld@oag.ok.gov)'" , "Ferate, AJ" 2 Attachments ? E N V - GHG - A G letter to EPA Administrator Jackson on methane estimates (Draft 9-2-201 l).docx Patrick Just a note to pass along the electronic version of the draft letter to Lisa Jackson at EPA. You'll note that this version has some suggested cc recipients. We have no pride of authorship, so whatever you decide to do on this is fine. We're just glad to provide some ideas. If you have any questions, technical or otherwise, feel free to contact AJ Ferate or me. We'll be sure you have the right people to talk with. Have a nice holiday weekend. William F. Whitsitt, Ph.D. Executive Vice President Public Affairs Devon Energy Corporation 20 North Broadway, Suite 1500 Oklahoma City, OK 73102-8260 405 552 3556 Direct 405 552 1484 Fax 405 830 3556 Mobile Bill.Whitsitt@dvn.com LIPTON.NY TIMES.ORR.2014-11-06 - #0001 file:///C:/Users/234417/AppData/Local/Temp/notesBEF787/~web0705.htm 11/4/2014 November 4, 2014 The Honorable Lisa Jackson Administrator U.S. Environmental Protection Agency Ariel Rios Building 1200 Pennsylvania Avenue, N.W. Mail Code: 1101A Washington, DC 20460 RE: EPA's estimate of methane emissions from upstream natural gas development Dear Ms. Jackson: It has come to my attention that the agency you oversee, the U.S. Environmental Protection Agency, may be very significantly overestimating methane emissions from natural gas production. If true, this could have serious implications for the natural gas exploration and production industry nationwide, particularly to the extent current and future regulatory proposals are based on or justified by reference to those estimates. In addition, since this industry is critically important to the State of Oklahoma, there are potential corresponding implications to our state's employment and economic situation. As a result of this situation, I write to inquire about the methods EPA employs to estimate methane emissions and about claims in support of new regulations based on EPA's estimates. My purpose is to ensure that the federal government is providing reliable information upon which policies that may affect the citizens of the State of Oklahoma may be based. In 2010, EPA issued a background technical support document titled, "Greenhouse gas emissions reporting from the petroleum and natural gas industry." In the report, EPA altered the methodology it had previously used to estimate methane emissions from natural gas production. Before 2010, EPA estimated 0.02 metric tons of methane was emitted per well completion. In 2010, EPA made dramatic changes to its estimates. The new estimates hold that conventional natural gas wells emit 0.71 metric tons of methane, and shale gas wells emit 177 metric tons of methane per well completion. As a result of these new estimates, EPA adjusted prior-year US GHG emission reports retroactively as far back as 1990 to reflect the new estimates. When I read such significant increases in the estimations, I began to question the methodology used to create the estimates. Recently a report exploring the inaccuracies in EPA's methodology in determining methane emissions from natural gas production convinced me that my questioning could be valid. IHS CERA, a highly respected research firm with specific expertise in the oil and natural gas production sector, released a report entitled, "Mismeasuring Methane: Estimating greenhouse gas emissions from upstream natural gas development." In its report, IHS CERA points out specific flaws EPA made in its analysis, including: • The misuse and inaccurate application of Natural Gas STAR program data collected from a small number of wells - to assume industry-wide emission rates. LIPTON.NY TIMES.ORR.2014-11-06 - #0003 • EPA's flawed rounding of data points to the nearest hundred, thousand, and even ten thousand Mcf to overcome the "high variability and uncertainty" in the industry. • Developing an assumption that producers in Oklahoma vent to the atmosphere during flowback, rather than commonly flaring or capturing emissions, simply because Oklahoma does not mandate flaring or recovery. (Many of the nation's best operators drill in Oklahoma. To assume these producers do not flare or capture this marketable product is not only misguided, it would be flat wrong.) Because of the flaws I have listed, and many others I have not, EPA may have led researchers and other governmental bodies to apply inaccurate statistics to the research and reports they develop. For example, Dr. Robert Howarth of Cornell University led a team that released a study this past spring questioning whether natural gas was truly a cleaner fuel than coal. Certainly Dr. Howarth's study included several inaccurate assumptions of his own making, but the basis for his review lies in the overestimation of methane emissions developed by EPA. The Cornell study and EPA's methane emission estimates are finding voice in other government studies. The U.S. Department of Energy SEAB Natural Gas Subcommittee report even mentions the "pessimistic conclusion about the greenhouse gas footprint of shale gas production and use." Such a statement, if founded on inaccurate data, can cast aspersions unjustly upon an entire industry. Then EPA itself, in announcing new proposals to regulate emissions from exploration and production facilities, incorrectly used the significantly overstated emission estimates to show that there would not be economic harm to domestic producers. In fact, and even more astoundingly, EPA uses these incorrect assumptions to claim that the rule will quickly result in a net savings of nearly $30 million annually to domestic producers. To assure estimates are properly developed and to provide the citizens of the State of Oklahoma with the proper tools to determine the accuracy of EPA data reports, studies, and the justification for any current or future EPA regulatory proposals, I ask that you provide my office with the following information: 1. Any and all information pertaining to the determination of natural gas methane emission estimates. 2. Any and all information related to why it is appropriate to round emission rates to the nearest hundred, thousand, or ten thousand Mcf per well completion and how this does not produce an inaccurate end estimate. 3. Any and all information explaining why EPA would improperly assume Natural Gas STAR data - which records ALL natural gas collected through green completions, including natural gas collection at the conclusion of the flowback process — is an appropriate basis for determining methane emission from all wells. 4. Any and all information explaining what led EPA to conclude - incorrectly - that Oklahoma natural gas producers do not commonly flare or capture methane emissions to reduce venting simply because Oklahoma regulators do not mandate flaring. LIPTON.NY TIMES.ORR.2014-11-06 - #0004 .5. Any and all information explaining why, if EPA estimates are accurate, a natural gas producer would allow significant volumes of its product to simply vent to the atmosphere when it could be captured and marketed. 6. Any and all existing, proposed and potential rules or regulations which are or will be based on EPA estimates of methane emission from natural gas wells. In addition, please provide any information that could be used to justify those rules, regulations determine enforcement priorities or to review enforcement effectiveness by the federal government or states. 7. Any and all consideration that has been given to reverting to the previous methane estimation methodology while industry data is collected (MRR subpart W) to provide a more accurate estimate of emissions. Your assistance in responding to these questions will provide my office with the ability to assure all Oklahomans that they can begin to place trust in the information upon which regulatory decisions are made. Respectfully, cc: Ms. Gina McCarthy Assistant Administrator Office of Air and Radiation U.S. Environmental Protection Agency Ariel Rios Building 1200 Pennsylvania Avenue, N.W. Mail Code: 1101A Washington, DC 20460 Ms. Janet McCabe Deputy Assistant Administrator Office of Air and Radiation U.S. Environmental Protection Agency Ariel Rios Building 1200 Pennsylvania Avenue, N.W. Mail Code: 1101A Washington, DC 20460 Ms. Nancy Sultey Chairwoman Council on Environmental Quality The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 LIPTON.NY TIMES.ORR.2014-11-06 - #0005 RE: methane emissiaras letter Ferate, AJ t0: i?f??izait {3225? PM - gym? Thank yet: very much! i appreciate it? From: Sent: Tuesday, Qctober {34, 2611 2:56 9M Te: Ferate; Subject: Re: methane emissions letter Hi we ate ?ircu?ating the letter is athar AGS for sign an right mw. Once we ?nish we will send it cm. Will keep you pasted! Thank 3.:qu for checking in. From: ?Ferate, [AJ.Ferate@dvn.com] Sent: 102045291 1 6?:29 PM GMT To: Drwenski Subject: methane emissiang letter good to see you last week. wondered if the letter Attorney General Pruitt plans :0 send the EPA on methane emissions changed much from the draft we proposed? Thanks, AJF Anthony J. Ferate, JD Public Palicy Coerdinator Devon Energy Corporation 20 North Broadway, Suite 1300 Oklahoma City, OK 331026260 405 552 3572 Direct 405 834 3572 Mobile 405 234? 2386 Fax E. SCOTT PRUITT ATTORNEY GENERAL OF OKLAHOMA October 12, 2011 The Honorable Lisa Jackson Administrator US. Environmental Protection Agency Ariel Rios Building 1200 Avenue, NW. Mail Code: 1101A Washington, DC 20460 RE: estimate of methane emissions from upstream natural gas development Dear Ms. Jackson: It has come to my attention that the agency you oversee, the US. Environmental Protection Agency, may be very significantly overestimating methane emissions from natural gas production. If true, this could have serious implications for the natural gas exploration and production industry nationwide, particularly to the extent current and future regulatory proposals are based on orjustified by reference to those estimates. As a result, I write to inquire about the methods EPA employs to estimate methane emissions and about claims in support of new regulations based on estimates. My purpose is to ensure that the federal government is providing reliable information upon which policies that may affect the citizens of the State of Oklahoma may be based. In 2010, EPA issued a background technical support document titled, ?Greenhouse gas emissions reporting from the petroleum and natural gas industry.? In the report, EPA altered the methodology it had previously used to estimate methane emissions from natural gas production. Before 2010, EPA estimated 0.02 metric tons of methane was emitted per well completion. in 2010, EPA made dramatic changes to its estimates. The new estimates hold that conventional natural gas wells emit 0.71 metric tons of methane, and shale gas wells emit 177 metric tons of methane per well completion. As a result of these new estimates, EPA adjusted prior-year US GHG emission reports retroactively as far back as 1990 to reflect the new estimates. These significant increases in the estimates raise questions about the methodology used to create the estimates. 313 NE. 2157? STREET OKLAHOMA CITY, OK 73105 - (405) 521?3921 - FAX: (405) 521?6246 ?3 recycied paper Recently a report exploring the inaccuracies in methodology in determining methane emissions from natural gas production convinced me that those questions could be valid. CERA, a highly respected research firm with specific expertise in the oil and natural gas production sector, released a report entitled, ?Mismeasuring Methane: Estimating greenhouse gas emissions from upstream natural gas development.? ln its report, CERA points out specific flaws EPA made in its analysis, including: . The misuse and inaccurate application of Natural Gas STAR program data collected from a small number of wells to assume industry- wide emission rates. . flawed rounding of data points to the nearest hundred, thousand, and even ten thousand to overcome the ?high variability and uncertainty? in the industry. 0 Developing an assumption that producers in Oklahoma vent to the atmosphere during flowback, rather than commonly flaring or capturing emissions, simply because Oklahoma does not mandate flaring or recovery. (Many of the nation?s best operators drill in Oklahoma. To assume these producers do not flare or capture this marketable product is not only misguided, it would be flat wrong.) Because of the flaws have listed, and many others have not, EPA may have led researchers and other governmental bodies to apply inaccurate statistics to the research and reports they develop. For example, Dr. Robert Howarth of Cornell University led a team that released a study this past spring questioning whether natural gas was truly a cleaner fuel than coal. Certainly Dr. Howarth?s study included several inaccurate assumptions of his own making, but the basis for his review lies in the overestimation of methane emissions developed by EPA. The Cornell study and methane emission estimates are finding voice in other government studies. The US. Department of Energy SEAB Natural Gas Subcommittee report even mentions the ?pessimistic conclusion about the greenhouse gas footprint of shale gas production and use.? Such a statement, if founded on inaccurate data, can cast unjustified aspersions upon an entire industry. Then EPA itself, in announcing new proposals to regulate emissions from exploration and production facilities, incorrectly used the significantly overstated emission estimates to show that there would not be economic harm to domestic producers. In fact, and even more astoundingly, EPA uses these incorrect assumptions to claim that the rule will quickly result in a net savings of nearly $30 million annually to domestic producers. To assure estimates are properly developed and to provide the citizens of the State of Oklahoma with the proper tools to determine the accuracy of EPA data reports, studies, and the justification for any current or future EPA regulatory proposals, ask that you provide my office with the following information: . Any and all information pertaining to the determination of natural gas methane emission estimates. . Any and all information related to why it is appropriate to round emission rates to the nearest hundred, thousand, or ten thousand per well completion and how this does not produce an inaccurate end estimate. . Any and all information explaining why EPA would improperly assume Natural Gas STAR data which records ALL natural gas collected through green completions, including natural gas collection at the conclusion of the flowback process is an appropriate basis for determining methane emission from all wells. 0 Any and all information explaining what led EPA to_conclude incorrectly that Oklahoma natural gas producers do not commonly flare or capture methane emissions to reduce venting simply because Oklahoma regulators do not mandate flaring. . Any and all information explaining why, if EPA estimates are accurate, a natural gas producer would allow significant volumes of its product to simply vent to the atmosphere when it could be captured and marketed. . Any and all existing, proposed and potential rules or regulations which are or will be based on EPA estimates of methane emission from natural gas wells. In addition, please provide any information that could be used to justify those rules, regulations determine enforcement priorities or to review enforcement effectiveness by the federal government or states. 0 Any and all consideration that has been given to reverting to the previous methane estimation methodology while industry data is collected (MRR subpart W) to provide a more accurate estimate of emissions. Your assistance in responding to these questions will provide my office with the ability to assure all Oklahomans that they can begin to place trust in the information upon which regulatory decisions are made. Respectfliliyr. . E. Scott Pruitt Attorney General CC: Ms. Gina McCarthy Assistant Administrator Office of Air and Radiation US. Environmental Protection Agency Ariel Rios Building 1200 Avenue, NW. Mail Code: 1101A Washington, DC 20460 Ms. Janet MoCabe Deputy Assistant Administrator Office of Air and Radiation US. Environmental Protection Agency Ariel Rios Building 1200 Avenue, NW. Mail Code: 1101A Washington, DC 20460 Ms. Nancy Sultey ChainNoman Council on Environmental Quality The White House 1600 Avenue NW Washington, DC 20500 Oklahoma Of?ce of the Attorney General E. Scott Pruitt Home About the Wine About the AG Press ?pinions Employment News Release loresfeoll Attorney lGeneral Pruitt Sends Letter to Nation?s AGs over lConueernls on blew Faulty? Data for Natural lEras EPA data called "lousy" by researchers; used to create new regulations Attorney General Scott Pruitt this week sent a letter to the nation?s attorneys general alerting them to new inaccurate methods being used by the US. Enyironmental Protection Agency to formulate regulations on natural gas exploration. The new method was used to measure the amount of methane gas released into the atmosphere by conyentional natural gas wells as well as from unconyentional wells used for hydraulic fracturing. The EPA used Natural Gas STAR data to calculate emissions; howeyer STAR data does not measure methane escaping from wells into the atmosphere. Rather, STAR data measures methane returned to the surface through drilling or flowback. Host of this methane is recaptured by companies to sell or is burned through approyed flaring. if not marketable. "This misstep or deception by the EPA. has resulted in new figures that are faulty, unreasonable and based on a distorted understanding of how gas drilling operates," Pruitt said. Pruitt sent a letter to EPA. Administrator Lisa Jackson. reguesting additional information on the methodology employed by the EPA, and suggesting that the methods be reyisited ancl reyised. In a letter sent 'y'll'ednesday to attorneys general. Pruitt shared the data flaws and concerns oyer the federal agency's creation of regulations based on the inaccurate data, asking them to reyiew this issue in their ow states. "The agency?s actions haye a yery real effect on families. businesses. communities and state economies," Pruitt said. "The actions in this case are working toward eroding the states' ability to self-regulate and sti?e exploration of domestic energy sources. putting our national energy security at risk without justi?cation." ?3 attachments Scott Pruitt so 201 1 photc:.jpg or From: nski@oag.ok.gov [mailtoz Drwenskl@oag .ok.gov] Sent: Wednesday, October 19, 2011 1:49 PM To: Whitsitt, Bill . Cc: Patrick.Wyrick@oag.ok.gov; a1ferate?ryangloverilp.corn Subject: Letter - Lisa Jackson EPA - methane emissions Hi Bill, Thank you again for your kind assistance with General Bruning while he was in town. Scott mentioned to Larry yesterday how much help you all provided. I have an update for you on the methane emissions letter to Administrator Jackson. Great news It was in fact sent to Jackson on Oct. 12. We are, however, still drafting the "dear colleague" letter advising states what we sent, why we sent it and encouraging them to do so as well. We will get that letter out this week. As you recall, the letter mentions incorrect assumptions the EPA makes about Oklahoma producers and their procedures during "flowback." Because of these state~specific references, after discussing it, we felt it was better to encourage other states to look into the matter and send their own, similar letter. I hope this is helpful. Please feel free to broadly circulate and reference Attorney General Pruitt's letter. Please also do not hesitate to let us know how we can he of further assistance. Thank you again! Drwenski Chief of Staff Oklahoma Office of the Attorney General Cgstal.DrwenskiQoagokgov Office:405.521.3921 Cell: 405.568.0662 313 NE 21st Street, Oklahoma City, OK ?3105 RE: Letter - Lisa Jackson - EPA - methane emissions Whitsitt, Bill to: 10/192011 02:04 PM Cc: "ajferate@ryangloverllp.com" Outstanding! The timing of the letter is great, given our meeting this Friday with both EPA and the White House OMB OIRA staff. We also appreciate the flagging of the issue for other AGs. Please pass Devon?s thanks to Attorney General Pruitt. And it was our pleasure to help lon. William F. Whitsitt, Executive Vice President Public Affairs Devon Energy Corporation 20 North Broadway, Suite 1500 Oklahoma City, OK 73102-8260 405 552 3556 Direct 405 552 1484 Fax 405 830 3556 Mobile Bill.Whitsitt@dvn.com 40.. devon 1971 2011 In." Du: devon Devon Energy Corporation 20 North Broadway Oklahoma City, OK 73102-8260 Richard Luedecke 405 228 4279 Phone Richard. Luedecke@dvn.com November 30, 2011 Mr. Bruce Moore Sector Policies & Programs Division Mail Code: E143-05 Research Triangle Park, NC 27711 Moore. Bruce@epa.gov Re: Oil and Natural Gas Sector Consolidated Rulemaking, Docket 10 No. EPA-HQ-OAR-2010-0505 Dear Mr. Moore: Devon Energy Corporation is very concerned that the proposed New Source Performance Standard (NSPS) and National Emission Standards for Hazardous Air Pollutant (NESHAP) rules dated August 23, 2011, are seriously flawed and must be withdrawn or significantly modified because the flaws cause overstatement of potential environmental benefits and understatement of potential costs to achieve them. In the detailed comments below, Devon will show that the proposal is based in significant part on seriously overestimated emissions of natural gas - and proportional emissions of gas stream volatile organic compounds (VOCs) and hazardous air pollutants (HAPs) - from natural gas wells by 1,200 percent or more. The rule should be set aside until the adoption of realistic estimates that provide the basis for reasonable benefit and economic analyses of the proposal. Otherwise, it should be significantly modified in light of incorrect conclusions as to costs and benefits. Our comments also include other areas in which improvements are needed. Headquartered in Oklahoma City, Devon is a leading independent oil and gas exploration and production company. Devon's operations are focused onshore in the United States and Canada. We also own transmission and processing assets in many of our production areas, making us one of North America's larger producers of natural gas liquids. Devon is among the largest U.S. -based independent oil and natural gas producers. As such, we are pleased to offer these comments. And while we support the Environmental Protection Agency's effort toward ever-improving environmental quality standards, we have important concerns with the proposed rule that we address below and that are included in comments by American Petroleum Institute (API), the American Natural Gas Alliance (ANGA) and the Gas Processors Association (GPA). Flawed Methodology - Unconventional Well Emissions The EPA assumes that 9,175 mscf of natural gas is emitted from most unconventional well completions. This emission factor was derived using a flawed methodology and is incorrect. The 9,175 factor is published in the EPA's 2010 Greenhouse Gas Emission Reporting from the Petroleum and Natural Gas Industry Technical Support Document (GHG TSD) and has been used to inform this proposed rule. Problems with the EPA's methodology are discussed at length in a recent IHS CERA report (Attachment A), in a position paper developed by Devon (Attachment B), and in a testimony provided by Devon (Attachment C) at the public comment hearing held Sept. 29, 2011, in Arlington, Texas. The following are significant findings of these documents: Bruce Moore Page 2 November 30, 2011 • The EPA assumes that the volume of gas captured from performing a green completion is the same volume of gas emitted when green completions are not performed. This assumption is invalid. • IHS CERA states "EPA derives its new emissions factor from two slide presentations at Natural Gas STAR technology transfer workshops, one in 2004 and one in 2007. These two presentations primarily describe methane that was captured during "green" well completions, not methane emissions. EPA assumes that all methane captured during these green completions would have been emitted in all other completions. This assumption does not reflect industry practice. " • It is unknown how the Natural Gas Star data was calculated. It is not known whether consistent methods were used or how robust the data is. Green completion or reduced emission completion reporting under the Natural Gas Star Program was never meant to represent emissions from wells that were not green completed. The quality of this data and what it represents is questionable. • EPA assumes that producers vent to the atmosphere during flowback, rather than commonly flaring or capturing emissions, in those states that do not mandate flaring or recovery. • Research studies and reports that estimate the life-cycle greenhouse gas emission from unconventional gas are using this gross overestimate. The potential policy implications of this could be damaging to the natural gas industry. Devon questioned the credibility of this emission factor. If true, it would mean that Devon would be losing more than $305 million per year to the atmosphere. Knowing that the actual emissions from the industry must be much smaller, Devon launched an internal data collection effort to provide the EPA with actual emission estimates from unconventional gas wells. Devon used the EPA-endorsed equation from Subpart Wand some conservative (overestimating) assumptions to calculate these emissions. Please see the attached methodology (Attachment D) for more information. Devon's data effort revealed that actual well completion emissions from 49 wells, spread over 10 U.S. hydrocarbon basins, was 6.7% of the EPA estimate. Additionally, Devon performs advanced early production process 1 (or AEPP) completions on 91 % (vs. EPA's 15%) of the wells and flared emissions from 57% (vs. EPA's 51%) of the wells that couldn't be completed with AEPP. Please see the attached summaries (Attachments E ft F) for more detailed information. Devon met with EPA representatives from the climate program, the Natural Gas Star program and the Office of Air Quality Planning and Standards on October 21, 2011, to discuss the flawed methodology, the results of the Devon study, and to request that the EPA revert to its original well completion emission factor in light of this evidence. EPA committed to continuing work to address Devon concerns but would not consider an emission factor change until more data was received from the rest of our industry. Devon, working with ANGA, coordinated an industry effort to provide EPA with this data. A total of seven (7) companies participated in the second data collection effort and, provided data on approximately 1,200 wells. This effort resulted in the following: • A completion emissions estimate of only 8.3% of the EPA estimate; • 92% of the wells were AEPP completed; The term advanced early production process or AEPP is synonymous to green completion (GC) or reduced emission completions (RECs), but Devon prefers AEPP because it more accurately describes the purpose of this activity, which is to allow wells to be produced earlier than would be possible without the use of temporary flowback equipment. 1 Bruce Moore Page 3 November 30, 2011 • 55% of the non AEPP wells were flared instead of vented. Please see the attached URS memo (Attachment G) for additional information. The well completion emission factor of 9,175 mcf I completion in the 2010 GHG TSD is an overestimate of emissions from the natural gas industry. This factor was used in this rulemaking to justify a requirement for green completions. Devon asks the EPA to acknowledge the data provided by industry and use it to reevaluate its economics for controlling completion emissions. Devon also asks EPA to accept this data as the basis for the development on an emissions factor for unconventional well completions. Devon requests that the proposed rule be suspended until reliable emission estimates reflective of the industry are available. General Comments The extensive notification, monitoring, recordkeeping, performance testing, and reporting requirements impose a significant burden on operators while providing no benefit to the environment. It is imperative that the EPA spend adequate time omitting, streamlining and optimizing these processes to avoid these costly, no value added requirements. These administrative burdens act as disincentives for pro-environmental efforts. For instance, an operator may overlook potential emission saving changes at a site just to avoid the burden of recordkeeping, monitoring and reporting that would result if the change would be deemed a facility modification. Industry has requested a 60-day rule deadline extension. Devon supports this. A rule of this impact and magnitude requires more time to review and implement. Completions In light of the results from the flawed methodology section, Devon strongly urges the EPA to reevaluate its economic evaluation for well completion controls, and suspend the rule until reliable emission estimates reflective of the industry are available. If EPA still proposes to require controls for well completions, a one year phase in period is critical. Lack of equipment availability will prevent operators from controlling emissions on all applicable completions. A period of one year should be sufficient for industry to push for increased equipment availability. This phase-in period would need to apply to both AEPP and flare equipment. EPA must understand that AEPP completions are not always possible. The more rural and less mature an area is, the less likely it is that temporary flowback equipment will be available. Third-party pipeline to a well site prior to the well's completion often is difficult to coordinate because of ever-changing drilling and completion schedules. Conversely, the more developed an area is, the more likely business will be established to provide this equipment/service and that a greater pipeline infrastructure will exist. Lack of local equipment availability and pipeline infrastructure can dictate whether a well is completed with AEPP. There are other reasons why AEPPs or flaring are not feasible, many of which will be submitted in ANGAIAXPC and API comment packages. However, below are more common instances specific to Devon: • As previously mentioned, waiting on third party pipeline. AEPP not possible. • Oil and gas regulators often restrict the size of multi-well pads on public land. Often, the size of the well pad is too small to accommodate temporary AEPP equipment for all the wells in flowback. In these cases, some of the wells cannot use AEPP and are flared instead. Similar to how the layout of permanent production varies site by site, so does the use of temporary production equipment. It is not valid for the EPA to prescribe equipment used during AEPPs. It should be left up to the service company and operator to decide how to best handle AEPPs. Bruce Moore Page 4 November 30, 2011 Storage Vessels Mandatory voe control of storage vessels based on a throughput threshold is not valid. An emission threshold must be an option. For instance, low-pressure separation technology can effectively eliminate most flashing emissions from tanks. Although throughput can be much higher than the 1 bcpd or 20 bopd, emissions can be much lower than 6 tpy VOe. A cost analysis performed by API concludes that a 6 tpy voe threshold is not cost effective. Furthermore, emission controls for tanks are not cost effective until a threshold of 12 tpy voe is reached. Devon recommends a tank voe emissions threshold of 12 tpy rather than 6. Additional information can be found in API comments. Production decline could also prove costly. We request that the use of mandatory control equipment not be a "once in always in" situation and that the EPA provide a threshold where control equipment be removed and used elsewhere. Pneumatics Devon does not support the use of 6 scfh as the cutoff to categorize a pneumatic controller as either high or low bleed. There is no available justification for this number. Manufacturers are hesitant to certify their equipment as either high or low bleed based on this arbitrary number. Without certification, an Operator cannot know whether the equipment being changed is in compliance with the rule. A higher bleed rate cutoff is needed to give manufacturers the ability to certify their equipment as either high or low bleed. Compressors Although not as common as reciprocating engines in Devon, centrifugal engines could cost as much as $1 million to retrofit from wet seals to dry seals. Rather, a cheaper and just as effective alternative would be to provide an option for Operators to control emissions from wet seals. After discussions with compressor technicians, Devon believes that changing out rod packing every three years should be extended to five. To minimize unnecessary shutdowns, rod packing is most conveniently changed during major maintenance programs. Devon believes that every compressor would have major maintenance work every five years. Equipment Leaks EPA has no justification to require a change in the definition of a leak from a 10,000 ppm voe to 500 ppm VOe. Data from API shows that potential emission reductions from lowering the threshold to 500 ppm would contribute only a fraction to the current threshold. Devon asks the EPA to reevaluate its cost estimation data based on comments from API and GPA. The result will be less cost effective, if cost effective at all. Summary Devon is committed to continuing to work with the EPA on this important rulemaking. However, it is seriously flawed to the extent that overestimates of methane, voe and HAP emissions from natural gas wells cause overstatement of benefits and understatement of costs. The rule should be put aside or significantly modified to address these flaws. In addition, there are other parts of the proposed rule that should be amended before final adoption. Please contact Darren Smith at 405-228-8584 if you have any questions or would like to discuss any of our comments. Bruce Moore Page 5 November 30, 2011 Richard Luedecke VP EHS Devon Energy Cc: Bill Whitsitt - Devon Dave Hager - Devon Darren Smith - Devon Joe Leonard - Devon File Testimony of Darren Smith, Environmental Manager, Devon Energy Corporation Before the EPW Subcommittee on Clean Air and Nuclear Safety Washington, D.C. June 19th, 2012. Dear Mr. Chairman and members of the Subcommittee. Thank you for the opportunity to be here today. My name is Darren Smith, and I am the Environmental Manager for Devon Energy. Devon is a leading independent oil and natural gas company focused onshore in the United States and Canada. The company’s portfolio of oil and gas properties provides stable, environmentally responsible production. We work hard to conduct operations in an environmentally responsible way, reducing impact on land, water and air. This is good for the environment and is good for business. It is important to note that Devon supports reasonable regulation of the industry; however, we oppose inappropriate regulations that are based on unsound science. My testimony this morning will describe EPA’s misperception of initial production from gas wells. I will describe how this misperception has led to a drastic overestimate of methane emissions from hydraulically fractured natural gas wells. This overestimate has allowed EPA to justify the promulgation of new air standards for the natural gas industry. More important, we continue to see new policy research being based on a foundation of this bad data - guaranteeing that the wrong conclusions are reached. It was when researchers from Cornell University released their “natural gas is dirtier than coal study” that Devon first became aware that EPA had dramatically changed its emissions estimate for hydraulically fractured gas wells. EPA now asserts, and has reported to the United Nations Intergovernmental Panel on Climate Change, that each unconventional gas well emits over 9 million standard cubic feet of natural gas to the atmosphere and has done so since 1990. Devon became suspicious of EPA’s new estimate because if true, it would mean that Devon alone wastes over 40 million dollars of natural gas to the atmosphere annually. Clearly, a successful company like Devon could not tolerate this level of waste. When we investigated the basis of the estimate change we learned that EPA staff had used industry data reported to it under the voluntary EPA Natural Gas Star Program to generate the new factor. The data used came from only 3 companies. This finding represents the most significant flaw in EPA’s method. Simply put, the Natural Gas Star Data represents gas captured, not gas emitted. Moreover, the data reported into the Natural Gas Star program was never intended to represent emissions. Devon has informed EPA of this error numerous times. We have brought actual data from Devon’s operation and met face to face, we have supplied comments and data from a broader set of Oil and Gas Operators to the oil and gas rule docket, we have followed up by email and telephone, and we have supplied a report from IHS CERA confirming our findings. The US Chamber of Commerce has petitioned for a correction under the Data Quality Act. Despite all of this, EPA has failed to acknowledge its mistake much less correct it. I would now like to turn to the graphic contained in your copy of my testimony. It will help illustrate EPA’s misconception and how it has resulted in a dramatic overestimate of emissions from our industry. First I want to draw your attention to the curve. After a well is hydraulically fractured, it undergoes what is called flowback. In simple terms, Flowback is necessary to remove water from the well so it can produce gas. The left side of the curve represents the beginning of flowback where water production is highest and gas production is lowest. Progressing right - as water is removed from the well, gas production increases until at the far right side, gas production reaches its maximum rate and levels off. Now, EPA believes that the period of flowback is up to 10 days because that is what has been reported to the Natural Gas Star program. In Natural Gas Star, Operators report the volume of gas that they capture while operating specialized capture equipment. Since gas is being captured and not wasted it is not uncommon to operate this capture equipment for 10 days or more. Remember Natural Gas Star is for gas captured not gas emitted. 10 days of gas capture is on the far right side of the curve and equates to 9 million cubic feet according to how EPA averaged the Natural Gas Star data. This contrasts significantly with the scenario where gas cannot be captured from the flowback stream – the blue shaded area. Actual data from 8 operators has demonstrated that flowback lasts on average only 3.5 days when gas capture is not possible. An operator will flow the well back only as long as needed to remove the bulk of the water – when steady gas flow is established, the well is shut off until the pipeline is laid. Clearly, captured gas volumes reported to Natural Gas Star, from 10 day flowback periods, are significantly higher that gas volumes released from flowback over 3 and a half days. EPA has erred by assuming that the volume of gas captured under the Natural Gas Star program is the same volume of gas that would be emitted when gas capture is not possible. To conclude, the error must be corrected now. We have already seen its misuse to justify air quality rules for fracking. It will continue to fuel bad public policy and research that overshadows the benefits of natural gas. Studies like the recent one from the Environmental Defense Fund that used the overestimate to suggest that Natural Gas powered vehicles are no cleaner than gasoline vehicles will continue until such time as EPA revises its published emissions data. And this will take several years. This concludes my testimony. Thank you. PnONIIfcUSIATESCUUHI UFAmALS" FOR DISTRICT OF COLUMBIA CIRCUIT ^DiSTRCTOFCOUiMBBSffi IN THE UNITED STATES COURT OF APPEA RECEIVED FOR THE DISTRICT OF COLUMBIA CI STATE OF WEST VIRGINIA; STATE OF ALABAMA; STATE OF ARIZONA; STATE OF KANSAS; COMMONWEALTH OF KENTUCKY; STATE OF LOUISIANA; ATTORNEY GENERAL BILL SCHUETTE, For the People of Michigan; STATE OF STATE OF STATE OF STATE OF STATE OF MONTANA; OHIO; OKLAHOMA; SOUTH CAROLINA; WISCONSIN; COMMONWEALTH OF KENTUCKY ENERGY AND ENVIRONMENT CABINET; and, STATE OF NORTH CAROLINA DEPARTMENT OF ENVIRONMENTAL QUALITY; Petitioners, UNITED STATES ENVIRONMENTAL PROTECTION AGENCY; and, REGINA A. MCCARTHY, Administrator, United States Environmental Protection Agency; Respondents. PETITION FOR REVIEW CaseNo. 16-1264 The States of West Virginia, Alabama, Arizona, Kansas, Louisiana, Montana, Ohio, Oklahoma, South Carolina, Wisconsin, and the Commonwealth of Kentucky, and Attorney General Bill Schuette for the People of Michigan, the Commonwealth of Kentucky Energy and Environment Cabinet, and the State of North Carolina Department of Environmental Quality hereby petition this Court, pursuant to Rule 15(a) of the Federal Rules of Appellate Procedure, Section 307(b)(1) of the Clean Air Act, 42 U.S.C. § 7607(b)(1), and 5 U.S.C. § 702, for review of the final rule of the U.S. Environmental Protection Agency published in the Federal Register at 81 Fed. Reg. 35,824 (June 3, 2016), titled "Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources." This Court has jurisdiction, and is a proper venue for this action, under 42 U.S.C. § 7607(b)(1). Petitioners will show that the final rule is in excess of the agency's statutory authority and otherwise is arbitrary, capricious, an abuse of discretion and not in accordance with law. Accordingly, Petitioners ask the Court to hold unlawful and set aside the rule, and to order other such relief as may be appropriate. See 42 U.S.C. § 7607(d). Dated: August 2, 2016 Respectfully submitted, Patrick Morrisey 0 Attorney General of West Virginia Elbert Lin Solicitor General Counsel ofRecord J. Zak Ritchie Assistant Attorney General State Capitol Building 1, Room 26-E Charleston, WV 25305 Tel: (304)558-2021 Fax: (304)558-0140 elbert.lin@wvago.gov Counselfor Petitioner State of West Virginia /M'Wur ^wyX Luther Strange Attorney General of Alabama Andrew Brasher Solicitor General Counsel ofRecord 501 Washington Avenue Montgomery, AL 36130 Tel: (334)353-2609 abrasher@ago.state.al.us Mark Brnovich ^ O Attorney General of Arizona John R. Lopez IV Solicitor General Counsel ofRecord 1275 West Washington St. Phoenix, AZ 85007 Tel: (602)542-8986 Fax (602) 542-8308 john.lopez@azag.gov Counselfor Petitioner State ofAlabama Counselfor Petitioner State ofArizona Derek Schmidt <~> u Attorney General of Kansas Jeffrey A. Chanay Chief Deputy Attorney General Counsel ofRecord Bryan C. Clark Assistant Solicitor General Andy Beshear O Attorney General of Kentucky Mitchel T. Denham Assistant Deputy Attorney General Joseph A. Newberg, II Assistant Attorney General Counsel ofRecord 700 Capital Avenue 120 S.W. 10th Avenue, 3rd Floor Topeka,KS 66612 Tel: (785)368-8435 Fax: (785)291-3767 Tel: (502)696-5611 jeff.chanay@ag.ks.gov joe.newberg@ky.gov Counselfor Petitioner State ofKansas Counselfor Petitioner Commonwealth ofKentucky Jeff Landry ffLandry Bill Schuette & Attorney General of Louisiana Elizabeth B. Murill Solicitor General Counsel ofRecord Steven B. "Beaux" Jones Assistant Attorney General Environmental Section - Civil Division 1885 N. Third Street Baton Rouge, LA 70804 Tel: (225)326-6085 Fax: (225)326-6099 MurrillE@ag.louisiana.gov Counselfor Petitioner State of Louisiana Suite 118 Frankfort, KY 40601 To: "melissa.houston@oag.ok.gov" , Cc: "Whitsitt, Bill" , "Wright, Allen" 1 Attachment E N V - HF - B L M - RGA-RAGA request for response (DRAFT 11-16-2012).docx Melissa: It was nice catching up with you today. If you don't already have a copy, I have attached a draft of the RGA/RAGA follow-up letter to the President. Best regards, Brent Rockwood Director, Public Policy & Government Affairs Devon Energy Corporation 333 West Sheridan Oklahoma City, OK 73102 405 228 8416 Direct 405 208 9259 Mobile Brent. Rockwood@dvn. com de¥on Confidentiality Warning: This message and any attachments are intended only for the use of the intended recipient(s), are confidential, and may be privileged. If you are not the intended recipient, you are hereby notified that any review, retransmission, conversion to hard copy, copying, circulation or other use of all or any portion of this message and any attachments is strictly prohibited. If you are not the intended recipient, please notify the sender immediately by return e-mail, and delete this message and any attachments from your system. LIPTON.NY TIMES.ORR.2014-11-06 - #0013 11/4/2014 file :///C:/Users/234417/AppData/Local/Temp/notesBEF787/~web23 08 .htm November XX, 2012 President Barack Obama The White House 1600 Pennsylvania Avenue Washington, DC 20500 Dear Mr. President: In a letter dated July 10, 2012, the undersigned Governor of Virginia, Robert F. McDonnell, and Attorney General of Oklahoma, E. Scott Pruitt, wrote to express serious concerns with, and strong objection to, the U.S. Bureau of Land Management's (BLM) proposed rule to regulate hydraulic fracturing operations on federal and Indian lands. To date, we have not received a response to our letter, and we stand by our conviction that the proposed rule needs to be withdrawn. The strong and efficient track record of states to regulate oil and natural gas production — as well as the rule's significant and destructive impacts on our states — should not be ignored and needs to be taken into serious consideration. As stated in our attached July 10, 2012 letter, we request to have the proposal withdrawn based on the following: • The arbitrary and capricious nature of the proposal by the lack of justification, erroneous cost estimates, clearly overstated and unfounded benefits, and failure to take into account the strong objections of affected states. • The economic harm that states will suffer, both by increased costs to its citizens and investors, and by lost revenues. • The states, not the federal government, are best positioned to appropriately regulate hydraulic fracturing operations. Current state regulations already provide effective and efficient oversight that is specific to the needs of the states. The BLM's proposed rule w i l l only discourage exploration and production on federal and Indian lands, costing the federal government — and states that share in federal royalties — potentially billions of dollars in revenue. The BLM rule places sweeping new regulations on hydraulic fracturing and related operations without any demonstrated problems that might need to be addressed. The BLM's proposal: • Adds significant and unnecessary costs to the production of oil and natural gas without assuring additional environmental protection. • Includes numerous expensive and time-delaying measures, such as cement bond logs, that do not guarantee additional safety or effectiveness. • Creates cost impacts that greatly exceed $100 million to the oil and natural gas industry, rendering the BLM rule noncompliant with various federal orders and acts. In fact, the BLM and Office of Management and Budget (OMB) are in possession of third party comments and documentation of annual potential costs in excess of $1.4 billion. • Includes complicated permitting requirements that would further delay federal permitting times, which may already be best measured in months or even years, compared with weeks for permits granted by states. This would discourage exploration and production on federal and Indian lands leading to significant lost investment and employment for states with LIPTON.NY TIMES.ORR.2014-11-06 - #0014 federal lands. • Grossly underestimates the investment and employment costs. Although it incorrectly states that there would be an insignificant cost, the agency has gone so far as to state a belief that employment will go up because of additional work that will be required to comply with the proposed new regulations. • Must be based on sound science and proven engineering practices, acknowledging differences between regions based on geography, geologic formations, hydrology and historic conditions of the areas. Current state regulations already provide appropriate oversight that is specific to the needs of the states. We request that the White House, Department of Interior (DOI) and OMB carefully review the many state comments in response to the proposed rule to regulate hydraulic fracturing operations on federal and Indian lands. We urge you to withdraw the proposal, and we look forward to your response. Respectfully submitted, cc: Ken Salazar, Secretary, DOI Mike Pool, Acting Director, BLM Jeffrey Zients, Deputy Director, OMB LIPTON.NY TIMES.ORR.2014-11-06 - #0015 From: Meiissa PioustaniQAG T0: ?Ragweed, Brent? Tyier Laughiin?SAzegigOAG, Cc: ?Bil: Whitsi?? ?Alien Wright? ?aiienwri ht {ivncamr- Date: ?i 1:3012912 05:4? AM Subject: Ra: Dra? Letter 20 Pres Gbama: prepose? ruie {o HF It lacks as {heugh our pimple are gem! with the [cider and Genera! Pruitt is very i?ierested in heiping cm {he issue. i'm (20ng Tyler will help facilitate the icgistics from here between our Of?ce and Gov iindal. Thank yen for your assistance, Frcm: ?Reckwaod, Brent? f8rentReckwood?dvmcom] Sent: EEK2SIZOILZ 09:29 PM GMT To: Melissa McLawhcm Hauston Ce: ?Whitsiit, Silt? ?Wright, Alien" Subject: Draft Letter t0 PYSS Obama: proposed rule t0 reguiate HF Meiissa: it was nice catching up with you today If you don?t already have a capy, i have attached a draft of the f0120w~up ietter to the President. Best regards, Brent Reckwcod Directcr, Pubiic Policy 8: Government Affairs Devon Energy Corporatian 333 West Sheridan Okiahoma City, OK 33102 405 228 8416 Direct 465 268 Mcbiie December 17, 2012 President Barack Obama The White House 1600 Pennsylvania Avenue, NW Washington, DC 20500 Dear Mr. President, In a letter dated July 10, 2012, Robert F. McDonnell, Governor of Virginia, and E. Scott Pruitt, Attorney General of Oklahoma, wrote to express serious concerns with, and strong objection to, the U.S. Bureau of Land Management’s (BLM) proposed rule to regulate hydraulic fracturing operations on federal and Indian lands. To date, we have not received a response to our letter, and we stand by our position that the proposed rule needs to be withdrawn. The strong and efficient track record of states to regulate oil and natural gas production — as well as the rule’s significant and destructive impacts on our states — should not be ignored, and needs to be taken into serious consideration. As stated in our July 10, 2012 letter, which is attached, we request the BLM withdraw the proposal based on the following:  The arbitrary and capricious nature of the proposal by the lack of justification, erroneous cost estimates, clearly overstated and unfounded benefits, and failure to take into account the strong objections of affected states.  The economic harm that states will suffer, both by increased costs to its citizens and investors, and by lost revenues.  The states, not the federal government, are best positioned to appropriately regulate hydraulic fracturing operations. Current state regulations already provide effective and efficient oversight that is specific to the needs of the states. The BLM’s proposed rule only will discourage exploration and production on federal and Indian lands, potentially costing the federal government — and states that share in federal royalties — billions of dollars in revenue. The BLM rule places sweeping new regulations on hydraulic fracturing and related operations without any demonstrated problems that might need to be addressed. The BLM’s proposal:  Adds significant and unnecessary costs to the production of oil and natural gas without assuring additional environmental protection; 1  Includes numerous expensive and time-delaying measures such as cement bond logs that do not guarantee additional safety or effectiveness;  Creates cost impacts to the oil and natural gas industry that greatly exceed $100 million, rendering the BLM rule noncompliant with various federal orders and acts. In fact, the BLM and Office of Management and Budget (OMB) are in possession of third party comments and documentation of annual potential costs in excess of $1.4 billion;  Includes complicated permitting requirements that would further delay federal permitting times, which already may be measured in months or even years, compared with weeks for permits granted by states. This would discourage exploration and production on federal and Indian lands, leading to significant lost investment and employment for states with federal lands;  Grossly underestimates the investment and employment costs of implementation. The agency even has gone so far as to state, incorrectly, a belief that employment will go up because of additional work that will be required to comply with the proposed new regulations;  Must be based on sound science and proven engineering practices, acknowledging differences between regions based on geography, geologic formations, hydrology and historic conditions of the areas. Current state regulations already provide appropriate oversight that is specific to the needs of the states. We request that the White House, The Department of Interior (DOI) and OMB carefully review the many state comments in response to the proposed rule to regulate hydraulic fracturing operations on federal and Indian lands. We urge you to withdraw the proposal, and we look forward to your response. Respectfully submitted, E. Scott Pruitt Oklahoma Attorney General Chairman, RAGA cc: Bobby Jindal Louisiana Governor Chairman, RGA Ken Salazar, Secretary, DOI Mike Pool, Acting Director, BLM Jeffrey Zients, Deputy Director, OMB 2 my escalates-y 2 .. DOC ?m e6: Abdut News . Iegielatien Issues Ebntaet 3!;me Press Releases 'n lattice. -- ur new: . The Shame Administratler ?d has fedeml energy resduree: EIbg Dp?E?s S: Speeches q? ]nCase?i'bul?sse?lt Bl?g ?L?te HM ce and; General Ask Dbama Adm-1115. stra? bu td "-??thdraw ELM Frat-Icing Regulati ens Pbsted by Jamie Hennigan bn December SD12 William's a I?ll-cites Lbuisiana ISbyernbr Jindal. Chairman bf the Ftepublican Assbciatibn and Dxlahbma General Pruitt- Chairman bf. the Republican General Assbciatibn sent a SEARCH NEWS letter tb the Dbama administratibn tbday requesting the withdrawal bl'a rule by the Bureau cit Land a Management tEth-li that wbuld regulate hydraulic fracturing bn federal and Indian lands. The letter was a tb a preyibus SENS-ASA letter expressing cbncern dyer the rule and its impact bn energy a and The rule- annbunced by interibr Secretary Ken Salazar in May SENE- was met with s- -rbng by States- Tribal leaders- creature. and ether cbncerned citizens- Hydraulic fracturing has been ettectiyely regulated by the States dyer St] years and is currently St] percent bt bur dbmestic bil and natural gas prbductibn. With States lilte Dal-tbta seeing bil increase by Stiti'is in the last few years due td hydraulic fracturing. this represents bne bf the greatest strengthening bur hlatibn's energy security and spurring tb a recent Slbbai insight Study- shale bil and natural gas actiyity will dyer millibn in SENS and increase by . dyer 45'? tb 2- millidn in ED15- Dyer the pastyear- the Natural Resburces Cdmmittee has held multiple dyersight hearings tb discuss the rule and its impact en the At a May ?ield hearing in Denyer- (30- witnesses representing Western energy prbducers- public pblicy experts and lbcal businesses testified abdut the harm tb creatidn. lbcal and America's energy that cbuld result the regulatibns- in April- the bn lndian and Alasxa Native Affairs held an byersigh: hearing tb examine the impact bt the regulatibns bn lndian Tribal energy deyelbpment- lndian Tribal lands held a signi?cant ambunt b? bil and natural gasthat cbuld help Tribes createjbbs- spur deyelbpment and help educatibn- health and infrastructure. Llnl?brtunately. many Tribes are cbncerned that they were left but bf the rulemalting prbcess and that the rule cbuld greatly impede Tribes' ability tb deyelbp their energy resburces- Tb learn mbre abbut new the Dbama Administratibn has delayed and hindered American energy prbductibn- Iurisit 5/5/2017 Meeting Record   The White House Țħįș įș ħįșțǿřįčǻŀ mǻțěřįǻŀ “fřǿżěň įň țįmě”. Țħě ẅěbșįțě įș ňǿ ŀǿňģěř ųpđǻțěđ ǻňđ ŀįňķș țǿ ěxțěřňǻŀ ẅěbșįțěș ǻňđ șǿmě įňțěřňǻŀ pǻģěș mǻỳ ňǿț ẅǿřķ. BŘİĚFİŇĢ ŘǾǾM İȘȘŲĚȘ ȚĦĚ ǺĐMİŇİȘȚŘǺȚİǾŇ 1600 PĚŇŇ Search Ħǿmě • Țħě Ǻđmįňįșțřǻțįǿň • Ǿffįčě ǿf Mǻňǻģěměňț ǻňđ Bųđģěț Ǻbǿųț ǾMBŀǿģ ŘĚĢŲĿǺȚİǾŇ & İŇFǾŘMǺȚİǾŇ Ǻbǿųț ǾİŘǺ Fěđěřǻŀ Čǿŀŀěčțįǿň ǿf İňfǿřmǻțįǿň Bųđģěț Mǻňǻģěměňț Řěģųŀǻțįǿň & İňfǿřmǻțįǿň İňțěŀŀěčțųǻŀ Přǿpěřțỳ Ŀěģįșŀǻțįvě Jǿįň Čǿňțǻčț Měěțįňģ Řěčǿřđ Měěțįňģ Řěčǿřđ Řěģǻřđįňģ: Fřǻčțųřįňģ ǿň Fěđěřǻŀ Ŀǻňđș Đǻțě: 2 / 11 / 2013 İňfǿřmǻțįǿň Pǿŀįčỳ Řěģųŀǻțǿřỳ Mǻțțěřș Ňǻmě Ǻffįŀįǻțįǿň Jįm Ŀǻįțỳ ǾMB/ǾİŘǺ Řěpǿřțș țǿ Čǿňģřěșș Bįŀŀ Ẅħįțșįțț Đěvǿň, ĚVP Fǿř Ǻģěňčįěș Řįčħǻřđ Șǻẅǻỳǻ Đěvǿň, Ẅǻčħ. Řěp Řěģųŀǻțǿřỳ Řěfǿřm Đǻvįđ Ħǻģěř Đěvǿň Ěňěřģěřỳ Mǻňįșħǻ Pǻțěŀ ČĚQ Đǻňįěŀ Șčħǿřỳ ǾMB/ŘMǾ Běň Bųřňěțț ǾMB/ŘMǾ Jįm Ŀįňvįŀŀě JŘ Đěvǿň Ěňěřģỳ ǾĶČ Jǻměș Țįčħěňǿř BĿM Mįŀě Ňįǿđ BĿM Șțųǻřț Ŀěvěňbǻčħ ǾMB/ǾİŘǺ Șěěřěň Ẅěŀŀș BĿM Đǿm Mǻňčįňį ǾMB/ǾİŘǺ Měěțįňģș ǻňđ Ǿųțșįđě Čǿmmųňįčǻțįǿň Șțǻțįșțįčǻŀ Přǿģřǻmș & Șțǻňđǻřđș https://obamawhitehouse.archives.gov/omb/1004_meeting_02112013 Čŀįěňț (įf ǻppŀįčǻbŀě) 1/1 William F. Whitsitt, Ph.D ~ Q4T~Y'1 6r~V V .L J. Executive Vice President Public Affairs Devon Energy Corporation 333 W. Sheridan OI RAN 1401-A~14, R~GINFC~.Gt7t'(last accessed Apr. 13,2QI6}. 3~ IJ.S.~. ~; 225. "~Iast~" has lo~~ been defned as venCed or flar~ct gas that is "ecorc+~micaily recoverable." Sep: NTL-=~A, ~cunomic re~overabi]ity, in turn, €s t~ften dependent an the specific re~ulatary requirements planed vri lessees, such as the rigor azid frequency of audits and re-verifications. If Clte requirements SLNI imposes go 6e~~ond ~~f~at is economi~aity recoverable—[hat is, if the mandates imposed by the Waste Prevention rule were to render (eases tun expensive to rnainta.in—those measuc~es ~aoc~id exceed BLM's statutory mandate tc~ prevent waste. `~ I7.S. $tlR~tl~t C}F J,AI1D MGMT., REfiUL~t'f{7RY I1~IPACT ANALYSIS FOR ADDETi47N5 QF 43 ~~R 3178(ROY.fiLT~'-FREE USE OC LEASE P~C3DU`CTI{~~1) ANt343 CFR 3 3 79(W,~STE PREVENTIC7N AND RESOURCE C.c?NSERVATfON)~ (Jan. 1 ~k, 2416). Thy Honot-~ble Sha~zn Donavan April t3, 2016 3'age 3 quality reg«~atian, especially in (z~ht cif the farthcon~i~ig Ne~v Sc~u~•ce Pez~formanc~ standards {I~~PS~ Subpart OOU4a? 4. BL1V~'s regulatory ~nlp~et analysis estimates aru~uat monetized costs far Wasfe Prevention rule ranging frasz~ $117,000,~~0 {i#'EPA. fix~a(izes NSPS Subpart QOf~Oa)~c~ $147,~Of~,000 (ifEPA does nt~t tinaiiz~ the rule) usi~.g a 3 percent ~iscout~t rats, thxaugl~ 202&. Has fJIvIB cansicteced that this ~3U,O~O,OQ~ diffex~nce in estiz~ia~~d annum casts, cte~en~~nt on the ~za~nul~atian of a r~lat~d E~'A regulation, suggests at feast a partial auplicat~an of efforts between the Waste Prevention rule anti EPA clean ~r ins#iatives? 5. Althau~h it acknowledges that "the rule will affect a substar;tial nu~abe~ of smati e,ntities," BLIvI estimates that the male would "nt~t have a significant e~flnomic iznpaet on a substantial number of small entzties," citing law redractian.s in profit margins calculated using SEC dYsclt~sure data.' BLIv~'s initial re~;ula#ory flexibility analysis estimates per~nfity comp~ias~ce cos#s to range from $?7,~0(} per year itthe EPA finalizes ASPS Subparf OOf~{7a, to ~3b,E}Q(} per entity per year if the EPA cfo~s z~ot finalize the ~-ufe.~ Yet, rnazly st~.Gl~olders anc~ indj.astry gro~xps indicate tha# this si~~~x~zcanfiiy undexes#irnates their• pr~jec~ed compliance ec~sts. ~. Has COMB had the opportunity to scn,Etinize tk~e data a.~d assurnpt~ons BLIVI used to an-ive at this cost estxznatian, especiaEly in light ofcamz~ents from stakeholders arguing t~Z~t compliance cosh will be nat only more sigrtifcant, b~.t ~ote~ttiaily r~rzder sites ecc~no~nically ino~erable`~ Ft~r exa~npie, BLIi~'s estzrnates o~ ~xo~tability i~pac#s u~•ere calculated using SEC disclosure data. AY•e these data representafiive gfthe small businesses that would be aftectec~ by the im~lerr~ex~tafiioi~ of BLM's rule? BLM states that"we may chc~c~se i~~t to ~arepare a ~ina1 regulator• flexibility analysis for the final rule, if o ar laes~ estizxiate at the time is that the #u~a~ Hale ti~at~ld not ha~~e a si~r~ficaa~t economic efFect oi~ a substantial number a~'smal~ entities.°'~ Given.fat ma~iy stakeholders are cc~n+c~zned that the rule ~,~c~uld hive a si~ni~cant econaznic effectpossiE~~y rende~~n~ sites ec~n~rr~icail~ ir~aperable prohibitive for many—would you commit to ad~rising BLM tc~ conduct such an analysis on t}~e final rule? 6. Thy Waste Prevention propc~s~d rule et~uld have significant detramental effects on state, local, and tribal governments. Foz' exa.n~ple, hTew 11~e~ico Gflve~x-tc~r Susaa~a N'I~artinez estimates that casts of corrz~liance could render I O percent of New Mexico's prc~ductiarz S "Pram data in the companies' I{~-K tiTings to the SEC,the BLM tivas able to ca€culate the companies' profit marlins ft~r the yevs 26 t2, 2013, and 20t ~..,. Par these 26 small cott~panies [that currantly~ f7old BLM-managed oil and has leases], alter-entity compliance cost increase of~31,~1F10 would resulfi ir~.an avenge reduction iri prc~tit margin of0.087 percentage points... a~ad a per entity cost increase of537,6flt} rvoufd result in an average reduction in profit gnargin of ~.1 OS pex~entage points:" tcl. at 159. 6 fcl. at X59 (usi7~g a 7 percent discount ratej. ~ !d. at I b7. The Honorable Shaun Donovan April 13, 2016 Page 4 unecononnic,g The North Dakota Industrial Commission estimates that compliance could negatively affect as much as one-third ofthe state's leases.9 Has OMB estimated the costs borne by state, local, and tribal governments, including foregone revenues if wells are shut down as a result ofthe additional requirements posed by the Waste Prevention rule? 7. It is my understanding that, iffinalized, the Waste Prevention rule would apply retroactively, effectively changing the terms of existing leases. Has OMB considered the economic and legal ramifications of changing leasing agreements in such a significant way as to potentially render operations for many lessees uneconomic,including defending against resulting constitutional and contractual claims? We value your office's technical expertise in these issues, and look forward to your reply. If you have any questions about this request, please contact Elizabeth Gorman with RAFM at(202) 224-2862. Thank you for your attention to this matter. Sincerely, ~oyt`~~ James M.Inhofe Chairman Committee on Environment and Public Works John Barrasso, M.D. Chairman Subcommittee on Public Lands, Forests, and Mining, Committee on Energy and Natural Resources $ Waste Prevention, Production Subject to Royalties, and Resource Conservation, REGULATIONS.GOV, Docket No. BLM-2016-0001-0480 (last accessed Apr. 13,2016). 9 Waste Prevention, Producrion Subject to Royalties, and Resource Conservation, REGULATIONS.GOV, Docket No. BLM-2016-OOQi-0074 (last accessed Apr. 13, 2016). The Honorable Shaun Donovan April 13, 2016 Page 5 Subcomthittee on Regulatory Affairs and Federal Management, Committee on Homeland Security and Governumental Affairs cc: The Honorable Heidi Heitkamp Ranking Democratic Member Subcommittee on Regulatory Affairs and Federal Management @ungnzaa at the U?niteh ?tates Washington, ZBQE 20515 July 27, 2016 The Honorable Sally Jewell Secretary U.S. Department of the Interior 1849 Street, NW Washington, DC. 20240 Dear Secretary Jewell: Earlier this year, Speaker Paul Ryan assembled several committee Chairmen in the U.S. House of Representatives to establish a Task Force aimed at reducing regulatory burdens to grow our economy. Of the principles outlined, we found that it is absolutely critical for the federal government to regulate smarter while also delivering affordable and reliable energy to American families and businesses. The ?ndings of the Task Force?s recently released white paper took months to assemble, and incorporated ideas from many Members of Congress, individuals, small business owners, and recognized regulatory experts. We call your attention to the important ?ndings of this white paper because the Department of the Interior has been a major offender of these pn'nciples promulgating thousands of duplicative and burdensome rulemakings that do little to offer measurable impacts on the safety, security or economic well?being of our nation?s citizens. Rather, many of the Department?s regulations penalize and discourage entrepreneurship, overstep state jurisdiction, and drive up costs for developing energy resources on federal lands. The net effect of these burdensome rules is to make energy development on federal lands cost prohibitive and ultimately to penalize the citizens and economies of many states whose lands remain largely in federal control. A recent example of this is the Bureau of Land Management?s (BLM) proposed Waste Prevention, Production Subject to Royalties, and Resources Conservation Rule (81 Fed. Reg. 6616) to further regulate methane emissions. PRINTED 0N RECYCLED PAPER Secretary Jewell July 27, 2016 Page 2 The BLM lacks Clean Air Act jurisdiction a law that clearly charges the Environmental Protection Agency (EPA), in partnership with states, to regulate emissions. Moreover, according to the own data, U.S. emissions from natural gas systems are lower than they were in 2005 despite our nation?s vast increase in natural gas development over the same period. Similarly, a recent study conducted in part with scientists from the National Oceanographic and Atmospheric Administration (N OAA) found that global methane increases since 2006 are likely from biogenic sources, rather than thermogenic emissions such as those associated with natural resource production - contradicting emissions inventories] We are concerned that the BLM has rushed forward to ?nalize new methane emissions measures as a solution in search of a problem. Unfortunately, these regulations fail to address ongoing permitting delays for natural gas gathering line The best method to capture methane emissions from a well site is through the construction of natural gas gathering lines and pipelines. According to the BLM manual, BLM aims for a 60?day review of pending right?of?way permits so companies can construct pipelines. Yet, in data submitted by the BLM itself to the House Natural Resources Committee, not a single ?eld of?ce has been able to meet this target. In many cases, BLM is taking over six months to process a permit. This is unacceptable. This rule adds another layer of duplicative federal regulation on top of already existing federal and state regulations. The rule oversteps regulatory jurisdiction, and completely fails to address crucial failures by the BLM to capture methane emissions through common sense methods such as timely right-of-way permitting. For these reasons, we urge the agency to withdraw this misguided effort. The development of oil and natural gas on federal lands remains a critical component of our nation?s renewed status as a global energy leader. Energy deveIOpment is a generator of jobs and revenue that impact federal, state and local budgets. Most importantly, domestic energy production has helped to lower energy prices for American families, manufacturers, and businesses, which in turn have helped to further stabilize our economy. Rather than put all of these bene?ts in jeopardy, the BLM should continue to work collaboratively to drive more innovative technologies that build upon existing methane emissions decreases, while also promulgating common sense reforms to address the ongoing delays that plague the current right- of?way permitting process. 1 H. Schaefer et al., Science 10.1126/scienceaad2705 (2016). Secretary Jewell July 27, 2016 Page 3 We appreciate your consideration of a better way to regulate responsible oil and natural gas exploration and production on federal lands and greatly look forward to your prompt reply to this letter that includes in detail what measures the Department is taking to address these right?of? way permitting backlo gs. Sincerely, q, K?vih McCarthy Majority Leader Rob BishOp Chairman House Natural Resources Committee Cc: The Hon. Raul Grijalva, Ranking Member, Committee on Natural Resources (2Q 44.x? Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 1 of 34 Eric P. Waeckerlin – Pro Hac Vice Kathleen Schroder – Pro Hac Vice Erin K. Murphy – Wyo. Bar No. 7-4691 Davis Graham & Stubbs LLP 1550 17th Street, Suite 500 Denver, Colorado 80202 Tel: 303.892.9400 Fax: 303.893.1379 Eric.Waeckerlin@dgslaw.com Katie.Schroder@dgslaw.com Erin.Murphy@dgslaw.com Attorneys for Petitioners Western Energy Alliance and Independent Petroleum Association of America IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF WYOMING STATE OF WYOMING, et al., Petitioners, v. UNITED STATES DEPARTMENT OF THE INTERIOR, et al. Respondents. ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Case No. 2:16-cv-00285-SWS [Lead] Consolidated with: Case No. 2:16-cv-00280-SWS Assigned: Hon. Scott W. Skavdahl REPLY IN SUPPORT OF PETITIONERS’ MOTION FOR PRELIMINARY INJUNCTION Petitioners Western Energy Alliance (Alliance) and the Independent Petroleum Association of America (IPAA) respectfully submit this reply in support of the Petitioners’ motion for preliminary injunction. I. INTRODUCTION Government Respondents, Intervenor-Respondents and State Respondents (collectively “Respondents”) advance near-treatises on the Bureau of Land Management’s (BLM) authority to 4244733.1 Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 2 of 34 manage waste to distract the Court from the fundamental legal infirmity with this Rule: BLM has promulgated a comprehensive air quality regulatory scheme without congressional authority. Respondents’ arguments cannot overcome the fact the Rule is unconstitutional, BLM’s action is ultra vires, and this Court has the authority under the United States Constitution to make this determination. Marbury v Madison, 5 U.S. 137 (1803). Respondents submit over 130 pages of briefing that quickly delve into the intricate and nuanced history of BLM’s waste prevention authority.1 Petitioners, however, do not dispute BLM has statutory authority to manage waste and do not ask the Court to define the precise limits of such authority. Petitioners simply petition the Court to do what the United States Constitution requires: recognize that Congress has not authorized BLM to promulgate the Rule. Respondents repeatedly attempt to obfuscate Petitioners’ straightforward assertion that BLM has acted without authority in promulgating a comprehensive air quality regulatory scheme. For example, Respondents devote large portions of their briefs to BLM’s ability to manage public lands in a way that limits impacts to air quality. But Petitioners do not argue BLM may never take discrete local or regional actions aimed at reducing impacts to air quality through individual land management plans.2 The sweeping breadth of the Rule, which impacts every oil and natural gas facility on federal and Indian leases, cannot be compared to such limited actions. Similarly, the Rule does not merely “update,” “amend,” or “refine” NTL-4A, as BLM claims. NTL-4A was six-pages long and addressed three issues: (1) defined avoidably lost gas subject to royalties; (2) authorized venting and flaring on a case-by-case basis; and (3) defined 1 See Citizen Groups’ Resp. to Mots. for Prelim. Inj., Docket No. 69 (hereinafter “Cit.Grps.”); Federal Resp’ts’ Consolidated Opposition to Pets.’ and Pet.-Intervenor’s Mots. for Prelim. Inj., Docket No. 70 (hereinafter “Govt.”); State Resp’ts’ Opposition to Pet.-States’ Mots. for Prelim. Inj., Docket No. 77 (hereinafter “CA/NM”). 2 See generally Petitioners’ Memorandum in Support of Mot. for Prelim. Inj., 16-CV-280, Docket No. 13 (“Pets.”). -2- Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 3 of 34 beneficial use of oil and gas not subject to royalty. On its face the Rule comprises 11 pages of single-spaced codifications spanning two parts and two more subparts of the Federal Register. It is preceded by nearly 70 pages of a highly-technical preamble. Substantively, the Rule changes longstanding concepts governing avoidable and unavoidable waste, and royalty-bearing gas. It requires operators to develop and disclose detailed and complex waste minimization plans with highly confidential and proprietary information. It creates new compliance obligations, all of which carry the full force of federal sanctions, including fines, penalties, permit delays, and lease suspensions. The fatal flaw, however, is that, for the first time in the Department of the Interior’s existence and without congressional authorization, the Rule imposes a comprehensive air quality regulatory scheme on all oil and gas facilities on federal and Indian leases. This scheme includes requirements to control emissions, inspect and replace equipment, and it extends to existing facilities, which the Environmental Protection Agency (EPA) itself has not even done. The nearsilence in Respondents’ briefs concerning the regulation of existing facilities and the conflicts this Rule poses with Section 111(d) of the Clean Air Act (CAA) is deafening. Remarkably, Government Respondents argue the Rule contains no air quality provisions because “[i]t sets no emission standards for particular pollutants and contains no air quality monitoring requirements.” Govt. at 2. This statement is plainly wrong. First, the Rule imposes emission standards for storage tanks (limiting emissions to six tons per year (tpy) of volatile organic compounds (VOCs)) and contains provisions for monitoring leaks. See AR 438-441 (43 C.F.R. §§ 3179.203, 3179.301-305). Second, emissions standards and monitoring requirements are not necessary conditions for controlling air pollution. See 42 U.S.C. §7411(h). Petitioners urge the Court to reject Government Respondents’ narrow and simplistic characterization of an air quality regulation. -3- Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 4 of 34 Respondents mischaracterize other justifications for the Rule. Most concerning among them is the oversimplification and dismissive tone regarding why flaring and venting occurs. BLM would have this Court believe it has a monopoly of wisdom on this point—which can be boiled down to operator laziness, greed, and negligence. See e.g., Govt. at 4 (“operators often choose the easiest, and most wasteful, option: flaring”) (emphasis added); id. at 38 (“Petitioners would have this Court believe that operators operate in a vacuum”); id. (“Operators are aware, or could easily make themselves aware, of when new wells come on line” and “can also plan their development in a way that ensures they have adequate infrastructure to capture produced gas before a new well is drilled”); id. at 44 (Petitioners “ignore the fact that operators choose when and where to drill their wells”); Cit.Grps. at 47 (referencing “inadequate infrastructure”). If only it were so easy. The reality is that the production, gathering, and distribution of oil and natural gas is perhaps one of the most complex endeavors in the modern industrial age. There are numerous reasons operators must flare or vent, none of which owe to laziness, greed, or negligence. In fact, the 2010 Government Accountability Office (GAO) report BLM relies upon, itself, acknowledges at least 60 percent of gas flared cannot be technically or economically captured (i.e., it must be flared or vented). See AR 448 (RIA at 2); AR 2672 (U.S. Gov’t Accountability Office, GAO-11-34, Federal Oil and Gas Leases: Opportunities Exist to Capture Vented and Flared Natural Gas, Which Would Increase Royalty Payments and Reduce Greenhouse Gases (Oct. 2010)). BLM’s attempt to paint such a complexity as black and white is misleading and ignores reality and its own data.3 3 See, e.g., AR 31727 (American Petroleum Institute (API) Comments at 41(April 22, 2016)) (“BLM in North Dakota has expressly acknowledged that in the Bakken it may be ‘necessary to -4- Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 5 of 34 Similarly, BLM belittles the legitimate economic and other irreparable harms Petitioners will suffer from the Rule, calling the Rule’s costs “modest” and “ordinary.” See Govt. at 63 (“Petitioners present no credible evidence of implementation costs but rather suggest that any amount is too much because the Rule is not legal”) (emphasis added).4 Citizen Groups similarly claim operators are concerned with “nothing more than the possibility of a very small diminution in [ ] profits.” See Cit.Grps. at 34. These statements ignore ample evidence of the serious threats the Rule poses to hundreds of operators. See infra § IV; see also Pets. at §§ III-VI. This treatment incorrectly assumes all oil and natural gas companies are the same, operate on uniform economics, and can absorb significant capital costs and withstand forced well shut-ins and associated loss of lease rights. Petitioners provide the Court several declarations serving as concrete examples of the serious and immediate impacts facing operators under the Rule, and more importantly what these impacts portend for smaller operators and marginally economic wells. See generally Decl. of D. Naatz, attached as Exhibit 1 (“Naatz Suppl. Decl.”); Decl. of J. Dunham, attached as Exhibit 2 (“Dunham Decl.”); Decl. of C. Miller, attached as Exhibit 3 (“Miller Decl.”); Decl. of J. Benton, attached as Exhibit 4 (Benton Decl.); Decl. of K. Sgamma, attached as Exhibit 5 (“Sgamma Suppl. Decl.”); Decl. of D. Ballard, attached as Exhibit 6 (“Ballard Decl.”) (collectively, Exhibits 1-6). Finally, Respondents argue the Rule is lawful because BLM somehow has a unique interest in preventing waste of “public resources.” See, e.g., Govt. at 2; CA/NM at 6 burn or release gas for a number of operational reasons, including lowering pressure to ensure safety.’”) (emphasis in original). 4 It is hard to comprehend how BLM can claim Petitioners have presented “no credible evidence of implementation costs,” when BLM itself estimates the Rule will cost, in the aggregate, between $100 and $279 million per year, depending on the discount rate used. AR 450 (RIA at 4). BLM also estimates that the Rule will impose costs between $42,300 and $65,800 per operator. AR 575 (RIA at 129). -5- Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 6 of 34 (describing BLM’s charge to protect “the public welfare”). But the duty to prevent waste is fundamental to all oil and gas development, whether on federal and Indian leases or not, and mechanisms to conserve mineral resources have been in place since the early 20th century. Most states have developed a dual regulatory scheme, where the state oil and gas commission regulates waste and another regulatory body, typically the environmental department, regulates air quality. Two examples are Wyoming and its neighbor Colorado.5 In both states, “flaring” has been carved out as the exclusive province of the oil and gas commissions, and they regulate this activity independently of the health/environmental departments. On the flip side, regulation of air quality is treated as the exclusive province of the health/environmental departments. In neither case has the state commission attempted to extend its waste prevention authority to air quality regulation or vice versa. Oil and gas commissions do not possess the requisite expertise to administer highly technical air quality regulatory schemes. The same is true for BLM. Like state environmental departments, EPA has the expertise to administer air quality, not BLM. The Court should not be persuaded of the Rule’s legality simply because BLM considers itself the expert technical agency for all matters oil and natural gas. Ultimately, nothing in Respondents’ briefs alters the fact that the Rule is an unlawful, unconstitutional and unreasonable exercise of BLM’s statutory authority. Petitioners have demonstrated all four elements necessary for this Court to issue a preliminary injunction and Respondents have not shown otherwise. Pets. §§ III-VI. 5 See Wyo. Stat. Ann. § 30-5-102 (charging Wyoming Oil and Gas Conservation Commission with the prevention of waste); Colo. Rev. Stat. § 34-60-102(1)(a)(II), 34-60-107 (charging Colorado Oil and Gas Conservation Commission with the prevention of waste); Wyo. Stat. Ann. § 35-11-105 (charging Wyoming Department of Environmental Quality with protection of air quality); Colo. Rev. Stat. § 25-7-104 (creating air quality control commission). -6- Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 7 of 34 II. LIKELIHOOD OF SUCCESS ON THE MERITS Petitioners are likely to succeed on the merits of their petition because the Rule cannot survive judicial review. See Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1574 (10th Cir. 1994). Nothing in Respondents’ briefs fixes the fact that this Rule fails all three Olenhouse determinations. See generally Pets. at 8-46. BLM does not have authority to promulgate the Rule and, even if it did, BLM did not comply with the Administrative Procedure Act (APA). A. BLM Does Not Have Authority to Enact Comprehensive Air Quality Regulations 1. BLM Does Not Interpret a Statutory Ambiguity Implicating an Analysis under Chevron. Respondents incorrectly argue BLM’s interpretation of its authority to promulgate the Rule is entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). See Govt. at 13; Cit.Grps. at 9-16. Only where a case involves an agency’s assertion of authority to regulate a particular activity under a statute it administers, must courts engage in the two-step inquiry adopted by the Supreme Court in Chevron. See City of Arlington v. FCC, 133 S.Ct. 1863, 1868 (2013) (“Congress, when it left ambiguity in a statute administered by an agency, understood that the ambiguity would be resolved . . . by the agency, and desired the agency . . . to possess whatever degree of discretion the ambiguity allows[.]”) (emphases added) (citation and quotations omitted). For example, Chevron itself was about EPA’s construction of one discrete term under the CAA—what constitutes a stationary source. 467 U.S. at 839-40, 866. This Court need not reach the two-step analysis adopted in Chevron because Congress left no statutory ambiguity for BLM to resolve; BLM does not seek to resolve a specific statutory ambiguity with this Rule. Rather, BLM attempts to stitch together passing statements in seven different statutes to assert broad new regulatory powers over matters outside BLM’s substantive -7- Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 8 of 34 area of expertise.6 Respondents argue BLM is the proper authority to construe these various statutes and assert the Court must afford BLM deference in the process. Govt. at 13-25; Cit.Grps. at 10. This goes too far. See Marbury v. Madison, 5 U.S. 137, 176 (1803) (it is the province of the courts to construe and determine the constitutionality of laws). Because Chevron and its progeny do not stand for the proposition that an agency’s claim of authority based on a patchwork of statutes is entitled to deference, the Court may rule, without deference to BLM, that the Rule exceeds BLM’s statutory authority. 2. Even if Chevron Applies, BLM Had No Authority to Promulgate the Rule and its Construction Receives No Deference. Even if the Court applies Chevron’s framework to its analysis of the Rule, Congress did not delegate authority to BLM to establish a comprehensive air quality regulatory regime with its land management or waste prevention authorities. When determining whether an agency acted within its scope of authority, the Court must first delineate the agency’s scope of authority and discretion, and then consider “whether on the facts, the agency’s action can reasonably be said to be within that range.” Olenhouse, 42 F.3d at 1574. An administrative agency “may not exercise its authority ‘in a manner that is inconsistent with the administrative structure that Congress enacted into law,’” and the Court must give effect to Congress’ intent. FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 125 (2000) (citation omitted); see also Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988). Critically, even when it comes to agency jurisdiction, an agency’s discretion and the delegation of general authority to promulgate 6 See AR 371 (81 Fed. Reg. at 83019) (citing legal authority from MLA, 30 U.S.C. §§188-287, Mineral Leasing Act for Acquired Lands, 30 U.S.C. §§ 351-360, Federal Oil and Gas Royalty Management Act, 30 U.S.C. §§ 1701-1758; Federal Land Policy and Management Act of 1976, 43 U.S.C. §§ 1701-1785; Indian Mineral Leasing Act of 1938, 25 U.S.C. §§ 396a-g; Indian Mineral Development Act of 1982, 25 U.S.C. §§ 2101-2108; and Act of March 3, 1909, 25 U.S.C. § 396). -8- Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 9 of 34 regulations only extends to matters “within the agency’s substantive field.” See City of Arlington, 133 S. Ct. at 1874. Here, Congress directly addressed the issue of whether any other federal agency except EPA has authority to comprehensively regulate air quality, and the answer is no. See Pets. at 9-26. The Government Respondents maintain “[t]he ‘question in every case is, simply, whether the statutory text forecloses the agency’s assertion of authority.’” Govt. at 13 (citing City of Arlington, 133 S. Ct. at 1871). Yet the law is well established an agency cannot act simply because Congress has not expressly prohibited the agency from taking such action. See Chamber of Commerce of U.S. v. NLRB, 721 F.3d 152, 160 (4th Cir. 2013) (a court “[cannot] presume a delegation of power [to an agency] simply from the absence of an express withholding of power[.]”). Congress did not delegate authority to BLM to substantively regulate air quality on public lands—it specifically tasked EPA with that responsibility. Simply because the seven statutes may not address the issue of air quality regulation does not equate to permission. Id. Congress knows how to grant authority, and it does not do so by “hid[ing] elephants in mouseholes.” Whitman v. Am. Trucking Ass, 531 U.S. 457, 468 (2001). It is irrational to interpret the general authority granted to BLM under a smattering of waste prevention and land use management statutes as providing the requisite authority to establish a comprehensive air quality rule. Thus, either under or outside of Chevron, the Rule is unlawful. 3. Respondents Ask this Court to Ignore the Rule’s Central Comprehensive Air Quality Regulatory Scheme. Respondents characterize the Rule as a logical extension of BLM’s longstanding waste prevention authority and necessary to update NTL-4A to “ensure the proper payment” of -9- Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 10 of 34 royalties.7 See Govt. at 72 (characterizing the Rule’s air quality effects as “incidental”); see also CA/NM at 1 (describing the Rule as a “commonsense rulemaking”); id. at 8 (“the Rule may also have benefits for air quality”). Such portrayals are belied by the Rule’s text, structure, and impact. Moreover, these characterizations ignore the Rule’s direct outgrowth of the White House’s March 2014 Climate Action Plan and the administration’s methane reduction plan to address climate change. Government Respondents list ten core provisions from the Rule and characterize each as waste management efforts. Govt. at 19. Six of the ten provisions, however, in nomenclature and effect directly regulate air emissions and air quality, including: (1) the prohibition on venting; (2) replacement requirements for pneumatic controllers; (3) the Leak Detection and Repair (LDAR) program; (4) control requirements for storage vessels; (5) placing limits on emissions volumes during well completions and initial production testing; and (6) requiring waste minimization plans to reduce flaring. The first five are substantive air quality control requirements, and numbers two through five are taken directly from EPA air control requirements under New Sours Performance Standards (NSPS) OOOO and OOOOa. See 40 C.F.R. §§ 60.5390, 60.5390a, 60.5397a, 60.5395, 60.5395a, 60.5375, 60.5375a. If the Rule is truly just a reasonable refinement of NTL-4A that happens to produce “incidental” air quality cobenefits, it begs the question why BLM needed to convene over 40 conference calls with EPA staff prior to issuing the Rule. Govt. at 8. Petitioners urge the Court not to give credence to these semantics, and instead to look at the Rule’s effect. 7 Government Respondents claim “[t]he text and structure of the Rule, combined with BLM’s longstanding history of regulating venting and flaring demonstrate that the Rule is a waste prevention regulation, not an air quality regulation[.]” Govt. at 18-19. This statement suggests the Court should ignore the substance and impact of agency action, which is incorrect. - 10 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 11 of 34 Moreover, Government Respondents claim this Rule is a waste prevention regulation because it does not impose emission standards or limits for particular pollutants. See Govt. at 20 (arguing it is “clear” the Rule’s “primary purpose is to prevent waste” because it “does not contain emissions limits for particular pollutants” or “require that operators measure particulate matter, such as PM 2.5, or other common air pollutants”); see also CA/NM at 10 (“the Rule does not set new source emission standards”). This claim is incorrect in two respects. First, the Rule does regulate emissions. Section 3179.203 requires operators control emissions from storage vessels if they have the potential for VOC emissions equal to or greater than six tpy. On its face this is an emission limit for VOCs from storage vessels. Furthermore, the storage vessel provision is modeled directly upon emissions standards under EPA’s NSPS OOOO and OOOOa, as well as several state air quality regulations (e.g., Colorado and Wyoming). Additionally, in BLM’s own words, the LDAR requirements under Sections 3179.301305 “establish[] a fixed semiannual schedule for monitoring leaks,” AR 370 (81 Fed. Reg. at 83,018) (emphasis added), and “[f]inal section 3179.302 also allows any person to request and BLM to approve the use of an alternative monitoring device, accompanied by a monitoring protocol.” AR 379 (81 Fed. Reg. at 83,027) (emphases added). Second, emissions limits do not necessarily define an air quality regulation. A central provision of the CAA, Section 111, provides for air pollution control under a variety of means, including work practice and operational standards. See 42 U.S.C. § 7411(h) (“if in the judgment of [EPA], it is not feasible to prescribe or enforce a standard of performance, [EPA] may instead promulgate a design, equipment, work practice, or operational standard, or combination thereof”). In fact, many of the oil and gas air quality regulations promulgated by EPA under Section 111 are work practice or operational standards (e.g., LDAR). If Government - 11 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 12 of 34 Respondents were correct on this point, Petitioners expect EPA would be surprised to learn virtually none of its recent oil- and- gas-related regulations actually control air pollution. 4. The Rule Conflicts with EPAs Authority. The Rule conflicts with the CAA authority delegated to EPA, states, and tribes, and it erodes the act’s cooperative federalism framework. See generally Pets. at 10-20. The Rule also tramples on the narrowly-tailored approach Congress requires EPA take when regulating air emissions from oil and gas sources. Id. For example, in its response, BLM asserts the majority of flaring on BLM-administered leases is the result of “new well construction.” Govt. at 6 (emphasis added). If that is the case, the Rule need not extend so broadly to all existing sources. BLM’s assertion illuminates why the Rule is reckless and not narrowly tailored to address the specific problem (i.e., new well construction). It also demonstrates how the Rule conflicts with the CAA by regulating existing sources before EPA does and without adhering to the narrow requirements and procedure under section 111(d) of the CAA. See 42 U.S.C. §7411(d). Respondents characterize the Rule as merely permissible agency “overlap.” See Govt. at 27-28; CA/NM at 10. Petitioners do not dispute statutory and regulatory overlap can and does occur. Respondents ignore, however, that to take any action an agency must act within the scope of its authority and must exercise such authority reasonably. Without satisfying these fundamental requirements, cooperative and overlapping agency obligations cannot, by definition, exist. One agency may not simply wander into the jurisdiction of another without express and specific congressional authority. The case law upon which Respondents rely to justify this overlap is not relevant here. The Supreme Court in Massachusetts v. EPA determined one term, “air pollutant,” under one statute, the CAA, unambiguously authorized EPA to regulate carbon dioxide and other - 12 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 13 of 34 greenhouse gas (GHG) emissions from new motor vehicles following an endangerment finding. 549 U.S. 497, 528 (2007). The Court found the “wholly independent” statutory obligations of each agency—the Department of Transportation (DOT) to promote energy efficiency through mileage standards and EPA to protect public health—capable of being coordinated on the very narrow issue of GHG emissions from vehicle tailpipes. Id. at 532. In contrast to this case, the Court implicitly recognized DOT and EPA had clear, independent regulatory authority in the first instance. The issue simply was whether this independent statutory authority was capable of coordination. Unlike BLM here, EPA was not requesting the Court find new authority or expand its existing regulatory powers; in fact, EPA requested narrower statutory authority than the Court ultimately found. The holding in Massachusetts was also limited in effect—to the extent EPA went on to regulate GHGs from motor vehicles following an endangerment finding, it had to coordinate with DOT mileage standards to ensure consistency. This is a much different case. BLM asks this Court to construe numerous provisions of seven different statutes to assert new and expansive regulatory authority. The effect of BLM’s request would be the judicial authorization of sweeping new statutory powers. A similar framework and request may well have resulted in a different outcome in Massachusetts. A finding in BLM’s favor would upend the regulation of the entire oil and natural gas industry, substituting BLM for the EPA in many significant ways related to air quality control—not the least of which being BLM’s regulation of existing facilities before EPA has even tried to do so. See e.g. AR 389 (81 Fed. Reg. at 83,037). This cannot be what the Massachusetts Court meant when it said two agencies, in theory, can “administer their obligations and yet avoid inconsistency.” 549 U.S. at 532. Moreover, Congress did not intend this result when it directed - 13 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 14 of 34 BLM to “provide for compliance with applicable” air pollution standards in FLPMA. See 43 U.S.C. § 1712(a)(8). Citizen Groups argue POM Wonderful LLC v. Coca-Cola Company, 134 S. Ct. 2228, 2236 (2014), is directly on point. See Cit.Grps. at 21-22. POM Wonderful is inapplicable. In POM Wonderful, the Supreme Court considered “whether a private party may bring a Lanham Act claim challenging a food label that is regulated by the [Federal Drug and Cosmetic Act].” 134 S. Ct. at 2236. POM Wonderful is inapplicable because the present inquiry is not whether a private party may bring a limited cause of action under one statute or another. Rather, the dispositive issue in this case is the existence and scope of a federal agency’s statutory authority. 1. The Patchwork of Statutes BLM Cites Do Not Give it Authority to Comprehensively Regulate Air Quality. The Federal Oil & Gas Royalty Management Act (FOGRMA), Indian Mineral Leasing Act (IMLA), FLPMA, MLA and other sources cited by Respondents do not confer on BLM the authority to regulate air quality, for the reasons outlined in Petitioners’ Brief. See generally Pets. at 21-26. Government Respondents maintain FLPMA allows BLM to manage public lands to protect air quality, pointing to air quality mitigation measures within BLM resource management plans (RMPs). See Govt. at 28. These measures reinforce BLM’s limited authority to manage air quality. See AR 389 (81 Fed. Reg. at 83,037). Petitioners do not dispute BLM adopts air quality management measures in RMPs pursuant to its land use planning authority. See 43 U.S.C. § 1712(e); Amigos Bravos v. BLM, Nos. 6:09-cv-00037-RB-LFG, 6:09-cv-00414-RB-LFG, 2011 WL 7701433 (D.N.M. Aug 3, 2011). These management measures, however, are specific to the localized resources, developed in consultation and coordination with state air quality agencies, - 14 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 15 of 34 and are not nationwide standards.8 In fact, localized air quality management is appropriate and consistent with the cooperative federalism structure of the CAA. Respondents similarly place too much weight on FLPMA’s direction that BLM “take any action necessary to prevent unnecessary or undue degradation” of the public lands. 43 U.S.C. § 1732(b); see Govt. at 24; Cit.Grps. at 25; CA/NM at 7. BLM has not determined the Rule is “necessary” to prevent unnecessary or undue degradation of the public lands. See generally AR 361-366 (81 Fed. Reg. at 83,009-83,015). Furthermore, BLM has never relied on this rulemaking authority to enact such a sweeping rule that affects a principal or major use of the public lands. See 43 U.S.C. § 1702(l). Moreover, this Rule marks BLM’s first assertion of such authority; BLM has consistently characterized its land management authority as distinct from EPA’s authority to regulate air quality.9 None of the cases cited by Respondents stand for the notion that BLM’s ability to prevent “unnecessary or undue degradation” confers broad air quality 8 BLM’s air quality management measures have faced objections that they exceed the agency’s authority. See, e.g., BLM Approved RMP & Record of Decision for Public Lands Administered by the Tres Rios Field Office, Dolores, Colorado App. S, S-23 (2015), available at https://www.blm.gov/co/st/en/fo/sjplc/land_use_planning.html (citing public comment requesting BLM and Forest Service “clarify the limits of their authority over visibility impacts under the [CAA] to acknowledge that they cannot regulate oil and gas facilities’ emissions”). 9 See BLM Air Resource Management Program Strategy 2015–2020 (2015), available at https://www.blm.gov/style/medialib/blm/wo/Planning_and_Renewable_Resources/soilwaterair/s wa_shared.Par.45752.File.dat/AirResourceProgramStrategy_2015to2020.pdf (observing BLM and EPA “have distinct roles and responsibilities under the legal framework governing air resource management”); Memorandum of Understanding Among the U.S. Dep’t of Agric., U.S. Dep’t of the Interior, and U.S. Envtl. Prot. Agency, Regarding Air Quality Analysis and Mitigation for Federal Oil and Gas Decisions through the National Environmental Policy Act (June 23, 2011) (describing BLM’s authority over air quality as limited to developing land use plans and providing for compliance with state and pollution control laws), available at http://www.doi.gov/news/pressreleases/upload/29704-Joint-MOU-Air-Quality-FINAL.pdf. - 15 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 16 of 34 regulatory authority.10 See id. FLPMA does not allow BLM to issue the Rule, and Respondents offer no justification to the contrary.11 B. Even Under BLM’s Statutory Authority to Regulate Waste and Manage Federal Land, the Rule is not Reasonable, and it is Procedurally Deficient, Arbitrary, and Capricious. Although this Court should not afford BLM any deference in its construction of the land management statutes for the reasons outlined above, even if it does, Petitioners have shown the Rule still must be set aside. See generally Pets. at §§ III-VI. 1. The Rule Does Not Reasonably Construe BLM’s Authority under MLA to Manage Waste. The Rule impermissibly construes BLM’s waste management authority for the reasons cited in Petitioners brief.12 See Pets. at Section III(B)-(D). Government Respondents argue the 10 Government Respondents mischaracterize the Interior Board of Land Appeals’ decision Coalition for Responsible Mammoth Development, 187 IBLA 141 (2016), as holding “for purposes of § 1712(c)(8) that BLM may assume federal and state enforcement of air quality regulations for NEPA purposes.” See Govt. at 25. In this decision, the IBLA recognized states— not BLM—through the CAA enforce air quality standards, and BLM may rely on enforcement of air quality standards by these agencies in its NEPA decisions. See 187 IBLA at 231 (holding BLM “does not itself enforce the requirements of the CAA” but must ensure compliance in executing its NEPA authority). 11 Citizen Groups observe BLM regulates emissions of hydrogen sulfide from oil and gas operations. See Cit.Grps. at 25 (citing BLM Onshore Order No. 6, 55 Fed. Reg. 48,958 (Nov. 23, 1990)). Onshore Order No. 6 is not analogous to the Rule. BLM did not issue Onshore Order 6 under the guise of its land management authority under FLPMA. See 55 Fed. Reg. at 48,968. Moreover, Onshore Order 6 has a narrow purpose to “protect public health and safety and those personnel essential to maintaining control of the well.” Id. 12 The Citizen Groups argue BLM’s interpretation of its own regulation deserves deference. See Cit.Grps. at 11-12. Under Auer v. Robbins, 519 U.S. 452, 461 (1997), a court must defer to an agency’s interpretation of its own regulation unless “plainly erroneous or inconsistent with the regulation.” At issue in Auer and similar cases, however, are agencies’ administrative interpretations of their regulations. See id. at 454-55 (challenging employee’s salary status); Gonzales v. Oregon, 546 U.S. 243, 255 (2006) (“An administrative rule may receive substantial deference if it interprets the issuing agency’s own ambiguous regulation”) (emphasis added). BLM is plainly interpreting statutory authorities, not a regulation. Citizen Groups offer the tortured rationale that BLM’s definition of “avoidably lost” is entitled to Auer deference because - 16 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 17 of 34 Rule’s definition and treatment of “unavoidably lost” gas is reasonable “[b]ecause the Rule maintains the distinction between avoidably and unavoidably lost gas[.]” Govt. at 42. Their argument elevates form over substance. The Rule unreasonably narrows unavoidably lost gas to only twelve circumstances, entirely removing the flexibility and case-by-case analysis that has governed since 1979. Pets. at 29-30. Further, these new categories do not cover “all truly unavoidable situations,” such as maintenance events on gathering systems and do not make the rules “easier for operators to follow.” Govt. at 37; see Miller Decl. ¶ 14. In these respects, the Rule’s definition of “unavoidably lost” is actually inconsistent with the concept of “waste” under the MLA. Pets. at 30-31. Likewise, Government Respondents offer no meaningful response to Petitioners’ assertion the Rule increases rather than decreases waste. Although Government Respondents assert Petitioners present “no evidence whatsoever” to show operators may be forced to shut-in or abandon wells rather than comply with the Rule, see Govt. at 39, the reality is the Government Respondents simply do not accept Petitioners’ repeated assertions that the Rule will cause wells to be shut in or abandoned. See Pets. at 32-33; Miller Decl. ¶¶ 18-20; Benton Decl. ¶ 10; Dunham Decl. ¶¶ 6-7; Naatz Supp. Decl. ¶¶ 6-10; Sgamma Supp. Decl. ¶¶ 4-8. Instead, the Government breezily claims, without any support, that operators can simply increase pipeline capacity and other infrastructure if and where they want. See Govt. at 3 (flaring “is often done because operators and midstream companies have not built the infrastructure needed to capture produced gas.”) (emphasis added). Evidence shows lack of pipeline capacity is beyond operators’ control and flaring must occur for many reasons, including safety. See State Director Review No. 922-15-07 (Feb. 11, 2016), attached hereto as Exhibit 7, at 7 (recognizing lack of BLM introduced this term in the Rule and NTL-4A. Because the definition of “avoidably lost” is set forth in a formal rule rather than administrative rule, Auer is inapplicable. - 17 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 18 of 34 pipeline capacity is beyond operator’s control and flaring is inevitable) (referenced in API Comments and NDPC Comments); id. at 11 (recognizing BLM and other federal agencies are responsible for pipeline delays, and discussing challenges associated with building pipelines); AR 31727 (API Comments at 46) (“The BLM in North Dakota has expressly acknowledged that in the Bakken it may be ‘necessary to burn or release gas for a number of operational reasons, including lowering pressure to ensure safety.’”) (emphasis in original). Government Respondents err by claiming simple solutions exist to the Rule’s complex problems. Government Respondents also claim “the final rule will dramatically reduce the large number of requests for approval to flare royalty-free that operators have had to file and the BLM has had to process[.]” Govt. at 34. To justify this statement Government Respondents rely, in part, on various exemptions and alternative flaring options available through sundries in the Rule. Government Respondents irrationally fail to acknowledge exemption requests and premature abandonment applications filed by operators will increase in the wake of this Rule, likely offsetting any reductions in flare requests. See AR 31719 (API Comments at 38) (“With the large increase in the number of Sundry Notice submittals and requirements for approval by BLM . . . API is concerned that BLM will not be able to review and respond in a reasonable amount of time to requests for royalty-free treatment [] under § 3178.9); AR 31833 (API Comments at 111) (noting that BLM generally underestimates the burden to operators and the agency for all sundry notices). Finally, Respondents incorrectly argue non-federal parties to unit agreements and communitization agreements contractually agreed to the Secretary’s regulation of all oil and gas operations, including nonfederal and non-Indian wells. Govt. at 46, 48; Cit.Grps. at 28. BLM’s authority to regulate the “quantity and rate of production” federal units cannot be equated to a - 18 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 19 of 34 power to limit venting, flaring, or waste or to impose air quality controls. See 43 C.F.R. § 3186.1 ¶ 21; accord 30 USC § 226(m). Indeed, a federal lease treats the lessee’s obligation to prevent waste as distinct from the lessor’s ability to specify the “rate” of production. See BLM Form 3110-11, Offer to Lease and Lease for Oil and Gas (2008) § 4.13 Accordingly, BLM’s contractual right to regulate “quantity and rate of production” is just that—the authority to oversee the amount and pace of production. Similarly, the Secretary’s “right of supervision” over fee and state mineral operations within a communitized area cannot be reasonably construed as an unfettered right to regulate development. Noticeably, federal unit and communitization agreements do not include a provision akin to the language in a federal lease that “[r]ights granted are subject to. . . regulations. . . hereinafter promulgated when not inconsistent with lease rights granted.” BLM Form 3110-11, supra. Parties to unit and communitization agreements did not consent to the BLM’s regulatory authority over nonfederal and non-Indian wells. 2. The Rule Lacks Justification under the APA. BLM failed to base the Rule on substantial evidence on the record as required by the APA. See generally Pets. at 39-44. Respondents’ briefs do not cure this defect. Among other things, the Rule fails to identify the problem it seeks to solve or how it actually solves anything. First, Government Respondents cite misleading data by claiming that venting and flaring is increasing rapidly. See Govt. at 52 (“BLM considered data showing that the quantities of vented and flared gas was increasing exponentially. . . studies indicating that more natural gas is lost through leaks and unreported venting than previously understood.”). In fact, venting and flaring is decreasing on a per well basis while overall production is increasing. Pets. at 41 n. 34. 13 Available at https://www.blm.gov/style/medialib/blm/noc/business/eforms.Par.71287.File.dat/ 3100-011.pdf. - 19 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 20 of 34 Leak rates are well below one percent on most sites. See AR 3502-09. 14 Additionally, a recent National Oceanic and Atmospheric Administration (NOAA) study found that globally, methane emissions from the fossil fuel industry are actually down despite large production increases.15 See AR 17515-16. Second, in terms of royalty value, Government Respondents criticize Petitioners’ point that the Rule only reduces de minimis waste volumes by attacking Petitioners’ underlying data. See Govt. at 52 n.18 (arguing Petitioners rely on “outdated and arguably incomplete” data). However, Petitioners based their expected royalty value calculation on the data BLM itself offers in the RIA. See AR 461 (RIA at 15). The issue is not whether the Rule is too expensive, but rather that the Rule has a de minimis impact—which it does when viewed in this light. Accordingly, the Rule cannot be justified as a waste prevention measure under the APA. Third, BLM estimates the Rule is expected to deliver a 35 percent reduction in total volume of venting and a 49 percent reduction in flaring. See Govt. at 9-10 (citing AR 451, 455 (RIA at 5, 9)); CA/NM at 4. However, BLM entirely ignores the most recent June 2016 GAO report, which demonstrated severe limitations and problems in BLM’s flaring and venting data, and ultimately concluded BLM “does not have the information it needs” to assess the extent of flaring and venting or ensure it is minimizing waste. AR 19894 (Gov’t Accountability Office, GAO-16-607, Oil and Gas Leasing: Interior Could Do More to Account for and Manage 14 See also Allen, David T., et al., “Methane Emissions from Process Equipment at Natural Gas Production Sites in the United States: Liquid Unloadings,” Environ. Sci. Technol. (2015), 49 (1), pp 641-48 (available at http://pubs.acs.org/doi/abs/10.1021/es504016r). 15 The lead scientist for the NOAA study also characterized methane from oil and gas as “not directly responsible for the increase in total [global] methane emissions observed since 2007.” http://www.noaa.gov/media-release/study-finds-fossil-fuel-methane-emissions-greater-thanpreviously-estimated - 20 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 21 of 34 Natural Gas Emissions, 14 (July 2016)). To justify this Rule in a “waste prevention” context on such uncertain and inaccurate data is arbitrary and capricious. Finally, the cost benefit analysis and related conclusions are arbitrary. See generally RIA. Respondents repeatedly argue the Rule is justified because it reduces waste and only has incidental effects on air quality. Respondents also argue Petitioners fail to acknowledge the environmental and social benefits of the Rule. Govt. at 52-53; Cit.Grps. at 2. However, the only way the costs justify this Rule is through its purported air quality benefits as measured by the social cost of methane (SCM), Pets. at 46; Dunham Decl. ¶ 16. This justification, which is the only way BLM can get benefits to exceed costs is improper and renders the rule arbitrary and capricious. Predictably, Citizen Groups urge the Court to consider the recent opinion in Zero Zone, Inc. v. Department of Energy, 832 F.3d 654 (7th Cir. 2016), when evaluating the Rule’s benefits. Zero Zone is not relevant here and does not support BLM’s novel use of the social cost of methane to justify this Rule. At issue in Zero Zone was a Department of Energy rule promulgated under the Energy Policy and Conservation Act (EPCA), as amended, to improve the energy efficiency of commercial refrigerators. The 2005 amendments to EPCA included provisions with a global reach. See e,g., Pub. L. No. 109-58, § 985, 119 Stat. 909 (codified at 42 U.S.C. § 16341(b)(3)) (providing for assistance “in the development and transfer of energy supply and efficiency technologies that would have a beneficial impact on world energy markets”). In contrast, the statutes at issue here, including the CAA, only authorize the regulation of domestic activity. Thus, the statutory framework at issue in Zero Zone is entirely different. Moreover, the commodities at issue in Zero Zone—commercial refrigerators—reach global markets. Thus, it was arguably relevant to consider global climate change impacts in that - 21 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 22 of 34 context. Here, the only way the Rule’s benefits outweigh its costs is through an evaluation of global benefits. BLM did not consider domestic benefits at all. See AR 452 (RIA at 6). Moreover, the cost benefit analysis does not address the cost of the Rule on a per-well basis. The analysis focuses on the per entity cost. See AR 575-76 (RIA at 129-30). This omission is arbitrary and makes it impossible for BLM to evaluate the actual impact of the Rule. See Dunham Decl. ¶¶ 10-12. For example, the Rule will impact smaller operators much differently than larger operators. Miller Decl. ¶¶ 11, 17-19; Benton Decl. ¶ 10; Ballard Decl. ¶ 7; Dunham Decl. ¶¶ 10-14. Even a small uptick in monthly costs on marginally economic wells can force a small operator to shut-in a well. Miller Decl. ¶ 19; Dunham Decl. ¶¶ 10-14; Sgamma Supp. Decl. ¶ 8. And the Rule affects thousands of marginally economic wells. These flaws in the economic assessment demonstrate BLM has not articulated a rational connection between the facts found and the choices made, and lacks a reasoned basis for the Rule. See Olenhouse, 42 F.2d at 1575. III. PETITIONERS DEMONSTRATE LIKELIHOOD OF IRREPARABLE HARM Petitioners have met their burden of establishing “that irreparable injury is likely in the absence of an injunction.” Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 22 (2008) (emphasis in original). Petitioners demonstrate “a significant risk” their members “will experience harm that cannot be compensated after the fact by monetary damages.” RoDa Drilling Co. v. Siegal, 552 F. 3d 1203, 1210 (10th Cir. 2009) (citation omitted) (emphasis added).16 Specifically, Petitioners demonstrate application of the Rule will: (1) impose compliance costs that cannot be recovered because of the United States’ sovereign immunity; (2) require disclosure of proprietary and confidential information; and (3) require payment of additional royalties on gas BLM now characterizes as “avoidably lost.” Contrary to 16 Respondents claim Petitioners must wait for the Rule’s implementation to know they will suffer harm. Govt. at 39 n. 12. This is contrary to well-established law. Winter, 555 U.S. at 31. - 22 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 23 of 34 Respondents’ claims, these types of irreparable harm are precisely the kinds of injuries preliminary injunctions are meant to address. Likewise, this harm is not “speculative,” “unsupported” or “modest.” See generally Exhibits 1-6. A. The Compliance Costs Constitute Irreparable Harm Petitioners’ Members are Likely to Suffer Absent an Injunction. Respondents argue the compliance costs Petitioners’ members will incur after the Rule becomes effective do not justify a preliminary injunction, and assert the harm likely to occur is not irreparable. Govt. at 65-67; Cit.Grps. at 32-35; CA/NM at 12-15. These assertions are simply wrong, and the supporting authority is selectively cited, taken out of context, or outdated. For example, Respondents cite several cases for the proposition that compliance costs are insufficient to constitute irreparable harm. Respondents ignore that compliance costs in these cases were compensable by monetary or other corrective relief at a later date. See Heideman v. S. Salt Lake City, 348 F.3d 1182, 1189 (10th Cir. 2003) (“It is also well settled that simple economic loss usually does not, in and of itself, constitute irreparable harm [because] such losses are compensable by monetary damages.”) (emphasis added) (citations omitted); Sampson v. Murray, 415 U.S. 61, 90 (1974) (“‘Mere injuries [ ] in terms of money, time and energy necessarily expended in the absence of a stay, are not enough. The possibility that adequate compensatory or other corrective relief will be available at a later date, in the ordinary course of litigation, weighs heavily against a claim of irreparable harm.’”) (citation omitted) (emphasis added); Wisconsin Gas Co. v. F.E.R.C., 758 F.2d 669, 674 (D.C. Cir. 1985) (same); Freedom Holdings, Inc. v. Spitzer, 408 F.3d 112, 115 (2d Cir. 2005) (not addressing issues of sovereign immunity and resulting inability to recover costs at a later date); Am. Hosp. Assn v. Harris, 625 F.2d 1328, 1331 (7th Cir. 1980) (same). In contrast, because of sovereign immunity, Petitioners’ members cannot recover costs incurred to comply with the Rule. - 23 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 24 of 34 Similarly, Government Respondents’ assertion that the court in Chamber of Commerce v. Edmondson, 594 F.3d 742 (10th Cir. 2010), “found irreparable harm not based on the specter of unrecoverable compliance costs” has no merit. Govt. at 67. The court plainly stated “[i]mposition of monetary damages that cannot later be recovered for reasons such as sovereign immunity constitutes irreparable injury.” Edmondson, 596 F.3d at 770-71 (citations omitted). The court later repeated, “[i]f forced to comply with the [Act], the Chambers’ members will face a significant risk of suffering financial harm [.] Yet, because Oklahoma and its officers are immune from suit for retrospective relief[,] these financial injuries cannot be remedied.” Id. at 771 (emphases added) (citations omitted). The Government Respondents also mislead the Court when stating: “Petitioners contend that because they will not be able to recover any potential compliance costs as damages, they need not prove that these losses are certain, great, actual, or imminent.” Govt. at 66 (citing Nat’l Mining Assn v. Jackson, 768 F. Supp. 2d 34, 52 (D. D.C. 2011)). This is a mischaracterization of Petitioners’ position. Petitioners have shown not only that the compliance costs here are unrecoverable due to sovereign immunity, but also that those costs are “certain, great, actual [and] imminent.” 17 Id. Petitioners’ members will suffer immediate, irreparable harm if the Rule takes effect on January 17, 2017. See, e.g., Dunham Decl. ¶¶ 4-9; Miller Decl. ¶¶ 8-15 (discussing the immediate, irreparable effect of the Rule’s royalty provisions), ¶¶ 16-19 (discussing the Rule’s effect on marginally economic wells and resultant costs and impacts associated with shutting in such wells), ¶¶ 20-21 (discussing costs and impacts of record keeping and reporting requirements of the Rule), ¶¶ 22-23 (discussing resources expended for future drilling and the effect of being the Rule on these plans), ¶ 19 (estimating 28 percent of the 17 Nonetheless, even “to say that a harm is ‘minimal’ is not to say it is nonexistent.” Heideman, 348 F.3d at 1190. See generally Exhibits 1-6. - 24 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 25 of 34 company’s wells may be shut-in due to the Rule). See also Benton Decl. ¶ 10 (estimating a cost of $3 million to comply in just one field); Ballard Decl. ¶ 7-8 (discussing delays and duplicative compliance obligations and enforcement risks). BLM estimates the Rule will cost between $110 and $279 million per year, AR 450 (RIA at 4), and evidence in the record suggests BLM has significantly underestimated the costs of compliance. See Pets. at 50; accord Dunham Decl. ¶ 4-9. Although BLM’s brief dismisses costs borne by operators as “modest,” Govt. at 66, Petitioners’ members disagree with this characterization. The majority of operators affected by this Rule are not multi-national oil conglomerates. Most operators cannot swiftly shift assets or mobilize expensive alternative capture technologies,18 pressure midstream companies to expand capacity,19 or afford to simply suspend or abandon leases rather than comply with the Rule. 20 Naatz Supp. Decl. ¶¶ 9-10; Sgamma Supp. Decl. ¶ 3; Miller Decl. ¶¶ 16-17. And of those industry members who are the archetypal major operators, this Rule is sure to cost them far in excess of the $42,300 to $65,800 18 Miller Decl. ¶ 21 (discussing prohibitive cost and safety issues with mobile capture technology). 19 BLM portrays coordinating with midstream companies as an easy task, see, e.g., Govt. at 3, but the evidence and information available to BLM shows otherwise. See AR 33950-52 (North Dakota Petroleum Council Comments) and AR 31729-30 (API Comments). Also, the Rule only functions the way BLM says it will if BLM actually has the capacity and power to be the ultimate manager of giant, multi-faceted, complex production and gathering systems, with the ability to monitor and relieve capacity constraints in real-time and coordinate maintenance events and infrastructure limitations. See, e.g., 43 C.F.R. § 3179.9. 20 BLM asserts if operators cannot capture emissions, then operators can simply suspend their leases. Govt. at 6. BLM, however, has been criticized for its use of lease suspensions by at least one of the Citizens Groups, thus raising questions as to the availability of suspensions as a viable alternative to flaring. See The Wilderness Society, Land Hoarders: How Stockpiling Leases is Costing Taxpayers (2015), available at https://wilderness.org/sites/default/files/TWS %20Hoarders%20Report-web.pdf; Gov’t Accountability Office, GAO-09-74, Oil and Gas Leasing: Interior Could Do More to Encourage Diligent Development, 4-7 (Oct. 2008). - 25 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 26 of 34 BLM estimates because they operate many wells. See id.; see also AR 573, 575 (RIA at 127, 129); Dunham Decl. ¶ 10. Respondents also suggest the phased-in approach of some of the Rule’s provisions prevents Petitioners from claiming their members will suffer irreparable harm before the Court can rule on the merits of this case. Govt. at 39-40; CA/NM at 13. These statements are inaccurate and self-serving given the evidence on the record showing Petitioners’ members must immediately begin to expend capital to come into compliance with the Rule, see Pets. at 49, and the fact that BLM itself acknowledges the “requirements to replace existing equipment would necessitate immediate expenditures.” AR 450 (RIA at 4) (emphasis added); see also Miller Decl. ¶¶ 10-12; Benton Decl. ¶ 10. In short, the record and evidence in the attached declarations demonstrate ample, immediate and serious harm to Petitioners’ members for which they cannot be compensated. B. The Rule Risks Public Disclosure of Proprietary Information. Section 3162.3-1 of the Rule requires operators submit natural gas waste minimization plans with APDs. In submitting waste minimization plans to BLM, the Rule requires operators to disclose commercially sensitive and proprietary information about anticipated production from a proposed well. Pets. at 50-52; AR 430 (43 C.F.R. § 3162.3-1(j)(5)(i)–(iv)); see also Spisak Decl. ¶ 36 (acknowledging the Rule “could result in operators submitting confidential business information [ ] to BLM”). These projections and data are highly confidential and valuable; operators go to great lengths to protect this type of information from outside disclosure or unnecessary internal dissemination. Miller Decl. ¶ 26; AR 31710 (API Comments at 29) (explaining the sensitive nature of this information). Nonetheless, BLM has stated it will disclose waste minimization plans to the public. AR 395 (81 Fed. Reg. at 83,043) (stating BLM will post - 26 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 27 of 34 each waste minimization plan for public review, subject to any protections for confidential business information). Disclosure of this type of sensitive information cannot be remedied after the fact with monetary damages, and therefore would constitute irreparable harm. See Pets. at 50-52; see also Universal Engraving, Inc. v. Duarte, 519 F. Supp. 2d 1140, 1148-49 (D. Kan. 2007) (holding threat of proprietary information disclosure may demonstrate irreparable harm); FMC Corp. v. Taiwan Tainan Giant Indus. Co., Ltd., 730 F.2d 61, 63 (2nd Cir. 1984) (“A trade secret once lost is, of course, lost forever.”); Campbell Soup Co. v. ConAgra, Inc., 977 F.2d 86, 92 (3rd Cir. 1992) (threat of trade secret disclosure may establish immediate irreparable harm); Estee Lauder Cos. Inc. v. Batra, 430 F. Supp. 2d 158, 174 (S.D.N.Y. 2006) (Even where a trade secret has not yet been disclosed, irreparable harm may be found based upon a finding that trade secrets will be disclosed). Petitioners have demonstrated this injury “is of such imminence that there is a clear and present need for equitable relief.” Heideman, 348 F.3d at 1189 (emphasis removed). Government Respondents state “if [operators] indicate [to BLM] that the information is considered confidential, BLM will handle the information in accordance with applicable regulations in 43 CFR part 2.” Govt. at 67. On the record, however, BLM refuses to confirm the information required in waste minimization plans is actually subject to any statutory protections, even though BLM knows what type of information it will require and can make this assessment. See AR 403 (81 Fed. Reg. at 83,051) (stating only that “BLM will handle the information in accordance with” its Freedom of Information Act regulations); see also Pets. at 51-52. BLM’s refusal to affirmatively recognize information in waste minimization plans as confidential gives operators little comfort their information will be protected. The Rule, therefore, presents a significant risk that proprietary and confidential business information will be publicly disclosed, - 27 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 28 of 34 and once disclosed the harm cannot be remedied. Thus, Petitioners have demonstrated a significant risk of irreparable harm supporting a preliminary injunction. IV. EQUITIES AND PUBLIC INTEREST WEIGH IN FAVOR OF INJUNCTIVE RELIEF The third and fourth preliminary injunction factors—the balance of the equities and the public interest—also weigh strongly in favor of injunctive relief. Government Respondents’ argument that an injunction will cause BLM to “suffer substantial harm” is without merit. Govt. at 74. Respondents rely on the now-tired notion that this Rule is merely an update to NTL-4A. See id. (stating that “BLM is presently regulating oil and gas waste under a regime that is now 37 years old”); see also CA/NM at 3-4 (arguing the Rule is necessary for BLM to revise its “insufficient and outdated” waste and royalty regulations). Such logic suggests an absurd outcome: a court should refrain from enjoining agency action lest the agency be stuck with its outdated regulatory scheme. BLM had the opportunity to lawfully update NTL-4A for 30 years. Tellingly, BLM has only now strayed beyond the confines of its statutory authority in the wake of the White House’s directives on climate change. The balance of the equities and the public interest weigh in favor of enjoining such action to preserve the status quo. Moreover, Citizen Groups offer four explanations for how the Rule serves the public interest. See Cit.Grps. at 47-49. Two of the four reasons are air-quality justifications. Citizen Groups argue the Rule will “benefit[] the environment and public health by reducing emissions of the potent greenhouse gas methane, VOCs that contribute to smog, and carcinogenic air pollutants such as benzene.” Id. at 47. Additionally, Citizen Groups claim “the Rule will play an important role in slowing the pace of climate change.” Id. at 48; see also Govt. at 63 (listing the Rule’s impact on climate change as a reason that an injunction does not serve the public interest). Notwithstanding the fact this Rule has virtually zero impact on climate change, Pets. at 41-43, - 28 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 29 of 34 these justifications are yet more evidence the Rule is aimed at air quality control, not waste prevention, and that BLM cannot rationalize the Rule without citing to its alleged impacts on global climate change. V. CONCLUSION Respondents’ briefs focus on the intricacies and nuanced history of BLM’s waste prevention authority in an attempt to obfuscate Petitioners’ assertion that BLM acted without authority in promulgating a comprehensive air quality regulatory scheme. Petitioners do not dispute BLM has statutory authority to manage waste and do not ask the Court to define the precise limits of such authority. Petitioners ask this Court to recognize that Congress has not authorized BLM to promulgate this sweeping Rule, and also ask the Court to require BLM to meet the burdens administrative law imposes on the agency. Petitioners demonstrate they are likely to succeed on the merits here. Petitioners also demonstrate the Rule will cause Petitioners and their members irreparable harm, and the equities and public interest favor a preliminary injunction. Thus, the Court should grant Petitioners’ motion and enjoin BLM from implementing its final Rule until resolution of this litigation. WHEREFORE, Petitioners Western Energy Alliance and the Independent Petroleum Association of America respectfully request that this Court grant its motion for preliminary injunction. - 29 - Case 2:16-cv-00285-SWS Document 84 Filed 12/23/16 Page 30 of 34 Dated this 23rd day of December, 2016. Respectfully submitted, DAVIS GRAHAM & STUBBS LLP By: s/ Eric P. Waeckerlin Eric P. Waeckerlin – Pro Hac Vice Kathleen Schroder – Pro Hac Vice Erin K. Murphy – Wyo. Bar No. 7-4691 1550 17th Street, Suite 500 Denver, Colorado 80202 Tel: 303.892.9400 Fax: 303.893.1379 Eric.Waeckerlin@dgslaw.com Katie.Schroder@dgslaw.com Erin.Murphy@dgslaw.com Attorneys for Petitioners Western Energy Alliance and the Independent Petroleum Association of America - 30 - unittd ?tatts Ewart WASHINGTON, DC 2051?) February 2, 2017 The Honorable Mitch McConnell Majority Leader United States Senate The Capitol, Room S-230 Washington, DC. 20510 The Honorable Lisa Murkowski Chairman Committee on Energy Natural Resources United States Senate Dirksen Senate Of?ce Building, Room 304 Washington, DC. 20510 The Honorable Chuck Schumer Democratic Leader United States Senate The Capitol, Room Washington, DC. 20510 The Honorable Maria Cantwell Ranking Member Committee on Energy Natural Resources United States Senate Dirksen Senate Of?ce Building, Room 304 Washington, DC. 20510 Dear Leader McConnell, Leader Schumer, Chairman Murkowski and Ranking Member Cantwell: As you know, the Department of the Interior ?nalized the Methane and Waste Prevention Rule to prevent the needless waste of federally owned natural gas resources in November of 2016. We, the undersigned Senators, urge you to protect the hundreds of millions of dollars in revenue due to American taxpayers for the development of publicly owned energy resources by ceasing efforts to dismantle this regulation using blunt instruments, such as the Congressional Review Act (CRA). The Department of the Interior?s Bureau of Land Management rule seeks to limit the waste of public and tribal natural gas resources currently estimated to total $330 million per year. In 2013 alone, the amount of federally owned natural gas wasted due to venting and ?aring resulted in lost royalties to the nation and states, included nearly $4 million for Colorado, nearly $7.7 million for New Mexico, and more than $14.8 million in Wyoming. This is millions of dollars that could go to state infrastructure needs, schools, and emergency services. This rule revises decades?old regulations pursuant to the agency?s statutory obligation under the Mineral Leasing Act to ensure ?that the permittee or lessee will, in conducting his explorations and mining operations, use all reasonable precautions to prevent waste of oil or gas developed in the land.? (Sec. 16 amended) Under the law, BLM has the obligation to conserve the oil and gas resource, prevent waste, and ensure that taxpayers receive a fair return on production from federal leases. The Congressional Review Act is an exceedingly blunt tool for Congress to undertake to address any lingering concerns about commonsense revisions to an aging rule. In fact, in 2010 the non- partisan Government Accountability Of?ce (GAO) called for the Department of the Interior to improve its data collection and address the limitations of its previous regulation, which is exactly what the new rule does. But the CRA would undo these waste minimization and taxpayer protection guidelines and it would do so without public input, and in a way that would make it dif?cult to address good governance recommendations going forward. The CRA is an improper and radical way to address potential issues that some members may have with this particular regulation. The provisions of the rule are based on recommendations from several independent government studies as well as stakeholder input at public forums in 2014. Over almost three years, the federal government undertook 8 public forums and read through more than 300,000 public comments. After receiving numerous requests from the public, the BLM extended the 60 day comment period on the proposed rule an additional 14 days. This has been a remarkably open, transparent process that has incorporated comments and suggestions from all stakeholders including state and local governments, industry, native nations and the public at large. This regulation will help ensure taxpayers, state governments, and tribal nations receive every dollar due for the use of publicly owned resources at a reasonable cost to producers. The regulations are commonsense and cost effective, as ICF International also found that up to 40% of natural gas can be captured with a cost of just a penny per thousand cubic feet of natural gas produced. And, by phasing in requirements, the rules will enable producers to plan for an orderly transition to ultimately cut ?aring in half at oil wells on public and tribal lands. In addition, this regulation will support a rapidly expanding segment of the oil and gas industry Specializing in methane waste mitigation. Manufacturing, development and out?tting of oil and gas wells with these technologies is a vibrant and growing American business already located in 46 states throughout the country. This burgeoning industry needs the certainty that comes with a common baseline standard across the West to invest in growth. The Methane and Waste Prevention Rule would also encourage signi?cant infrastructure investments to move recoverable natural gas to plants and re?neries. Finally, leaked natural gas imposes stark public health risks. High levels of smog can harm everyone, but children, senior citizens, and people with asthma are particularly at risk of heart attacks, hospitalization, and lower quality of life. Natural gas releases frequently include other toxic chemicals that impact health, such as hydrogen sul?de, toluene, xylene, benzene and formaldehyde. These toxic air pollutants increase the chance of cancer, respiratory, neurological, reproductive, developmental and other serious health problems. At a minimum, we believe that the public deserves full consideration of this measure on the ?oor to ensure we are fully protecting the health and interests of the American taxpayer and minimizing preventable waste of federal resources because the American people see a fair return on the investment of their resources. Thank you. Sincerely, @lv: '6 (La, Jul Tom Udall Ron Wyden ,l Michael Patty Murray Edward J. Markey a [?ebbie Sta 6 ElizabT? Warren Richard Blumenthal Benjamin L. Cardin Patrick Leahy Wf?mi; A. Booker Jianne Feinstein #724 Brian Schatz Sh hitehouse - 224? 34" Al Franken Mazie K. [drone Martin Heinrich Tamr? Baldwin 1. . 2' a: 2 Kirsten Gillibrand game Shahecn Chris Van Hollen Press Releases Taxpayers Win With Senate’s Refusal to use CRA on Methane Waste Rule May 10, 2017 Programs: Energy, Natural Resources Washington, DC ­ Taxpayers for Common Sense praised the outcome of today’s attempted repeal the Bureau of Land Management’s (BLM) methane waste rule. The Congressional Review Act resolution of disapproval failed by a vote of 49­51. “This is a win for taxpayers and common sense. We have known about the problem of wasted gas from federal lands for years, and the BLM finally did something about it by updating rules dating back to the Reagan administration when fracking didn’t exist. If Congress had repealed the rule, it would have meant more waste and more losses,” said Taxpayers for Common Sense President Ryan Alexander The BLM, the only agency with the authority to charge royalties on lost methane gas—estimated at $50 million a year, an amount that will likely increase as production continues to grow and natural gas prices increase from their historic lows—has already indicated its intention to review the BLM rule pursuant to an Executive Order issued by President Trump. “Our hope is that any future revisions to this rule will only strengthen protections for taxpayers and limits on waste of this valuable public asset,” said Alexander. “As we face many budgetary challenges, neither Congress nor the administration should allow taxpayer resources to be wasted and lost.” #### Statement Department of Interior May 10 2017 Kate MacGregor, Acting Assistant Secretary of the Interior for Land and Minerals, on U.S. Senate Vote on the Venting and Flaring Rule. "As part of President Trump's America-First Energy Strategy and executive order, the Department has reviewed and flagged the Waste Prevention rule as one we will suspend, revise or rescind given its significant regulatory burden that encumbers American energy production, economic growth and job creation. "The rule is expected to have real and harmful impacts on onshore energy development and could impact state and local jobs and revenue. Small independent oil and gas producers in states like North Dakota, Colorado and New Mexico, which account for a substantial portion of our nation's energy wealth, could be hit the hardest. "The vote today in the Senate doesn't impact the Administration's commitment to spurring investment in responsible energy development and ensuring smart regulatory protections." UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, D.C. 20460 OFFICE OF AIR QUALITY PLANNING AND STANDARDS November 14, 2016 «CONTACT_NAME» «CorporateName» «ADDRESS1» «CITY», «STATE» «ZIP» Dear «Salutation»: Pursuant to section 114 of the Clean Air Act (CAA), the Environmental Protection Agency (EPA) is requesting that you provide the information described in this letter. This Information Collection Request (ICR) is being conducted by the EPA Office of Air and Radiation (OAR) to assist the EPA Administrator in developing emission standards for oil and gas facilities pursuant to section 111 of the CAA. The EPA requests that you complete the ICR as described in this letter for each of your crude petroleum and natural gas extraction facilities (example NAICS codes include 211111 and 211112). Section 114(a) of the CAA states, in pertinent part: For the purpose...(iii) carrying out any provision of this Chapter...(1) the Administrator may require any person who owns or operates any emission source...to-. . .(D) sample such emissions (in accordance with such procedures or methods, at such locations, at such intervals, during such periods and in such manner as the Administrator shall prescribe); (E) keep records on control equipment parameters, production variables or other indirect data when direct monitoring of emissions is impractical…(G) provide such other information as the Administrator may reasonably require. In January 2015, as part of the Obama Administration’s commitment to addressing climate change, the EPA outlined a number of steps it plans to take to address methane and smog-forming volatile organic compound (VOC) emissions from the oil and gas industry, in order to ensure continued, safe and responsible growth in U.S. oil and natural gas production. As part of this effort, the EPA proposed and finalized New Source Performance Standards for the oil and gas industry to achieve both methane reductions and additional VOC reductions beyond those established in 2012. The EPA has also committed to develop standards of performance for existing oil and gas sources. This information collection request is necessary to develop nationally applicable regulations to reduce methane emissions from oil and gas sources. You are required to complete the Part 1 (operator) survey for all oil and gas production well surface sites and centralized production surface sites that you operate. Your primary Facility ID is «ICR_ID». 2 See Enclosure 1 for more instructions regarding the Part 1 survey and assigning unique operator IDs based on your assigned Facility ID. Please complete the Part 1 survey for your company and submit the completed survey within 60 days of receipt of this letter. You are also required to complete the Part 2 survey for any well site facility that contains a well selected for the Part 2 survey. See the instructions in Enclosure 1 for the Selected Production Well List. If you have a well site facility that contains a well on the Selected Production Well List, see the instruction in Enclosure 1 for responding to the Part 2 survey. Your e-GGRT invitation code is «INVITATION_CODE». Please complete and submit any required Part 2 surveys within 180 days of receipt of this letter. The EPA’s legal authority to obtain the information requested in the survey is contained in section 114 of the CAA, as amended (42 U.S.C. §7414). In addition to providing this statutory language above in this letter, Enclosure 2 contains a summary of this authority. If you believe that providing any specific information to us would reveal a trade secret, or would compromise confidential business information (CBI), please identify this information clearly in your response and submit your response as detailed in the next section. Also, please clearly label any flow diagrams or other attachments submitted with your survey that contain CBI. However, please do not label your entire response as CBI if only a portion includes trade secrets. The EPA is likely to follow up with a request for validation of CBI claims for facilities claiming large amounts of information as trade secret, especially information that is readily reported by other facilities without such claims. Any information that is claimed confidential will be handled in accordance with section 114(c) of the CAA and the EPA’s CBI regulations at 40 CFR part 2, subpart B. If no claim of confidentiality accompanies the information when it is received by the EPA, it may be made available to the public by the EPA without further notice pursuant to EPA regulations at 40 CFR 2.203. Submitted information not claimed confidential or determined to be non-confidential will be made available to the public in accordance with CAA section 114(c) and the EPA’s CBI regulations. Further, CAA section 114(c), 42 U.S.C. § 7414(c), requires that emission data be made publicly available. A clarification of what the EPA considers to be emission data is contained in Enclosure 3. We have contracted Research Triangle Institute (RTI) (Contract No. EP-D-11-084) to help us gather information about your oil and gas facility, to conduct the survey and analyze the survey data. As noted in Enclosure 4, we have designated RTI to be our authorized representative. Therefore, RTI has the same rights discussed above and in Enclosure 2. This means that RTI will have access to all information provided to us in your completed survey, sampling results and emissions test results. As a designated representative of the Agency, RTI is subject to the provisions of 42 U.S.C. §7414(c) respecting confidentiality of methods or processes entitled to protection as trade secrets. Enclosure 5 summarizes our policies and procedures for handling trade secret and CBI, and describes how our contractor also is required to use the same procedures as we do. Because our contractors or other authorized representatives are required to follow the requirements in 3 Enclosure 5, we believe that we can ensure your rights and protect any privileged information you submit to us. Questions regarding this information request should be directed to Ms. Brenda Shine at (919) 541-3608 or shine.brenda@epa.gov. I am sure you understand how vital it is for the EPA to use the very best information available to develop the most meaningful standards. Your help in providing this information is greatly appreciated. Sincerely, Peter Tsirigotis Director, Sector Policies and Programs Division Office of Air Quality Planning and Standards 5 Enclosures Enclosure 1: Enclosure 2: Enclosure 3: Enclosure 4: Enclosure 5: cc: Instructions for the Oil and Gas Information Collection Request EPA’s Information Gathering Authority (Under Section 114 of the CAA) Clarification of what EPA considers to be emissions data Summary of contractor’s authority as representative of EPA Procedures for safeguarding CBI under the CAA «State_All» (without enclosures) «Region_all» (without enclosures) EPA’s Actions to Reduce Methane Emissions from the Oil and Natural Gas Industry: Final Information Collection Request for Existing Sources Overview  On Nov. 10, 2016, the U.S. Environmental Protection Agency (EPA) issued a final Information Collection Request (ICR) to require oil and natural gas companies to provide information needed to develop regulations to reduce methane emissions from existing sources in the oil and natural gas industry. The final ICR marks a critical step toward meeting the Obama Administration’s commitment to reduce emissions from existing oil and gas sources, as part of the President’s Climate Action Plan: Strategy to Reduce Methane Emissions.  Methane, the key constituent of natural gas, has a global warming potential more than 25 times greater than that of carbon dioxide. Methane is the second most prevalent greenhouse gas emitted in the United States from human activities, and nearly one-third of those emissions come from oil production and the production, processing and transmission of natural gas. The oil and gas industry is the largest industrial methane source.  The ICR seeks a broad range of information, such as how equipment and emissions controls are, or can be, configured, and what installing those controls entails. This information will help the agency determine how best to address methane emissions from the oil and gas industry, including through rulemaking to reduce emissions. The final ICR reflects a number of changes EPA made based on comments the agency received on two drafts of the ICR issued earlier this year for public comment.  EPA has designed the ICR so that it will not duplicate information industry already must submit through federal programs such as the Greenhouse Gas Reporting Program. Under the final ICR, industry will provide information on numerous sources and activities, including natural gas venting that occurs as part of existing processes or maintenance activities, such as well and pipeline blowdowns, equipment malfunctions and flashing emissions from storage tanks. Recent studies have identified these processes and activities as likely large sources of methane emissions. The ICR also seeks information on existing low-producing wells.  In accordance with the Clean Air Act, ICR recipients have a legal obligation to respond and to attest to the accuracy of the information they provide. What the Final ICR Covers  The ICR seeks information from the following segments of the oil and gas industry: onshore production, gathering and boosting, gas processing, transmission, storage, and liquefied natural gas (LNG) import/export. It does not request information from offshore production or local natural gas distribution facilities that provide gas to businesses and homes. 1  Like the two draft ICRs that were made available for public comment earlier in 2016, the final ICR comprises two parts:  An “operator survey” designed to obtain readily available information on the number and types of equipment at all onshore oil and gas production facilities in the United States; and  A “facility survey,” to collect detailed information on emissions sources and emissions control devices or practices in use at facilities in the onshore production, gathering and boosting, processing, compression/transmission, pipeline, natural gas storage, and LNG storage and import/export facilities. EPA expects much of the information requested in the facility survey to be readily available from company records; however, owners/operators may have to collect some information – such as counts of pneumatic devices. This more detailed survey will be sent to a representative sample of facilities rather than to all facilities, in order to reduce the burden to the industry.  The operator survey will be sent to approximately 15,000 owners/operators in the oil and gas industry; the more detailed facility will be sent to approximately 4,650 owners/operators.  EPA carefully considered comments on both drafts of the ICR and has made a number of changes that are reflected in the final ICR to improve the information the agency receives and to reduce the burden on industry. Those changes include:  Providing additional time to respond to both surveys. The final ICR provides owners/ operators 60 days to respond to the operator survey and 180 days to respond to the facility survey. Under the second draft ICR, owners/operators would have had 30 days to respond to the operator survey and 120 days to respond to the facility survey.  Categorizing wells based on their gas-to-oil ratio (GOR). The GOR indicates whether the primary product of a well site is likely to be oil or gas, which, in turn, will give EPA information about the types of equipment likely to be located at the site. For each GOR category, the ICR seeks information on low-production wells, which produce 15 barrels of oil equivalent per day on average over a 12-month period, and wells that are not low production.  Shifting certain questions from the operator survey to the facility survey. Under the final ICR, questions about access to electricity, the number of facilities that are manned or unmanned, liquids unloading, and hydraulic fracturing have been moved from the broader operator survey to the facility survey, which will reduce the reporting burden for the industry.  Splitting the gathering and boosting segment of the industry into two segments to reduce confusion. The final ICR splits the gathering and boosting segment into compressor stations and pipeline facilities (pipeline facilities are defined as the 2 collection of pipelines and associated equipment on a county basis). These segments are covered by the facility survey. Owners/operators will be asked to enter basic information about all of all of their gathering and boosting compressor stations and pipeline facilities and provide more detailed information for about 10 percent of those, which will be randomly selected.  Changed the required methods for pressurized liquids sampling. This sampling, which applies to separators with a throughput of more than 10 barrels per day, will provide information on potential flashing emissions when pressurized liquids enter atmospheric storage tanks. The final ICR requires owners/operators to use one of three Gas Processors Association sampling method, depending on the type of liquid they are sampling. The methods are specified in the ICR.  Asks owners/operators to voluntarily provide information about costs such as the cost of controls -- that will help EPA better understand the economics of oil and natural gas wells. Making a number of clarifications, including:     Who is responsible for responding: The final ICR makes clear that the person or entity owning or operating a facility at the time the ICR letter is received is responsible for responding. How owners/operators must report information on wells at surface sites and the centralized production areas those wells feed. The portion of wells the facility survey covers: The final ICR clarifies that the facility survey will not request detailed information on every well in the industry; rather, it will focus the detailed information request on randomly selected wells, asking for details on those wells, other wells and equipment at that same surface site as the randomly selected well(s) and the centralized production sites those wells feed. EPA estimates the industry cost of responding to the ICR at about $42 million: $18 million to respond to the operator survey and $24 million to respond to the more detailed facility survey. Responding to the final ICR  Owners and operators will receive the ICR by registered mail and are required to respond. There are two deadlines for responding: o Recipients of the operator survey (also referred to as Part 1) will have 60 days after receiving the ICR to complete the survey and submit it to EPA. Owners/operators may download the operator survey from EPA’s website at https://www.epa.gov/controlling-air-pollution-oil-and-natural-gas-industry/oil-andgas-industry-information-requests . Owners/operators may submit the operator survey electronically or by hard copy. Instructions for submitting responses are 3 included in the ICR letter. o Recipients of the more detailed facility survey (also referred to as Part 2) will have 180 days after receiving the ICR to complete that survey and submit it to the agency. To make it easier for industry to submit responses to the facility survey, EPA will use the agency’s electronic Greenhouse Gas Reporting Tool (e-GGRT) to collect the data and information from the facility survey.  Owners/operators with questions about responding to the ICR may the call the contact listed in their ICR letter. Owners/operators responding to the Part 2 facility survey also may contact the e-GGRT Help Desk for assistance at https://ccdsupport.com/confluence/display/help/Contact+the+Help+Desk . Background  The ICR process, which is governed by the Paperwork Reduction Act, provides the public two opportunities to review drafts of the ICR and supporting materials. EPA issued two drafts of the ICR: an initial draft, published in the Federal Register June 3, 2016, and a second draft, published Sept. 29, 2016.  EPA announced its plans to issue the ICR on March 10, 2016, as part of a joint commitment between the U.S. and Canadian governments to take new actions to reduce methane pollution from the oil and gas sector, including developing regulations to reduce methane emissions from existing sources. The ICR is the first step in that process; the information that companies will be required to collect and report to EPA will provide the foundation necessary for developing comprehensive regulations to reduce emissions from existing sources in the large and complex oil and gas industry.  Over the past year, substantial amounts of new information on methane emissions from existing sources, operations and activities in the oil and gas industry have become available from a range of entities, including EPA’s Greenhouse Gas Reporting Program, industry organizations, and studies by government, academic and industry researchers. That information shows that methane emissions from existing sources – sources not covered by the NSPS issued May 12 -- are higher than previously understood.  While this recent information has substantially improved EPA’s understanding of the magnitude of emissions from existing oil and gas sources, the agency needs information that is not currently available to develop standards for existing sources under section 111(d) of the Clean Air Act for existing sources and to evaluate the impact of those standards.  Unlike new source performance standards, which are triggered when a source is newly constructed or modified, standards for existing sources likely would apply to all covered processes and equipment at the same time. There are hundreds of thousands of existing oil and gas sources across the country: some emit small amounts of methane, but others emit methane in very large quantities. 4  To determine how to effectively and efficiently address emissions from those sources, EPA needs information that is different from the information the agency needed to develop the NSPS issued in May, such as what emission controls are being used in the field, how those are configured, whether electricity or generating capacity is available, and how often sites are staffed or visited.  These types of information will help EPA determine how the agency can, working with states, best develop and apply standards to effectively reduce emissions from existing sources. It also will help identify sources with high emissions and the factors that contribute to those emissions. The information EPA receives will build on what state and other federal agencies have learned through their own rules, programs and experiences. For More Information  To read the final ICR and the surveys owners/operators are required to answer – visit https://www.epa.gov/controlling-air-pollution-oil-and-natural-gas-industry/oil-and-gasindustry-information-requests  For information on the New Source Performance Standards for new, modified and reconstructed sources announced in May 2016, see: https://www.epa.gov/controlling-airpollution-oil-and-natural-gas-industry/new-source-performance-standards-and 5 October 31, 2016 Submitted via regulations.gov U.S. Environmental Protection Agency Mail Code 28221T, 1200 Pennsylvania Ave. NW. Washington, DC 20460 RE: Information Collection Activities; Proposals, Submissions, and Approvals: Information Collection Effort for Oil and Gas Facilities, Docket ID No. EPA-HQOAR-2016-0204-0106 Dear Sir or Madam: Western Energy Alliance (Alliance) is concerned that the latest draft of the Information Collection Request (ICR) failed to adopt or even meaningfully consider numerous comments on the first draft that would both improve the utility of the ICR to EPA in developing a data-based understanding of our industry, and substantially reduce its burden on the oil and natural gas industry. In the ICR comment summary, there are 297 instances in which EPA failed to respond in a meaningful way to substantive comments, stating that it has “considered and evaluated the impacts of this comment and has decided not to pursue any further action” while offering no further reasoning or explanation. This is not an adequate response and represents a fundamental failing in EPA’s duty to fully consider the burden of the ICR on the regulated community. Given that EPA did not appear to adequately review and respond to our comments on the proposed ICR, we submit along with this letter our original comments for consideration by the Office of Management and Budget (OMB). Western Energy Alliance represents over 300 companies engaged in all aspects of environmentally responsible exploration and production of oil and natural gas in the West. Alliance members are independents, the majority of which are small businesses with an average of fifteen employees. We appreciate the opportunity to comment on the ICR proposed by the Environmental Protection Agency (EPA). Of the many issues we raised in our first round of comments that remain unaddressed, we are particularly concerned by two aspects: the burden and effectiveness of the ICR. To Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 2 of 34 illustrate these shortcomings, we provide several examples in this letter. The substantial number of problems and inconsistencies in the ICR along with the extremely short 30 day comment period make it impractical to develop an exhaustive list. However, we are committed to working with EPA to enhance its understanding of our industry for further rulemakings. 1. ICR Burden The overall burden of the ICR is disproportionate to its benefit. There are numerous instances where EPA understates the estimated burden or requests information that is irrelevant for regulating emissions. In other instances, EPA’s requests for information are awkwardly worded and impose unnecessary burden by requiring industry to collect information based on arbitrary and unusual distinctions. In the Part I burden estimate, EPA assumes industry will collectively take 116,438 hours to report on 698,800 facilities, which averages to approximately 10 minutes per facility. Several Western Energy Alliance members have begun ICR pilot testing programs to gauge the compliance burden, including several companies defined as a small business according to Small Business Administration (SBA) guidance for the oil and natural gas extraction sector. Our members found that the time to complete a single facility report for Part I ranged from 15 to 60 minutes, with an average of 30 to 45 minutes. Their pilot programs indicate that the actual labor costs may be three to five times higher than EPA’s estimate. Our estimate of 30 to 45 minutes on average based on company testing did not include abandoned well reporting because companies have yet to determine how to collect the required information. In our first round of comments, we pointed out that abandoned well data was much more difficult and time-consuming to collect than EPA assumes, but the comment was ignored with no explanation. Plugged and abandoned well data can be difficult or impossible to collect due to divestitures, mergers, bankruptcies, and historical availability. Many oilfields have been in service for more than 100 years, and in early years recordkeeping on plugged and abandoned wells may have been sparse or non-existent. Moreover in most cases where data is available, state regulatory agencies will have up-todate records of plugged and abandoned well data, as well as a detailed understanding of state requirements for well plugging and abandonment. EPA offers no rational explanation for why it cannot work with state agencies that possess the data to obtain the information it desires, and its response to our concerns about historical abandoned well data availability is that operators should simply “provide best available data when responding to the ICR.” Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 3 of 34 This answer is inadequate given the serious consequences of failure to satisfactorily report information under section 114 of the Clean Air Act. More troublingly, abandoned wells are far from the only instance in the ICR where EPA takes this position. In fact, the phrase “companies should provide best available data when responding to the ICR” appears 24 times throughout the response to comment document. EPA’s response to our repeated concerns about data quality, utility, and availability is indicative of a larger problem regarding the agency’s expectations about data quality and EPA’s level of concern for minimizing the burden on respondents. Given the possibility of severe consequences for failing to provide adequate data under a section 114 request, companies may be forced to go through very careful and deliberate data collection efforts along with a detailed legal review to minimize their potential exposure to data quality challenges. EPA has not considered the burden or expense of this added review. Furthermore, the number of instances EPA suggests “companies should provide best available data” clearly indicates a systemic problem with the ICR. We urge EPA to better define what constitutes “best available data” for the requests such as the number of plugged and abandoned wells and the quantity of hydrocarbon liquids and natural gas received by a facility in the 2015 calendar year. In instances where that “best available data” is unavailable, companies should be able to report that to EPA without penalty. Alternatively for many data requests that are difficult to verify, EPA could allow respondents to estimate to the best of their abilities. This would allow industry to make good-faith efforts to supply their best available data without fear of penalty. We also remain concerned by the burden posed by Part II. One example of our concern is EPA’s continued reliance on the CARB Method for feed material composition analysis. Despite numerous concerns expressed by individual companies, trade associations, and lab testing facilities during the first comment period, EPA remains committed to the CARB method. While EPA acknowledges numerous problems such as that the CARB method is currently being revised, is not well suited for all types of hydrocarbon production, and is not readily performed at many lab facilities, it declined to add any flexibility to the testing methodologies. As we pointed out in our original comments, other viable pressurized sampling approaches exist, including the Texas Commission on Environmental Quality’s Representative Analysis Criteria. At a minimum, the ICR should be modified to incorporate other options to allow operators flexibility when the CARB Method is either ineffective or impractical. Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 4 of 34 Part II also requires actual fugitive emission component counts for every facility surveyed. EPA notes that respondents are only required to count components if the information is not available for a facility, but as there is no federal regulatory requirement to collect that information, most facilities will not have that information available and would need to conduct counts of each component. Therefore, it is incorrect to assume that there is any reason this information is already available for the majority of facilities, given the burden of conducting actual component counts. Knowing the individual component count does not provide an environmental benefit; the benefit derives from discovering which components actually have fugitive emissions. Whatever benefit might be derived from knowing the total component count is disproportionate to the burden that collecting these highly detailed component counts would involve. Since this information likely doesn’t exist for the majority of facilities that will be selected under Part II, the current burden is likely understated. Gathering actual component counts will require highly skilled personnel with deep knowledge of the particular site’s equipment and operation to ensure accuracy; this is not a task that can be easily contracted out, thereby placing additional burden on key operational personnel. Given the difficulty of the task and importance of the information, operators will likely need to verify their component counts. Therefore the burden is likely to be considerably more than the six hours of field time assumed by EPA. Alternatively, EPA could alleviate this burden considerably by allowing respondents to report an estimated component count, as we have suggested for other data requests that are difficult to verify. Part II pneumatic controller reporting requirements will face similar problems as fugitive emission component counts. In particular, properly identifying and categorizing each pneumatic controller to the level of detail requested by EPA will require a subject matter expert with deep knowledge of pneumatic controllers. As with the fugitive emission component counts, the pneumatic controller reporting burden is greatly understated and could easily be simplified by focusing on the bleed rate, as we suggested in our original comments. We remain concerned that EPA’s timeline for responding to the ICR for both Parts I and II is unreasonable and infeasible for the volume of information it intends to collect in such a short period of time. The overly aggressive timeline needlessly adds complexity and cost to this already ambitious undertaking. We urge EPA to allow companies 180 days to respond to both Part I and Part II, thereby insuring they have the maximum amount of time to review their responses for completeness and accuracy. Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 5 of 34 These and other burdens imposed by the ICR represent a failure to satisfy the requirements of the Paperwork Reduction Act to minimize the information collection requirements on industry. The ICR also falls short of the requirements of the Paperwork Reduction Act through its failure to maximize the utility of information created, collected, used, and shared by and for the federal government. 2. ICR Effectiveness In its current form, the proposed ICR has several shortcomings that undermine its usefulness for cost-effectively evaluating emission control strategies. We urge EPA to address these issues before releasing the ICR. One major shortcoming is the lack of clarity surrounding data collection that was raised above. EPA’s guidance to simply “provide the best available data” presents a great challenge to industry respondents, but the challenge is not only limited to industry. If EPA cannot explain with any specificity what data sources are acceptable or how broadly questions need to be answered, it will inevitably receive answers that vary widely in both content and detail. As the purpose of the ICR is to aggregate responses to develop an industry-wide understanding of facilities and operations, widely varying data will be more difficult and time-consuming for EPA to analyze. Ultimately this would burden agency resources and potentially lead to a flawed understanding of the data collected, and hence, flawed regulations and policies that will be harmful to industry, the broader American economy, and tax revenues for local, state, and federal governments. For example, Part II requires information on the state or local environmental regulations that apply to each facility, which is overly broad and will not provide useful information. The request could be interpreted to apply to regulations addressing unrelated matters such as stormwater runoff, wildlife, spill prevention, control, and countermeasures, and a variety of air quality measures. We recommend EPA tailor its request specifically to air emissions standards or regulations. Tailoring the request will make it more useful and avoid collecting extraneous information. The ICR will also collect extraneous information for existing source emission control rulemaking. For example, it inappropriately requests detailed information on liquids unloading. However, since EPA recently declined to regulate liquids unloading through its New Source Performance Standards (NSPS) Subpart OOOOa rulemaking due to the difficulty of setting uniform standards for this highly variable industry practice, it’s unclear how EPA could justify moving straight to regulating liquids unloading from existing sources Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 6 of 34 without first establishing a NSPS. Similarly, plugged and abandoned wells are not a source of emissions. In order for a well to be approved for abandonment, it must meet rigorous state requirements and pass inspection prior to abandonment. Plugged and abandoned well records do not provide information relevant to EPA’s development of standards under Section 111 of the Clean Air Act. In addition to several instances where EPA’s overly broad requests will lead to collection of unnecessary information, we also identified in our original comments several types of information that would better inform agency analysis. In particular, control device costs are not adequately addressed in the second draft of the ICR. Without sufficient information on the full cost of emissions controls, the ICR will not be useful for evaluating the cost effectiveness of control strategies. For example, the ICR still contains the request for historical costs of control devices and “total capital installed cost”, but fails to collect control device installation costs and other indirect costs such as manpower and transportation costs. Historical costs are irrelevant. Cost data for controls that were installed as a part of new construction five years ago has no bearing on the cost of retrofitting an existing source today or in the future. On the other hand, installation and shipping costs are extremely significant for cost evaluations, yet EPA declined to request any installation, shipping, or other indirect cost information. By failing to consider the full scope of cost data, EPA analysis will inevitably understate costs, which will in turn skew cost-benefit findings. We strongly encourage EPA to include this information for use in cost-benefit analyses. There are also several outstanding issues with the ICR’s terminology that will create confusion and potentially undermine the utility of the data collected. For example, EPA’s definition of barrel of oil equivalent relies on 5,800 standard cubic feet (scf) of natural gas per barrel of oil. Much of industry uses 6,000 scf per barrel for conversions, which means that production volumes to EPA will be different from what industry reports elsewhere, creating yet another potential source of confusion. EPA also requests in Part I that respondents specify the well type as of November 1, 2016, but in the online instructions found at http://oilandgasicr.rti.org/ specify that the data collected is from the 2015 reporting year. This needlessly complicates the ICR, particularly for assets that have been sold since December 31, 2015 and will further obfuscate the data collected by EPA. 3. Conclusion In addition to the issues raised specifically in this letter, we reiterate our comments on the first draft of the proposal. While we disagree with EPA’s assumption that it possesses clear Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 7 of 34 authority to regulate methane under section 111(d) of the Clean Air Act without a specific methane endangerment finding, we understand that EPA is moving forward regardless. With that context in mind, we are proposing that the ICR be the first step in a robust analytical effort by EPA to determine both the benefits and costs of promulgating emission control requirements to the diverse range of existing facilities in the oil and natural gas industry. We believe EPA can best accomplish this goal by following the peer-review process it laid out in its white papers during the New Source Performance Standards (NSPS) Subpart OOOO regulatory process. A similar white paper on control technology that can be reviewed by stakeholders would be an effective way to allow industry to understand EPA’s thought process as it contemplates existing source controls. We are concerned that in its current form, the ICR poses unnecessary costs while failing to maximize the potential benefit. We urge EPA to re-evaluate the data being requested, such as plugged and abandoned well data, and the data collection methods required, such as the CARB Method, to ensure the ICR does not needlessly burden industry and complies with the requirements of the Paperwork Reduction Act. We are available to work with EPA to reduce the burden on both EPA and industry respondents, provide EPA with more useful emissions data, and eliminate extraneous information collection requirements. Please feel free to contact me to discuss these issues in greater detail. Sincerely, Kathleen Sgamma Vice President of Public & Government Affairs cc: Office of Management and Budget, Desk Officer for EPA Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 8 of 34 Appendix A Western Energy Alliance August 2, 2016 Comments on EPA’s Information Collection Request Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 9 of 34 Dear Ms. Shine: Western Energy Alliance (Alliance) appreciates the opportunity to comment on the Information Collection Request (ICR) proposed by the Environmental Protection Agency (EPA). In its Notice regarding the ICR, the EPA states that it “is now seeking more specific information that would be of critical use in addressing Clean Air Act (CAA) section 111(d).” However, the EPA does not have clear authority at this time to promulgate standards of performance for existing oil and gas sources under section 111(d) because they are already regulated under CAA section 112. More fundamentally, EPA has neglected to do a proper endangerment finding on methane in general and from the oil and natural gas industry. A full, honest endangerment finding would likely reveal that the small amount of methane emissions from the wellhead is more than offset by the significant greenhouse gas reductions delivered by natural gas at the consumer side and especially in the power sector. Until such a finding is made, EPA does not have the authority to promulgate existing source performance standards under section 111(d) of the CAA. In anticipation of EPA moving forward with this ICR regardless, we encourage EPA to engage in a constructive dialogue with Western Energy Alliance and other industry representatives to better understand our industry and the data gathered under this ICR. The ICR should be substantially modified to gather only data that will be valuable in looking at future rulemaking, and to eliminate requests for extraneous information that will not benefit agency functions. Our recommendations in these comments aim to better focus EPA’s requests to ensure the ICR exercise provides useful emissions data to EPA while reducing the overall burden of the requests. In several other instances, we suggest clarifications that will reduce confusion in gathering responses. The most fundamentally important part of the entire ICR effort is to balance the cost to industry with EPA’s desired regulatory objectives. To that end, we are proposing that the ICR be the first step in a robust analytical effort by EPA to determine both the benefits and costs of promulgating emission control requirements to the diverse range of existing facilities in the oil and natural gas industry. We believe EPA can best accomplish this goal by following the peer-review process it laid Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 10 of 34 out in its white papers during the New Source Performance Standards (NSPS) Subpart OOOO regulatory process. A similar white paper on control technology that can be reviewed by stakeholders would be an effective way to allow industry to understand EPA’s thought process as it contemplates existing source controls. Western Energy Alliance represents over 300 companies engaged in all aspects of environmentally responsible exploration and production of oil and natural gas in the West. Alliance members are independents, the majority of which are small businesses with an average of fifteen employees. The following comments are divided into seven general sections: 1) General Comments; 2) Timeline; 3) Part I Data Collection; 4) Part II Data Collection; ETC 5) Definitions; 6) Recipients; and 7) Efficiency. The Alliance appreciates the opportunity to comment on this proposal. 1. General Comments As EPA contemplates existing source regulation and additional new source regulations, it is imperative that it follow an open, transparent, and data-driven process. To the extent that the ICR can provide additional data on what regulations, if any, are cost-effective, we support EPA’s effort. However, as EPA develops its ICR, we encourage it to be mindful of the unique challenges that come with developing regulations for existing sources. Existing wells were not constructed with unknown future regulatory requirements in mind. Therefore, they are particularly sensitive to added cost, which is particularly true for the dynamic nature of the oil and natural gas industry which is prone to commodity price fluctuations and well declines. a. Cost Data With that context in mind, we believe that EPA’s proposed ICR could be strengthened in two critical ways. First, the requests themselves can be modified to reduce the burden on respondents. Second, the requests can be strengthened by improving the overall utility of the information collected. In some instances, this involves removing extraneous data requests or clarifying EPA’s intent. However, in reviewing this ICR, we notice it lacks requests for critical cost data. Given that existing sources are particularly sensitive to added costs, EPA should include data requests that help it determine not just the emissions from a particular source, but also the cost of controls. Low producing wells in particular cannot bear the same costs that larger wells can. Even if a technology looks Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 11 of 34 reasonable for a well producing 1,000 to 5,000 MCF per day, a marginal well may produce just 20 MCF per day. It is unrealistic and impractical to impose the same control requirements on both of these wells, as marginal wells will be unable to bear the cost. In addition, the marginal wells will have much lower emissions than largest producing wells. Without more accurate cost data, EPA will be unable to fully evaluate proposed control requirements across the full spectrum of facilities in the oil and natural gas industry. The control device cost reflected in Part II of the ICR is of limited utility. First, it only addresses facilities where operators have chosen to install controls and were able to plan accordingly. These numbers will not accurately reflect the cost of retrofitting control devices at an existing location, nor do they account for the sometimes substantial engineering and installation costs associated with connecting equipment to the control device. For example, the cost of a combustor will not include the cost of designing and installing closed vent systems to capture emissions from storage tanks, pneumatic controllers, or other pieces of equipment. We recommend EPA seek installation cost estimates to better understand the full cost of new emission control requirements. Adding controls to reduce methane emissions from existing oil and gas production operations is not a one-size-fits-all proposition. Due to significant variability in reservoir characteristics, production dynamics, equipment configurations, operational constraints, contractual obligations, operating costs, and commodity prices on a well-by-well basis, costs will far outweigh the benefits in many cases. EPA must consider many direct and indirect factors before developing an accurate cost estimate for installing and operating methane controls. Generally, such estimates are not scalable based simply on the size of the facility or any other single parameter and an oversimplified or generalized approach will cause EPA to understate capital and operating costs and overstate emission reduction. For example, Alaskan North Slope crude oil production facilities will have drastically different equipment from dry natural gas production facilities in Pennsylvania’s Marcellus shale. The climates, production volumes, available supporting infrastructure, and production streams will all shape how sites are configured and operated. However, these drastic differences can exist within the same field. For example, in the Permian Basin, there is significant legacy production from decades-old vertical wells alongside new and prolific horizontal wells. Although the rapid development of unconventional oil and natural gas has attracted significant attention in recent years, there are many other techniques and processes EPA must consider. For example, fields using secondary and tertiary recovery techniques like waterfloods, CO2 floods, and steam injection will have different well types and surface equipment to produce and process hydrocarbons. Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 12 of 34 The Alliance is concerned that as structured, the ICR will come up well short of providing the necessary information to make reasonable cost determinations about methane emission control strategies. For example, to design and operate new methane controls on existing tanks and equipment vents like pressure relief devices, the retrofit design approach must include: a fluids forecast; a review of current equipment operations and specifications; documentation of piping size; a review of equipment mechanical integrity; an evaluation of the proposed methane controls, such as a combustor or vapor recovery unit; an analysis of gas collection system piping, compression, and flare; increased site acreage to accommodate additional equipment; and other safety and regulatory permitting considerations. In order to better account for these costs we recommend EPA develop a control technology white paper to evaluate the cost-effectiveness of emission control strategies. EPA has taken a similar approach to evaluating emissions through its series of white papers on pneumatic devices, liquids unloading, leaks, oil well completions, and compressors. Using this model for control technologies, EPA could follow a peer-reviewed process to understand the best approaches to controlling emissions. Using the information gathered through the ICR and the Emerging Technology Request for Information, EPA could develop engineering scenarios and further outline its proposed control methods, while giving industry and other stakeholders the opportunity to evaluate the technical feasibility of EPA’s approach. b. Confidential Business Information (CBI) For the Part I survey, EPA asserts that “Part I is not expected to contain any CBI.” However, EPA offers no basis for this blanket statement. Operator should be able to designate their responses as confidential if they believe it is appropriate. It’s conceivable that situations could arise that would necessitate a confidentiality determination. The fact that EPA has not foreseen any such situations does not mean that they cannot exist. We strongly encourage EPA to allow operators to request CBI protection for all aspects of the ICR. 2. Timeline We are concerned that the time allowed for industry to complete both Parts I and II is inadequate and should be revised. Allowing extra time to complete this ICR would not materially affect EPA’s ability to evaluate the survey results, but would reduce the time Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 13 of 34 and expense burdens for industry. Plans to release both parts concurrently indicate that EPA does not intend to use Part I to inform the Part II survey. Rather, we encourage EPA to release Part I, evaluate it, and make necessary changes before releasing Part II. If EPA holds to its proposed schedule, Part I should not be due within 30 days. There is no clear added value in receiving Part I surveys within 30 days and we urge EPA to allow the same deadlines for both Parts I and II. Having an overly-aggressive timeline on Part I adds little value when EPA would need to wait until Part II results are in before completing its analysis. Additionally, the amount of data EPA is requesting for Part I is significantly higher than for Part II in terms of number of sources and companies impacted, so it would be logical to allow additional time for Part I. Further, Part II will be extremely difficult and time-consuming to fulfill. We recommend EPA allow a minimum of 180 days to respond to both parts of the ICR. We are also concerned that 30 days is inadequate for Part I given that EPA intends to mail it to companies, which can take several days or even weeks to get through both external and internal mail systems and to the proper contacts. For Part II, EPA appears to have grossly underestimated the sheer volume of data being sought. The proposed timeframe of 120 days is inadequate. We urge the EPA group leading the ICR effort to reach out to the EPA’s enforcement group currently working on Clean Air Act (CAA) Section 114 requests in North Dakota for oil and gas facility and emissions information. Given the similar nature of the ICR and these 114 requests, the enforcement group can likely give the ICR team a more accurate understanding of the magnitude of this undertaking and the amount of time that will likely be required. In addition to the burden on agency resources to conduct Part II, the burden on industry will be similarly daunting. Part II contains a remarkable breadth and depth of data that will likely not be readily available for many facilities. For example, EPA is including isolation valve activation emissions estimates, but this information is not currently collected in the Greenhouse Gas Reporting Program (GHGRP) or under New Source Performance Standards (NSPS) Subpart OOOO or OOOOa. This will be a particularly time-consuming request to fulfill, and EPA does not appear to have fully accounted for these types of burdens in the timing estimates. Completing EPA’s request may also require respondents to commit significant field and travel time. Given EPA’s intent to release this ICR during the wintertime, travel logistics to remote field locations may be further complicated by inclement weather and seasonal closures. There can also be restricted access for wildlife. Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 14 of 34 The request will also overlap with many annual reporting requirements, including EPA’s GHGRP and state reports. Many company greenhouse gas experts will be working on GHGRP reporting and the ICR simultaneously. Instead, we recommend EPA target the end of the third or fourth quarter for the ICR reporting deadline. The compressed timeframe may also impact the overall accuracy of the data collected. For example, emissions data collected during a short span of the year may not accurately reflect emissions around the country on a year-round basis. In places like Wyoming, Utah, and North Dakota there can be extensive use of heat trace pumping equipment during winter months. Extrapolating year-round usage trends about this equipment based on single measurements of emissions during the winter would be inappropriate. Similarly, emission rates may differ greatly during the summer in places like New Mexico and Texas where high temperatures significantly affect the performance of field equipment. The most sensible way to address these seasonal differences is to allow operators additional time to complete the ICR and match data collection to operational conditions. A longer timeframe to conduct the survey will also give EPA a more accurate assessment of industry operations throughout the year. We’re also concerned by EPA’s aggressive schedule for reviewing comments and finalizing the ICR. Given the amount of industry resources being devoted to both reviewing and commenting on the ICR, as well as the eventual completion of the ICR itself, EPA does not appear to be allowing itself sufficient time to review comments and adopt the reasonable suggestions made by industry. EPA has indicated it intends to release the ICR by October 30, 2016. However, the current comment period on the ICR closes in August and will be followed by another 30 day comment period to the Office of Management and Budget (OMB). There is barely enough time between now and October 30th to undertake another comment period, let alone enable EPA to conduct any deliberative review of comments and make meaningful adjustments. Additionally, October 30th is not a business day. 3. Part I Data Collection We have concerns about several of the data collection requirements under Part I of the ICR. a. General Facility Information The Part I request contains several pieces of facility data that may be problematic or confusing to report. We suggest EPA clarify that only wells and equipment operated by a Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 15 of 34 company are included in the company’s response to EPA to avoid duplicative reporting by both the owner and operator. Another potential source of confusion is the request for API numbers for wells present at a facility. Due to industry practices with facility centralization that result in more efficient processing and less environmental impact, there are often wells associated with a particular facility that is physically located a quarter mile or more away. We suggest EPA clarify and better define its scope to make it clear whether it intends to include facilities that may connect but are not physically co-located. Similarly, there are situations where facilities are co-located but not connected through shared equipment. For example, it is unclear whether a respondent should report a wellhead as its own “facility” when there are no tanks onsite and the liquids flow to a tank battery at a different location. Should the well’s API number be included in the facility report with the tank battery or should it be reported separately as its own facility. We encourage EPA to better define its scope to address these types of situations and avoid duplication. We are also concerned by EPA’s request for the number of employees in the General Information section. Number of employees is not a meaningful number for a variety of reasons, and it is difficult to parse this request to be more focused. For example, many companies are internationally owned or have large presences in other basins, which will not necessarily have any bearing on emissions within the basin of concern. Narrowing the request to number of employees by basin will not be any more useful, as many corporatelevel employees may be heavily involved in environmental and regulatory efforts within the basin of interest, despite not being physically located there or exclusively assigned to it. Additionally, number of employees does not capture the number of contractors employed by a company. Contractors make up an important part of many operators’ total workforces. Ultimately, we do not envision employee counts being useful to EPA from an emissions perspective. Therefore we recommend EPA strike this request from the ICR. Should EPA move forward with its request for the number of employees at a company, we recommend that EPA instead focus on whether the respondent is a small business in order to more easily quantify the impact of the ICR on small businesses. To accomplish this, we recommend EPA indicate that the Small Business Administration’s definition of a small entity is 1,250 employees excluding contractors and ask respondents to indicate whether they fall under this definition.1 1 Small Business Size Standards by NAICS Industry. 73 FR 12870, March 11, 2008. Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 16 of 34 b. Plugged and Abandoned Wells The facility-wide count for capped or abandoned production wells is a highly problematic request and should be excluded from the survey for several reasons. Oil and natural gas has been developed domestically since the 1850s and historically, recordkeeping was scant for old wells. In many cases, today’s large producing basins have legacy oil and gas production that dates back decades, along with many abandoned wells. Many of these plugged and abandoned wells are so old that today’s operators may have no records of them. Many other wells have been exchanged or sold numerous times over their lives. Records from prior owners or operators can be very difficult to obtain in these situations. In addition to being very difficult to comply with, the collection of plugged and abandoned well data offers virtually no benefit in terms of information to be used to regulate new and existing oil and gas production facilities as there are no emission sources related to plugged and abandoned wells. Current state regulatory requirements for well plugging and abandonment procedures are robust, and it would be infeasible for EPA to attempt to regulate wells abandoned decades ago. Since this information will not be necessary for proper performance of EPA functions, it should be removed from the ICR. c. Distance to Gathering Lines Distance from a facility to the nearest natural gas gathering line is another category that is problematic and requires modification. All natural gas wells should be exempted from this requirement, as no rational operator would develop a natural gas well without takeaway capacity, and reporting the distance to gas gathering lines is not a worthwhile exercise. Similarly, an oil well that is connected to gas gathering should simply be able to satisfy EPA with a yes or no answer. Once the connection to gathering has been made, the distance becomes largely irrelevant. For oil wells that are not connected, determining distance to gas gathering would be a time-consuming mapping exercise for every facility with questionable benefits. The relative proximity of gas gathering lines is often irrelevant when capacity issues come into play, which is often the primary driver in areas where gas capture rates are lower. Furthermore, existing sources will be connected to gathering lines where it is feasible to do so. The distance to the nearest gathering line is largely irrelevant and may even be unknown. If an operator has an existing contract with a specific midstream operator to tie in all wells in an area to their pipeline, there may be a closer gathering line that the survey respondent is not going to connect to for contractual or logistical reasons. Reasons could Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 17 of 34 include not having rights-of-way to connect to the closest gas gathering line, or having gas that is not of sufficient quality to connect to the nearest gathering line. Instead, a more appropriate question is whether the facility is connected to a natural gas sales line, rather than distance to the nearest gathering line. Distance to natural gas gathering lines, in addition to offering limited utility for improving EPA’s understanding of industry, is logistically difficult to determine. Much like distance to the field office, addressed below, calculating distance to natural gas gathering lines creates a burden on respondents to locate irrelevant lines that far outweighs the useful benefit of this information. In many instances, operators are contractually obligated to use a particular midstream gas gathering company. Additionally, many marginal oil wells do not produce enough gas to warrant a midstream company to invest in gas gathering lines. d. Distance to Field Office Likewise, distance from a facility to a field office is a problematic requirement that would require time-consuming mapping, and offers limited utility. It is unclear what benefit this information will provide for the purposes of understanding facility emissions, yet would be time-consuming to collect. We strongly recommend EPA strike this request or at least make clear what purpose this information would serve for enhancing EPA’s understanding of the feasibility of leak detection and repair programs. The distance to the nearest field office will not accurately portray how industry conducts its field routes. Typically, an employee or contractor will not travel to a facility, back to the field office, then on to the next facility, and so on, but will instead visit several facilities while away from the field office on a pre-planned route. Therefore, the distance to the nearest field office doesn’t provide EPA with much insight into how field operations are conducted. Should EPA decide to proceed with the request despite its questionable utility, we recommend several changes. We recommend that the distance be the shortest year-round driving distance between a field office and the facility which would allow EPA to gain a better understanding of how easily accessible a facility is on a year-round basis. Due to topography or limited road access, straight-line miles are not an appropriate measure. Similarly, many locations are not accessed for parts of the year due to their locations in crop fields, sensitive areas, inclement weather, or for other reasons. Collecting these data would require an extensive, manual mapping exercise. While straight-line distance could be obtained through software mapping, many remote sites cannot be mapped through commercial driving direction Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 18 of 34 programs such as Google Maps. Companies will have to manually map and measure or survey field personnel to determine the driving distance. Due to the level of work required, this request is more appropriate for a sampling of sites and should be moved to Part II. e. Facility Electrification While we can certainly appreciate EPA’s interest in the availability of electrification, this request is problematic and inappropriate for the Phase I survey. In many cases, the availability of electricity for every facility is not an easy determination and would require companies to review utility bills for entire fields and determine where electricity is being utilized. Although the prevalence of electricity could be an important consideration for understanding what control technologies are suitable where, the practical reality of determining it, which often can be ascertained only through billing records, makes this an extremely time consuming request that will be difficult to determine with certainty for every facility. We recommend instead that EPA make availability of electricity part of its Phase II request. Additionally, we recommend that EPA clarify that facilities not connected to the electrical grid but merely using temporary generators not be considered electrified. These generators do not necessarily remain onsite and may not have the capacity to operate instrument air pneumatic systems or other systems. f. Liquids Unloading We are concerned that liquids unloading is included in the ICR since EPA recently declined to develop new source performance standards for liquids unloading in NSPS OOOOa. It is contrary to Clean Air Act procedures to develop existing source standards in the absence of new source standards. EPA’s decision to avoid regulation of liquids unloading in OOOOa came after an exhaustive examination of liquids unloading practices that concluded: Data reviewed also show that liquids unloading events are highly variable and often well-specific. Furthermore, questions remain concerning the difficulty of effective control for those high-emitting events in many cases and concerning the Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 19 of 34 applicability and limitations of specific control technologies such as plunger lift systems for supporting a new source performance standard.2 We encourage EPA to remove liquids unloading from the ICR entirely. Successful approaches to addressing liquids unloading in Colorado and elsewhere have steered away from prescriptive regulation and instead focus on best management practices and reporting requirements. The Colorado Department of Public Health and Environment (CDPHE) recognized that operators need flexibility to employ best management practices on a well-by-well basis.3 CDPHE recognized that automated plunger lifts are not pollution control devices and are not used in the field unless the well design, geologic conditions, and gas content are appropriate for it. Furthermore, the mere occurrence of liquids unloading reveals little information of use to EPA, as it does not address the timing, frequency, technique, or other pertinent information about the process. This question is entirely unbounded. Regardless of whether liquids unloading occurred once in the past year or once over the life of the well, respondents will provide the same answer as this section is currently written. The reality is that liquids unloading will be highly variable over the life of the well and can change in response to shut-ins and other events. The information proposed for collection would offer no meaningful insight into the practice and is therefore not necessary. Should EPA decide to include liquids unloading, the data in Part II would prove much more useful than the data in Part I. We encourage EPA to remove liquids unloading from Part I requirements. g. Focus on Pre-OOOO Facilities In order to maximize the utility of the ICR, we recommend that EPA focus on pre-OOOO facilities which is particularly important for two reasons. First, many of the processes being surveyed are already controlled through NSPS OOOO and OOOOa, and therefore EPA should have an accurate understanding of the control requirements in place. OOOO and OOOOa have clear emission thresholds that indicate how and when facilities will be controlled. Second, for the purpose of developing existing source rules, cost and emission data on older sources are directly relevant, while new facilities are not. New control costs are applied very differently than existing facilities. For example, to retrofit an existing tank battery with controls is not a simple matter of manifolding the tanks together. They can 2 Oil and Natural Gas Sector: Emission Standards for New and Modified Sources, 80 Fed. Reg. 56593, 56645 (Sept. 18, 2015) (proposed rule). 3 Well Liquid Unloading Frequently Asked Questions. CDPHE. August 17, 2015. Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 20 of 34 require repair, redesign, and in some cases, even replacement. Therefore we recommend that EPA focus on sources constructed prior to the OOOO applicability date. h. Number of Separators EPA should be aware that oil and natural gas operations often utilize two-phase separators,three-phase separators, or both at productions sites. A simple count of separators may not provide EPA the information it is seeking. We recommend EPA revise the request to specify whether a separator is two-phase or three-phase. 4. Part II Data Collection We have concerns about several of the data collection requirements under Part II of the ICR. a. Facility Information We suggest EPA clarify that only wells and equipment operated by the company are included in the company’s response to EPA which will avoid duplicative reporting by both the owner and operator. b. Feed Material Composition Analysis One of the most detailed and burdensome requests EPA included in Part II of the ICR is the requirement for actual measurements of tank and separator feed material composition. Feed material composition analysis (flash gas analysis) is unnecessary and should not be included in the ICR. EPA has flash gas composition data at its disposal through Subpart W reporting at the sub-basin level. These data could easily satisfy EPA’s needs for understanding representative trends in flash gas composition across the industry. Indeed, it is unclear how surveying three thousand additional facilities under Part II would substantially improve EPA’s existing dataset, and would be highly problematic for operators. Should EPA decide to move forward with this request despite its overall lack of utility for the ICR, it should be modified significantly. EPA’s selected method for direct measurement of feed material composition for storage tank flash gas analysis, known as the CARB method, is overly prescriptive and not suitable. Limiting the methodology to one or two methods when there are other state-approved methodologies is not prudent. EPA should allow respondents to calculate storage tank flash gas analysis using the Gas Processors Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 21 of 34 Association (GPA) 2103M, GPA 2186-M, or GPA 2286-M methodologies. The CARB method is more expensive and often less reliable than other flash gas testing methodologies, and requires a significant pressure differential during testing. Many upstream samples taken from atmospheric storage tanks are pressurized and difficult to collect. Based on industry experience, many upstream samples tested with this CARB test will come back with 0 or null results due to inadequate pressure. In order to address this issue, the CARB testing methodology is currently being updated but will not be available by the time respondents begin work on the ICR. CARB sampling also poses logistical challenges, as shipments are classified as hazardous material and require sample containers to be filled to 90% of capacity when many of these containers are designed to be filled to 80% capacity. In addition to issues with accuracy, safety, and data quality, there may be an insufficient number of laboratories in the United States capable of performing this analysis. Since the CARB method is flawed and not widely used across the country, it is not a commonly performed test, which is particularly problematic given EPA’s extremely aggressive 120 day response window. Expanding the number of acceptable testing methodologies would greatly increase the number of available laboratories capable of conducting flash gas analysis. Other testing methods also deliver industry-standard data, thereby not compromising the quality of data collected for EPA. In short, the CARB method is inappropriate for the ICR and should be replaced by other state-approved methodologies. For a variety of reasons it may not always be feasible to collect samples from the desired facilities during the timeframe of the ICR, including a well being shut in and awaiting workover, maintenance issues, low liquid production volumes, and others. We recommend that EPA allow operators to select a representative sample from a nearby well under these circumstances. Operators could document and justify why they are unable to collect a sample from the requested facility, allowing respondents to balance operational constraints with the desire to provide EPA with the most accurate information possible. The Texas Commission on Environmental Quality already allows for representative samples to be used and has a specific methodology for detailing when a sample can and cannot be used. It specifies that samples must be within 20 psi pressure and 20 degrees Celsius of the originally requested well and must be taken from the same formation in the Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 22 of 34 past three years in order to be considered representative.4 c. General Well Information We are also concerned by several requirements for general well information requested in Part II such as well casing inside diameter, well tubing inside diameter, wellbore length, and well configuration. It is unclear what benefit this information provides to EPA, and does not appear to substantively enhance EPA’s ability to understand facility design or emissions. We recommend EPA remove these extraneous data requirements from the ICR unless it can justify their benefits. We are concerned that EPA may be incorrectly assuming this data will allow for well blowdown emission calculations. If this is the case, we urge EPA to consider that well casing, well tubing, and wellbore length data are unsuitable for calculating well blowdown emissions because there are numerous other factors that can impact emissions. Furthermore, information like well depth and well bore length may not be straightforward to obtain. Many wells have multilateral designs like tree roots. Others have capillary strings to enable production from multiple zones without comingling the oil, natural gas, and water from each zone. A capillary string well produces to multiple separators connected to their own tank batteries, with multiple facilities receiving fluids from that single well. Some of the requests in this section are only suitable for single well bores, and can pose problems for other configurations. Furthermore, for older producing wells much of the data requested in this section may be non-existent. Some wells have been producing for 50 years or longer using the original well completion, making it very difficult if not impossible to obtain data about well casing diameter, well tubing diameter, and produced gas composition from the first 30 days of production. When this information is available, much of it can be found with state land authorities, such as Texas and Oklahoma. Since EPA is obligated to reduce information collection burdens under the Paperwork Reduction Act, we urge EPA to review the appropriate state records rather than place the burden on industry to gather information already reported elsewhere. 4 Representative Analysis Criteria, Texas Commission on Environmental Quality, 2012. Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 23 of 34 For production facilities, EPA requests the quantity of natural gas extracted from all wells. For oil wells, that number can be estimated, but it is not possible to directly measure associated gas produced at the wellhead. Associated gas that is not sold is most likely directed to a control device from multiple points in the separation process. Operators do not meter gas directed to a control device because it is technically infeasible. The only way to safely design a flare meter is to size the orifice meter for the maximum possible flow under worst case abnormal operating conditions, which makes accurate measurement for low rates impossible. Instead, operators will often use a gas to oil ratio (GOR) value to calculate total gas production. Because GOR values change over time as oil production declines, EPA should not take associated gas production data as absolute and make unjustified assumptions. EPA should not request the volume of oil extracted and oil sold from a well as these values are synonymous. The request would require operators to track how much oil is in storage at the end of the year that was produced but not yet sold which is an overly burdensome exercise with no benefit when estimating emissions. In order to eliminate this redundant request, we recommend EPA remove the quantity of all hydrocarbon liquids extracted, cell A54, from the “Facility” worksheet, and only request the volume sold. Part II also requests the average age of wells onsite under the “Well Sites” tab. There is no emissions related benefit to EPA with this value. Therefore, we recommend EPA strike the request for this information. c. Land Owned or Leased EPA requests information on whether the land is leased or owned which would require operators to research land files to make this determination, despite it not providing any clear emissions benefit. If EPA requires this information, then it must make clear what value this information will provide to justify the time and expense. d. Current Environmental Regulations That Apply EPA should specify that the request for applicable state rules applies to air quality regulations only, and not to other regulations such as noise ordinances, road traffic requirements, or stormwater permitting that are irrelevant. EPA should also include an option to write in other applicable requirements such as Tribal Federal Implementation Plan (FIP) regulations or requirements from a federal Consent Decree. e. Well Completion and Workover Information Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 24 of 34 As with much of the general well information, well completion data requested could likely be obtained through the appropriate state records. We encourage EPA to work with states to gather well completion information. EPA is also seeking data on the anticipated date of the next workover. However, gathering this type of information requires clairvoyance on the part of operators to predict changing reservoir conditions, market conditions, availability of equipment, and availability of capital among other factors. Well workovers are decided on a case-by-case basis and information about workovers from one well in a specific field could not necessarily be applied to another well even in the same field. Information on the date of the last workover may not always be available either, particularly as oil and natural gas assets are sold regularly and multiple changes of ownership over the lifetime of a producing well are common. When the date of the last workover is available, EPA will likely be able to find it in GHGRP data. However, availability of records on older facilities can sometimes be problematic and therefore the date of the last workover may not be available. We recommend that EPA remove next anticipated workover and date of last workover from the ICR or, where possible, to leverage the GHGRP data already available. f. Control Device Cost Data While we appreciate EPA seeking cost data, we are concerned that the information requested may not be available to operators or useful to EPA. For example, the historical costs of control devices are largely irrelevant for the purposes of evaluating the cost of new control devices on existing facilities. Using historical costs to make assumptions about current or future costs is comparing apples to oranges. Many new control devices, such as vapor recovery units (VRUs), have improved significantly in terms of their design and have also increased in cost. For example, today’s VRUs come with variable motors which are more effective but more expensive. Older VRUs will not reflect those increased costs. At the same time, other control devices may have decreased in cost over time due to increased adoption causing a larger market and more price competition which would likewise not be reflected in historical data. Instead, we encourage EPA to focus on current control device costs. Additionally, cost data cannot always be extrapolated from one basin to another. Costs for installation of the same control device may be significantly more in remote areas than in basins closer to metropolitan areas due to differences in the availability, or lack of Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 25 of 34 availability, of manpower and equipment, and additional transportation or travel charges. Therefore, cost data cannot be reliably compared across different basins and states. As with many other elements of the ICR, asset sales and trades will complicate the collection of control device cost data. Operators who own assets that have changed hands one or multiple times may not have access to data about what previous operators spent on control technology. Similarly, without proper context around whether a control device was added as a retrofit, repurposed from another facility, or part of new construction, and the approximate date of installation, it is difficult to make any useful conclusions about control cost data. EPA should also be aware that economic impacts are often considered on a well-by-well basis. A high producing well may withstand a $25,000 control equipment upgrade cost, while a low producing well may not. In the case of a low producing well, an operator may choose to plug and abandon the well before incurring the additional cost. The point at which a low-producing well becomes uneconomic and must be shut in fluctuates with commodity prices. In the West, many remote areas also have price differentials below benchmark commodity prices because of distance to and lack of access to markets, which further exacerbates the impact on small businesses and Western Energy Alliance members. g. Pneumatic Controllers In its current form, the pneumatic controller survey is inappropriately scoped and should be modified. The survey should collect pneumatic controller data on high-bleed, lowbleed, and intermittent-bleed devices only. Identifying pneumatic controllers by EPA’s actuation type categories, which may not be readily apparent to field personnel, would be difficult. Rather, companies would have to will undertake in-depth reviews of purchase orders and extensive discussions with equipment suppliers to collect this information, which further adds to the cost burden and feasibility challenges, particularly in light of EPA’s unreasonable 120 day timeframe. The request for rotary vane isolation valve actuators, snap-acting vs. throttling intermittent-bleed controllers, and turbine operated isolation valve operators would not meaningfully improve the quality of data collected and is not commensurate with the substantial burden on respondents. Furthermore, collecting detailed design information for pneumatic controllers will not be useful because their emissions are highly dependent on operational conditions. It would be inappropriate for EPA to use the Part II request to draw industry-wide conclusions Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 26 of 34 about hundreds of thousands of pneumatic controllers. These devices can be purpose-built for individual facilities and actuation rates for one facility’s controllers are not necessarily representative of industry operations in general. The variability of the population of pneumatic controllers is further compounded by the fact that they will often actuate at different rates seasonally. For EPA’s purposes, the high, intermittent, and low-bleed classifications will give it sufficient understanding of pneumatic controller populations. We also suggest EPA simplify the request for instrument air pneumatic, electronic, and mechanical controllers. If facilities are able to use instrument air, they will generally do so for all controllers. Therefore it is unnecessary to gather additional information on actuation rates, snap acting versus throttling controllers, etc. for these devices. We recommend EPA add a section to the Part II pneumatics section to allow operators the ability to designate whether a pump, valve or controller is controlled by a control device. To be consistent with industry best practices, operators often vent these pneumatics to a control device or re-capture the gas. Lastly, we support section 3 information collection on work practices and malfunctions, as it will provide EPA with useful context for evaluating work practice standards to ensure the controllers are operating as designed h. Equipment Leak Information We are also concerned that EPA has drastically underestimated both the difficulty and the cost of collecting the equipment leak information proposed under Part II of the ICR. As EPA is aware, OOOOa allows operators one year to implement a leak detection and repair (LDAR) program. Yet despite the fact that the proposed equipment leak information collection requirements in the ICR are more complex, including the time-consuming task of supplying actual component counts, EPA is only allowing 120 days for operators to complete this task. As EPA recognized in OOOOa, individually counting components is a major burden that did not meaningfully affect LDAR benefits. The end result was EPA dropping the provision in the final OOOOa LDAR program. Given EPA’s decision in OOOOa, we believe this request is likewise inappropriate for existing source rulemaking. By imposing a substantial new information gathering burden on respondents, EPA is greatly increasing the cost and complexity of the ICR without a correspondent environmental benefit, including possibly hiring and training contractors, and moving expensive optical gas imaging (OGI) equipment Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 27 of 34 to fields where imaging is not currently required, not to mention conducting the actual surveys themselves. Even companies with OGI cameras and trained personnel typically only have a limited number of cameras and technicians available. Completing this ICR will require redeploying that equipment and personnel at a time when companies are already stretched thin to meet OOOOa LDAR requirements. It appears EPA has not accounted for these costs anywhere in its analysis. We strongly recommend EPA re-evaluate the costs and time burden estimates here and ultimately allow extra time for respondents to complete equipment leak survey work. In addition, methane capture programs are already currently underway in Colorado, North Dakota, Wyoming, and Utah, including some LDAR requirements. Many companies are still making the equivalency determination on whether their actions under these programs will satisfy OOOOa requirements. Additionally, OOOOa LDAR is currently being phased in, with all facitlies needing to be in compliance by June 3, 2017. Therefore, companies are still figuring out how to comply with LDAR requirements for new sources. Asking for LDAR to be done on existing sources simultaneously is extremely burdensome and counterproductive to coming into compliance with OOOOa. We strongly recommend that EPA delay this portion of the ICR until after June 3rd. We also have concerns with how EPA intends to gather monitoring method information. Under the monitoring method selections, one choice is “Method 21/OVA”. This seems to imply these methodologies are equivalent, which is simply not the case. We suggest separating these into two different selections. At some locations operators may perform OVA inspections and not perform Method 21 inspections. i. Produced Gas Composition EPA includes a request for produced gas composition from three different time periods. In some cases, operators may not have the gas analyses from the periods being requested, particularly for facilities that have been sold one or more times. It is obviously not possible to retroactively collect this information. In oil plays, operators often do not obtain extended gas analyses, much less for each of the three time periods. If a produced gas analysis is required for other regulating agencies, it is often an analysis that quantifies hydrocarbons containing one to six carbon atoms, and then groups all hydrocarbons with more than six carbon atoms together, which air quality regulating agencies would not allow for estimating emissions. Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 28 of 34 Operators do not anticipate significant changes in produced gas composition over time. We recommend EPA ask first if an extended gas analysis has been performed from a particular well and if so, then an operator can provide that analysis. In addition, EPA’s gas analysis request includes ethane % by volume. However, Ethane is not considered a VOC. Therefore, we recommend EPA remove the request to produce ethane % by volume from the ICR. j. Gas to Oil Ratio EPA requests a GOR value from three different time periods. However, a GOR value is often determined during initial flowback and GOR values after that time period may be difficult to verify. As stated earlier, it is not industry practice to measure gas volumes sent to control devices. Without this verified volume, GOR values are calculated. In an oil play, gas is often broken out in a two-phase separator at a high pressure and again in a threephase separator at a lower pressure. While the majority of the gas breaks out in the twophase separator, small bumps in pipeline pressures of short duration can cause the gas from the three-phase separator to be directed to the flare. As a result, casinghead gas is directed to both the sales gas line and the flare. In these situations, the flared volume cannot be verified. Operators can look to gas sales data during times when they anticipate that all gas is sold, however, this cannot be verified with absolute certainty. We recommend that EPA designate a method based on technical feasibility for determining GOR after flowback or change the request to indicate an “estimated” GOR value for periods after the first 30 days of production. k. Tanks Separators The Part II request contains a worksheet titled Tanks Separators. This is a confusing term not used in the oil and gas industry. We ask EPA to clarify if this is referring to separation equipment. This worksheet also contains several requests for information regarding continuous monitoring. EPA should be aware that there will be no gaseous flow rate or liquid feed flow rate monitoring on the inlet to a separator as gas and liquids cannot be individually measured when multiple phases are encountered. Liquid level in a separator vessel also has no bearing on emission estimates, and levels often vary continuously depending on how the equipment functions. We recommend EPA strike the request for flow rate monitoring to separation equipment and the request for liquid levels in a separator because it is irrelevant for the purpose of understanding industry emissions. Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 29 of 34 l. Blowdown EPA is requesting a variety of information regarding blowdown of equipment in the “Blowdown” worksheet. While most operators will likely certify that blowdowns occurred at some time during 2015, that may be the only information known. We are unaware of any state or federal regulations requiring oil and gas operators to keep records of blowdown events for the production segment of the oil and natural gas industry or cumulative volumes for oil wells, and operators are unlikely to keep such records. Rather, EPA should ask whether operators keep records of blowdown events for the various equipment types. If the answer is “yes,” then the additionally requested information should switch from black to a cleared cell where the information can be provided. m. Control Device Part II contains a “Control Device” worksheet with a request for “Typical NG Flow to Device.” EPA should define what “typical” means. We recommend revising this request to average flow rate over the last 30 days. This section also contains a request for the, “Fraction of time control device is operated while NG flow is present,” which is an inappropriate request as operators are not required to continuously monitor the flow of natural gas to a control device in all areas. Given that there are situations where this value may be unknown, we recommend EPA revise the request to “Fraction of time control device is operated and the well is producing.” 5. Definitions We are concerned by the lack of consistency between both Parts I and II definitions, as well as the inconsistencies with other regulatory text definitions. We suggest the following changes to clarify proposed definitions: “Storage Tank” and “Vessel” are used interchangeably, which could create confusion. We suggest instead using “Tank” for storage equipment (e.g., storage tank) and “Vessel” reserved for process equipment (e.g., separator). The definition of “Crude Oil” includes the term “drip gases.” We ask that EPA clarify whether drip gas is a reference to condensate. If so, it should be removed from the crude oil definition, as condensate is defined separately. The current definition of “Facility” is unclear and could be a source of confusion for locations that have physically co-located but functionally unrelated equipment, or Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 30 of 34 locations that with functionally related equipment located off-site. For instance, if an operator has a compressor for boosting pipeline pressure and a tank battery on the same location that does not sell to the pipeline, it is unclear if EPA would consider this one or two distinct locations. It is unclear if “Gas-to-Oil Ratio” (GOR) is the same GOR that an operator would obtain from a flash analysis after a separator. We suggest EPA clarify this definition to “the ratio of the amount of hydrocarbon gas that is generated by the decrease in pressure or increase in temperature to standard conditions to the amount of hydrocarbon liquid that remains after the gas has been liberated” which more accurately describes the necessary change in pressure and temperature. “API Well ID” and “US Well ID” are listed twice, despite seemingly being the same thing. We suggest EPA combine these definitions to avoid confusion. “Separator” should clarify whether it includes gunbarrel tanks since their primary purpose is to separate water from oil and not gas from liquids. “Heater Treater” definition should be changed to read “Process Vessel” instead of “Storage Vessel” as heater treaters are not storage vessels. “Oil Well/Oil Reservoir” and “Gas Well/Gas Reservoir” definitions in their current forms will create confusion and should instead be amended to match state or land agency definitions. EPA has added a gas to oil production threshold of 100,000 scf/bbl to determine reservoir status. However, it does not appear to apply the definition anywhere in the workbook. The closest question about a well or reservoir type is the “Sub-basin Formation Type” question on the “well sites” tab in Part II of the request. Even then, the responses are from Subpart W definitions, which include values of oil, high permeability gas, shale gas, coal seam, and other tight reservoir rock. Having EPA define a term regulated by another authority could create confusion and lead to mismatched regulatory filings and air registrations. If EPA does decide to keep the definition, we suggest it condense the “Gas Well” and “Oil Well” into “Well Type” and define it as, “The type of well as defined or registered with the respective state or land agency.” The gas to oil production threshold used in both well and reservoir definitions will not be indicative of the well type, as it could be affected by a variety of factors like gas pockets in an oil reservoir. Further confusing matters, different states have different thresholds when assigning well types. For example, Oklahoma sets the threshold at 150,000 scf/bbl and Louisiana sets the threshold at 2,000 scf/bbl. Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 31 of 34 “Pressure Vessels” should be defined as any vessel that operates under pressure and not atmospheric pressure, rather than the currently stated 30 psig threshold which appears to be an arbitrary distinction that would create confusion. 6. Recipients EPA appears to contemplate collecting information on wells from both owners and operators in connection with the Part II survey. Normally, multiple working-interest and non-operating interest owners own any given well, with one primary operator. Accordingly, requiring both operators and owners to report on the Part II survey could result in numerous filings of duplicate information on each well which would make the data confusing and difficult to aggregate. The duplication would also require EPA to expend more time to process and evaluate the data accurately and would result in unnecessary burdens on the non-operators. The only sensible way to collect the information is to require the operator for each well, as designated and registered by each state oil and gas commission, to report on behalf of all of the owners of the well. EPA should clarify that any party receiving either part is only required to respond and provide information for wells where it is the operator. In addition, the estimate in the Supporting Statement that each operator would only be required to report on approximately 30 facilities or 60 wells for Part I is erroneous. Many oil and natural gas companies operate hundreds and even thousands of wells. In BLM’s recently proposed venting and flaring rule, it treats operators with under 500 wells as small entities. BLM’s definition of a small operator being an order of magnitude larger than EPA’s estimated average respondent indicates that EPA does not have an accurate understanding of the magnitude of the Part I ICR burden. The obligation to simultaneously respond to the Part II survey for these companies will be extremely expensive and require huge amounts of time. EPA must consider that burden and provide adequate additional time for recipients operating more than 500 facilities to provide the response to the ICR. Part II of the ICR will be a significant burden for any operator that receives a request, yet EPA has not taken into consideration the fact that companies may receive multiple Part II requests. We strongly recommend EPA develop a methodology to avoid disproportionately burdening a particular operator with an overwhelming number of requests. Similarly, operators who have received Clean Air Act Section 114 requests for information on facility operations and emissions data in North Dakota and elsewhere should be Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 32 of 34 exempted from Part II of the ICR. The benefits of this would be two-fold. First, these Section 114 requests are extremely costly and burdensome and have overloaded resources at affected companies, and adding a Part II request on top of that would be needlessly burdensome. Second, since these companies have provided voluminous emission and facility data to EPA already, the Part II request would be of limited utility since EPA already has much of these data. Both industry and EPA would benefit from not needlessly duplicating work. Additionally, we are concerned about how EPA will obtain contact information for operators. It is critical that the surveys are directed to individuals in the appropriate role at each company to avoid losing time. EPA should include a way for companies to provide it with their preferred contact before the surveys are distributed. We also recommend that EPA avoid oversaturating a particular region with requests which could lead to a flawed understanding of industry operations and economics. For example, the Denver Julesburg Basin in northeastern Colorado has easily accessible infrastructure and a large workforce. It is also located in the Northern Front Range Nonattainment Area, which is subject to more stringent VOC emission controls than an area without similar ozone issues. Heavily surveying this basin would not be an accurate representation of oil and natural gas development throughout the West or even throughout Colorado. We encourage EPA to fully account for both geography and production type in the Part II survey selection. Although EPA is proposing two options, we believe there is a third option. Rather than guessing at what might be representative based on GOR or basin, we recommend that EPA base its selections on the Part I ICR responses. By analyzing that information, EPA will have a much better understanding of how to target Part II requests. It strikes us as a missed opportunity for EPA not to leverage the valuable information it is collecting under Part I, and is another reason the Part II data collection should occur after and not simultaneous with Part I. EPA must also consider the fact that in ozone nonattainment areas states have been regulating existing sources for years and in many cases, through multiple State Implementation Plan (SIP) process rulemakings. Existing source controls in ozone nonattainment areas will not give EPA an accurate picture of reasonable control requirements for areas that are in attainment of federal air quality standards. Including nonattainment areas in the ICR will skew its results and inaccurately portray what is reasonable and feasible nationwide. Furthermore, if EPA moves forward with releasing final Control Techniques Guidelines, it should have a clear understanding of what existing Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 33 of 34 source control requirements will be in ozone nonattainment areas. Since EPA both sets the guidelines and approves all SIPs, it is unreasonably burdensome to demand emission control information from industry that EPA already has at its disposal., We therefore recommend that EPA limit its request to areas designated in attainment or unclassifiable under the current Ozone National Ambient Air Quality Standard. This will facilitate EPA avoiding duplicative or confusing requirements for existing sources in nonattainment areas that are already regulated by states. 7. Efficiency As EPA develops the ICR and contemplates existing source rules, we urge it to consider the wealth of information already at its disposal which can likely mitigate the need for many of the requirements of the ICR. Sources of this information include:  In-house EPA knowledge outside the refining and chemicals group, such as upstream enforcement, regional offices, and upstream OAQPS.  EPA White papers and comments, particularly on liquids unloading and pneumatic devices. These comments should help EPA determine areas where its requests could be better framed.  Industry comments on current and pending regulation, including: o NSPS OOOO and OOOOa for technical feasibility of controls and the burdens of overly prescriptive regulations o Control Techniques Guidelines for the unique challenges facing regulation of existing sources o BLM’s proposed Venting and Flaring rule for additional concerns about the regulation of existing sources, the burden of duplicative regulation, and technical feasibility concerns o The State of Colorado’s Regulation 7 and the Wyoming Department of Environmental Quality’s Existing Source Rule for the technical and economic challenges of implementing LDAR programs Information Collection Request EPA-HQ-OAR-2016-0204-0106 October 31, 2016 Page 34 of 34 o  WY State Rules for cost-effectiveness of existing source regulation EPA’s own voluntary programs. Many of these data sources could be particularly useful about actual emissions and the importance of particular sources. For example, if an operator has reporting requirements under a Title V permit, then EPA may not need equipment counts to determine emissions. Taking advantage of these data sources would fulfill statutory requirements to reduce regulatory burden on respondents without compromising data quality. 8. Conclusion We appreciate the opportunity to comment. EPA should significantly modify the ICR to focus on relevant information that will enhance EPA’s understanding of the oil and natural gas industry while removing extraneous or improperly focused requests that have little to no bearing on estimating emissions and crafting appropriate regulation. Furthermore, EPA should not initiate Part II information collection until it has comprehensively analyzed Part I responses. EPA should select Part II recipients based on data received from Part I to ensure the Part II effort represents a cross-section of the oil and natural gas industry. Finally, EPA should contemplate existing source regulations through a white paper process based on ICR data that allows for industry and stakeholder review. We are available to work with EPA to reduce the burden on both EPA and industry respondents, provide EPA with more useful emissions data, and eliminate extraneous information collection requirements. Please feel free to contact me to discuss these issues in greater detail. Sincerely, Kathleen Sgamma Vice President of Public & Government Affairs 5/11/2017 EPA Withdraws Information Request for the Oil and Gas Industry   U.S. EPA News Releases   US EPA News Releases from Headquarters EPA Withdraws Information Request for the Oil and Gas Industry 03/02/2017 Contact Information:  U.S. EPA Media Relations WASHINGTON ­­ The U.S. Environmental Protection Agency (EPA) is withdrawing its request that owners and operators in the oil and natural gas industry provide information on equipment and emissions at existing oil and gas operations. The withdrawal is effective immediately, meaning owners and operators – including those who have received an extension to their due dates for providing the information – are no longer required to respond.    At this time, EPA Administrator Scott Pruitt would like to assess the need for the information that the agency was collecting through these requests. This action also comes after the agency received a letter on March 1, 2017, from nine state Attorneys General and the Governors of Mississippi and Kentucky, expressing concern with the pending Information Collection Request for Oil and Gas Facilities.    “By taking this step, EPA is signaling that we take these concerns seriously and are committed to strengthening our partnership with the states,” said EPA Administrator Pruitt. “Today’s action will reduce burdens on businesses while we take a closer look at the need for additional information from this industry.”    Under the previous administration, EPA sent letters to more than 15,000 owners and operators in the oil and gas industry, requiring them to provide information. The information request comprised of two parts: an “operator survey” that asked for basic information on the numbers and types of equipment at all onshore oil and gas production facilities in the U.S., and a “facility survey” asking for more detailed information on sources of methane emissions and emission control devices or practices in use by a representative sampling of facilities in several segments of the oil and gas industry. EPA is withdrawing both parts of the information request.    More information: https://www.epa.gov/controlling­air­pollution­oil­and­natural­ gas­industry/oil­and­gas­industry­information­requests    R035      https://www.epa.gov/newsreleases/epa­withdraws­information­request­oil­and­gas­industry 1/1 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY Research Triangle Park, NC 27711 OFFICE OF AIR QUALITY PLANNING AND STANDARDS March 6, 2017 Dear Sir or Madam: I am writing to inform you that the U.S. Environmental Protection Agency is withdrawing its request that you provide the agency information on your oil and natural gas facilities under section 114 of the Clean Air Act. The withdrawal was effective upon announcement on March 2, 2017, meaning that you are no longer required to provide information or data as specified in the letter dated November 14, 2016, that the EPA sent you last year. The EPA is withdrawing the information request because the Administrator would like to assess the need for the information that the agency was collecting through these requests. This withdrawal applies to both Part 1 (operator survey) and Part 2 (facility survey) of the November 2016 information request. You are no longer required to provide information for either survey, even if you received an extension to your original due date for information. If you have already completed your survey and provided it to the EPA, I thank you. You do not need to do anything else related to this information request. The EPA will preserve the data it has received as required by the Federal Records Act and other applicable laws, regulations and guidance, as well as laws and regulations regarding confidential business information. If you have any questions, please contact our help desk at 888-372-8696, or by email at icr@epa.gov. Sincerely, Peter Tsirigotis Director Sector Policies and Programs Division ?tlnitui Stuns 5min DC April 6, 2017 The Honorable Scott Pruitt Administrator U.S. Environmental Protection Agency 1200 Avenue, NW Washington, DC 20460 Dear Administrator Pruitt: On November 10, 2016, the Environmental Protection Agency (EPA) issued requests for information from the oil and gas industry regarding methane emissions, [Information Collection Request (ICR) No. 2548.01 The information request was the result of a months-long public and interagenc}r process and was intended to help EPA determine how best to address methane emissions from oil and gas sources under section 1 11(d) of the Clean Air Act. Reversing course, on March 2, 2017, your agency issued a notice withdrawing the 1 CR, stating that, ?[t]he withdrawal is occurring because EPA would like to assess the need for the information that the agency,?r was collecting through these (ICR No. 2548.01}; We write to seek information concerning the March 2 notice. We also seek to obtain the information and data submitted to EPA in response to the November 10 EPA has long recognized the scientific consensus that the global wanning potential of methane is well in excess of 20 times that of carbon dioxide. In 2015, EPA determined oil and gas facilities were the largest sources of methane pollution in this country and, without any controls, these methane emissions were estimated to rise more than 25 percent in the next decade. To start curbing this dangerous climate pollution, EPA issued in May 2016 performance standards under section 111(1)) of the Clean Air Act (CAA) for methane emissions from new oil and gas sources. This action triggered a legal requirement for EPA to also address existing oil and gas sources under Section 111(d) of the CAAs That is why, at the same time EPA ?nalized the rule for new sources, the EPA issued the ICR to owners and operators of existing sources in the oil and gas sector in order to help inform ?iture emissions guidelines required under section 1 11(d). The information requested in the MIR concerned equipment, pollution control technologies, and methane emissions at existing oil and gas operationsst The ICR was the product of informal discussions with industry. two rounds of formal public comment, and thorough review by the Of?ce of Management and Budget (OMB). Both public comment and interagency review focused on a wide range of issues, including the usefulness of the information requested and the "Notice Regarding Withdrawal of Obligation to Submit Information? signed on March 2. 2 ?Notice Regarding Withdrawal ofObligation to Submit Information? signed on March 2. 3: Section 11 ltd) provides that ?the Administrator shall prescribe regulations establishlingl standards of performance for any existing source for an}, air pollutant to which a standard of perfonnancc under this section would apply if such existing source were a new source. 4 ?Notice Regarding Withdrawal of Obligation to Submit Information" signed on March 2. nd ustryiwithdrawal-Zt?l potential burden on owners and operators. EPA responded both to stakeholders and 0MB, narrowing the burden and lowering the costs of compliance with the data request down to $3.000 per covered entity. In light of this background, including the fact that the issuance of the ICR was the culmination of an extensive stakeholder outreach process that concluded less than four months before the March 2 notice, please provide detailed information and responses to the following: During your con?rmation process, you said you wouid examine the currently underway and review the submitted data before making any decisions on how to move forward. Is it correct to infer from the withdrawal of the ICE. that you have concluded that any data that had been, or would have been, submitted is irrelevant, and that new methane standards for existing sources are not necessary? Is it now position that it has no obligation under section 1 1(d) of the CAA to issue emissions guidelines for methane emissions from existing sources in the oil and gas sector subject to the NSPS promulgated in May 2016? If so, please provide copies of all scienti?c or legal analysis on which you based your decision. If not, why was it in the interest of EPA to stop collecting data from industry that EPA would then use to develop a rule in the most cost-effective way possible? The decision to withdraw the causes us to doubt your commitment to adequately enforcing methane emission standards for new, reconstructed, and modi?ed equipment that are already in place (40 CFR Part 60). What assurances can you provide that the NSPS will be enforced? Please provide us a list of the resources the agency is devoting to the enforcement of this rule. In "?assess[ing] the need for the information that the agency was collecting through these requests. . as stated in the March 2 notice, what are the factors the EPA intends to include in the assessment, and how do they differ from the factors weighed by the agency and OMB. and addressed in public comment between May 12, 2016 and November 10, 2016? Please describe the process and schedule under which you plan to conduct this assessment and specify whether the process will include participation by states, industry. stakeholders and the public. March 2 notice speci?cally identifies a March 1, 201 letter from nine state Attorneys General and two Governors raising the concerns about the cost of compliance with this ICR. What statements in the March 1 letter did you ?nd persuasive in your decision to issue the March 2 withdrawal notice, and do you have, or did the Attorneys General provide, data or analysis supporting those statements? If so, please provide the data and analysis as part of your response. Please provide us with a list of all meetings and correspondence you had on the subject of the ICR prior to March 2, and include any information concerning any communications with any. of the signatories of the March 1 letter you may haste had. Please describe any oral conversations you had and provide copies of any emails or other written communications with those parties. Between your receipt of the March 1 letter and your issuance of the withdrawal notice the following day. how many discussions did you or your staff conduct with state Attorneys General or Governors who may have supported the If those conversations did not occur, what is your justi?cation for making a unilateral decision without the opportunity for other states to weigh in? The EPA has already collected information and data responsive to November 10, 2016 ICR. Please provide us with data that was submitted to the EPA as of March 2. Thank you for your prompt attention to this matter. If you have any questions or if we can provide you with additional information concerning the responses we are seeking, please contact Michal Froedhof or Joseph Goffman at the Committee on Environment and Public Works at 202-224-8832. We would very much appreciate a response by April 17, 201?. Sincerely, Tom Carper 0 US. Senator 9 Dianne Feinstein lizabeth Warren US. Senator US. Senator Kirsten Gillibrand Sheldon Whitehousc US. Senator US. Senator All-la Jeffrey Merkley US Senator I Brian Schatz U.S. Senator U. . Senator Michael Bonnet Tamm uckworth US. Senator U. . Senator Kamala Harris Murray 6 U.S. Senator US. Senator Al Franken Torn Udall US. Senator U.S. Senator ristopher Murphy Ron W'?en U.S. Senator U.S. Senator 'ttlnittd ?tting Smart WASHINGTON. DC 20510 April 14, 201'? The Honorable Scott Pruitt Administrator US. Environmental Protection Agency 1200 Avenue, NW Washington, DC. 20460 Dear Administrator Pruitt: We write to bring to your attention an April 3, 2017', letter from eight state attorneys general and Washington concerning your decision to withdraw the Information Collection Request for oil and gas facilities (ICR No. 2548.01).2 On April 6, 2017, we sent you a letter expressing concern about the speed and reasoning for withdrawing the The recent AG letter also expresses concern with your unilateral decision to withdraw the ICR without any meaningful explanation, without any public process, and after the request of seme Republican Attorneys General. We share the concern that your decision was made almost immediately following the receipt of input of members of the Republican Attorneys General Association (RAGA, a partisan organization you used to chair and from which you have accepted political contributions), but without the review of input submitted by other interested parties such as the Democratic Attorneys General, and without the review of the data already submitted by industry to EPA. In addition to information concerning the points raised by the recent AG letter, we are also seeking information pertaining to the ful?llment of the terms of your ethics agreement with respect to your withdrawal of the ICR. Your previous and current ties to RAGA have been well-documented: You served two terms as the chair of RAGA and on its Executive Committee, and on the board of directors and as the Chairman of Rule of Law Defense Fund (RLDF), the 501(c)(4) arm of RAGA has contributed to your political campaigns and you and your former staff have raised money for RAGA from the industries you now are charged with overseeing as Administrator. This includes the oil and gas industry that bene?ts from the withdrawal of the ICRS. The former policy director and general Counsel from RAGA now serves as the Associate Administrator for Policy and the Regulatory Reform Of?cer at EPA. See. Letter from Attorney General Maura Healey et al. to Administrator Pruitt dated April 3. 20!? (onlinc at aovfaaoi'docstenvironrnentali? 3 "Notice Regarding Withdrawal ot?ObligaIion to Submit Information? Environmental Protection Agency. March 2. 20] 7 {online at 3 ice, Letter from Senator Carper et al. to Administrator Pruitt dated April 6, {online at so vfnubl its? one hef ti lestht?recdetl?Q-ng -4Ufa- goad-a?c??a t1794i}! letter-to- ens-admin i strator-prgi til-on; 4 See, cg. Letter from Senator Whitehouse ct al. to Director Shaub dated January l2. 201 {onlinc at: Shaub Sec. Nick Snow. withdraws oil and gas industry information collection request." OH 452? Gas Joni-not {March 3. 20H) (online at http:waw.ogi.eon1farticlesf20I During your con?rmation process, on January 18, 2017, you stated in response to Senator Whitehouse, that with respect to the you would ?examine the submitted data to determine the appropriate next steps.? On February 17, you were con?rmed. On February 26?27, RAGA met in Washington, DC. We have been told by an individual who attended that meeting that you spoke at that meeting. On March 1, you received a letter from nine Republican Attorneys General, all of whom are members of RAGA, and two Republican Governors asking you to withdraw the for oil and gas facilities. On March 2, citing nothing other than this letter, EPA withdrew the ICR. It is difficult for us to believe that in the two weeks between your con?rmation and your withdrawal of the ICR, you followed through with the promise you made on January 18, and examined ?the submitted data to determine the appropriate next steps? on the ICR. Instead, the timing noted above suggests that the ?submitted data? you reviewed as EPA Administrator may have consisted entirely of the letter from Republican of?cials claiming the was ?an unnecessary and onerous burden on oil and gas producers." Based on reporting by the New York Timess, we are aware that when you were Attorney General of Oklahoma, it was a practice of your of?ce to take industry?produced data and talking points, and represent them as the of?cial position of state government. You now have before you a letter from eight Democratic Attorneys General that does not simply rehash industry cost arguments. The April 3, 2017, letter from eight Democratic Attorneys General addresses evidence of harms to public health and welfare associated with emissions from oil and gas production, the bene?ts of recovering a valuable wasted resource, scienti?c assessments that support 2009 endangerment determination, and prior decision to regulate methane under the Clean Air Act. So that we can understand the nature of your examination of the ?submitted data to determine the appropriate next steps? on the ICR as well as your reliance on other materials submitted to you by Republican or Democratic elected of?cials andfor other non-governmental stakeholders, we request that you answer the following: How does this recent letter signed by the eight Democratic Attorneys General that addresses new issues not covered in the Republican AG letter affect your decision to stop the Please comment on each point referenced by the recent AG letter and discuss whether you will take these concerns into consideration as you review next steps on methane regulations as EPA Administrator. I What RAGA and RLDF events have you attended since being nominated to be Administrator of the What was the nature of your participation in those events? Did you have any conversations during that conference about the or regulation of methane emissions? If so, with whom did you have those conversations and what was discussed? a In light of the challenge to the 2016 New Source Performance Standards for methane for the oil and gas sector you brought as the Attorney General for Oklahoma, please provide either documentation of the waiver granted by the Designated Agency :3 Eric Lipton and Coral Davenport, ?Scott Pruitt, Trump?s ERA. Pick. Backed Industry Donors Over Regulators," New York Times (January I4, 2017} [onlinc at: wwj?wn'gn 1'11] ?l-l r=l) Ethics Of?cial allowing you to sign the March 2 notice or an explanation as to why no such waiver was sought or granted and how your signing of the March 2 in the absence of a waiver comports with the obligations set forth in your ethics agreement. 0 As we wrote in an April 6 letter to you, to dispel any appearance of impropriety over your decision to unilaterally withdraw this ICR, we renew our request that you commit to making public all information considered by EPA, including all correspondence and email not included in the November 10, 2016, ICR data collection request. Thank you for your prompt attention to this matter. We would appreciate a response by May 7, 2017. Sincerely, heldon Whitehouse Brian Schatz United States Senator United States Senator Thomas R. Carper Edward J. Markg a United States Senator United States Senator U.S. Department of the Interior Press Releases Share Interior Department Announces Final Regulations To Ensure American Public Receives Every Dollar Due for Production of Oil, Gas & Coal on Public Lands OFFICE OF THE SECRETARY Updated regulations o er simplicity, certainty & strengthen ability to ensure companies pay full royalties for production of public resources 6/30/2016 Date: June 30, 2016 Contact: Interior_Press@ios.doi.gov WASHINGTON, DC – As part of the overall e ort to modernize the Nation’s energy regulations, the U.S. Department of the Interior today released nal regulations that will improve valuation and revenue collection for the country’s mineral resources, ensuring Americans receive every dollar due for production of those resources on public lands and waters. Developed by Interior’s O ce of Natural Resources Revenue (ONRR), the rule also provides the clarity and certainty for industry in determining the market value, for royalty purposes, of Federal oil and gas, and Federal and American Indian coal.  “These improvements were long overdue and urgently needed to better align our regulatory framework with a 21st century energy marketplace, o ering a simpler, smarter, market-oriented process,” said U.S. Interior Secretary Sally Jewell. “As the steward of America’s oil, natural gas and coal production on public lands, Interior has an obligation – and is fully committed – to ensuring that the American taxpayer receives every dollar due for the production of these domestic energy resources.” Jewell further noted that the ONRR oil, gas and coal valuation rule is an important part of the ongoing reform agenda for the federal coal program as it relates to improving transparency and accountability. “This valuation rule is important because it ensures, in part, that our federal coal program is properly structured to obtain all revenue due to taxpayers,” Jewell said. “The updated rule will increase the e ectiveness and e ciency of the valuation process, and provide greater clarity and consistency for lessees and revenue recipients.” The current oil, gas and coal valuation regulations – originally put in place in the late 1980s – have not kept pace with the signi cant market changes that have occurred in the domestic energy markets since that time. The nal rule updates the regulations to help keep pace with modern technology and practices. Speci cally, the rule rea rms that valuation, for royalty purposes, is best determined at or near the lease and that gross proceeds from arm’s-length contracts are the best indication of market value. Eliminating the di cult-to-use benchmarks for non-arm’s-length sales (between a liated companies), the rule replaces them with a simpli ed method of valuating production by using gross proceeds from the rst arm’s-length-sale with applicable allowances. By replacing them with a market-driven mechanism, the rule provides greater e ciency for payors, reducing industry’s cost of compliance as well as ONRR’s cost to ensure industry’s compliance.  The nal rule extends the same valuation changes to both Federal and American Indian coal, with some minor exceptions, but the two programs will continue to be regulated under separate regimes. In addition to ensuring that American Indian mineral owners continue to receive the maximum revenues from coal resources on their land, the updated rule will add certainty and consistency for companies producing on Tribal and allotted lands.  As the Federal agency responsible for collecting and disbursing revenues from energy production on Federal onshore and o shore lands, as well as American Indian lands, ONRR conducted a transparent, ve-year rulemaking process that solicited input and carefully considered comments and suggestions from all interested parties, including the public, states, industry, American Indian Tribes and individual Indian mineral owners. Public engagement began on May 27, 2011, when ONRR announced its intent to update and simplify valuation regulations for Federal and American Indian coal, and Federal oil and gas through separate Advance Notices of Proposed Rulemaking, requesting comments from a ected parties and the interested public before proposing changes to the existing regulations.  Six public workshops in September and October 2011 gained feedback on speci c aspects of regulatory reform, and ONRR conducted outreach with a ected Tribes. After deliberate and careful consideration of the information gained from these outreach initiatives, Interior published the Proposed Consolidated Federal Oil and Gas and Federal and Indian Coal Valuation Rule in the Federal Register on January 6, 2015.   Due to a number of requests from stakeholders, the initial 60-day public comment period was extended another 60 days (for a total of 120 days), closing on May 8, 2015. ONRR conducted an intensive process of categorizing, reviewing and analyzing the input contained in more than 1,000 pages of comments from over 300 commenters and 190,000 petition signatories.  Coupled with the early stakeholder engagement, the extended comment period allowed for a careful review of the many complexities contained in the proposed rule.   The nal Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform Rule will be published in the Federal Register on July 1, and becomes e ective on January 1, 2017. The nal rule can be viewed here.  While this rule takes steps toward ensuring that the royalty valuation process for Federal and Indian coal resources better re ects the changing energy industry, while protecting taxpayers and Indian assets, its scope is not broad enough to address the many concerns the commenters have raised about the Federal coal program more broadly. For that and other reasons, Interior recently launched a comprehensive review to identify and evaluate potential reforms to the Federal coal program in order to ensure that it is properly structured to provide a fair return to May 8, 2015 Armand Southall Regulatory Specialist Office of Natural Resource Revenue P.O. Box 25165, MS 61030A Denver, Colorado 80225 Re: Comments on Proposed Rule on the Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform RIN 1012-AA13 Dear Mr. Southall: The Office of Natural Resources Revenue’s (ONRR) Proposed Rule entitled Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform as written does not advance the goal of maximizing royalty revenue from oil and natural gas production on federal lands. By increasing the complexity and imposing burdensome reporting requirements, the rule would divert resources away from productive, revenue generating activities and into complex accounting and legal wrangling, for both the federal government and the industry. Western Energy Alliance believes the rule should be adjusted significantly to increase clarity and reduce the uncertainty caused when too much is left to the discretion of individual auditors. As such, we fully support the changes to the rule suggested in the comments from the Council of Petroleum Accountants Societies (COPAS). We appreciate the opportunity to comment, and respectfully request that our comments be carefully considered. Western Energy Alliance represents over 450 companies engaged in all aspects of environmentally responsible exploration and production of oil and natural gas in the West. The Alliance represents independent producers, the majority of which are small businesses with an average of fifteen employees. Small producers are especially hard hit by these rules and re-interpretation of reporting procedures years after the fact. Small companies lack the extensive staff and legal resources of larger firms. In fact, we have seen very small companies in New Mexico subject to disproportionately large penalties because of ONRR’s reinterpretation of reporting requirements. The proposed rule would exacerbate the situation further. Calculating royalty payments is a complex undertaking, and our members earnestly attempt to comply with all reporting laws, policies and guidance. However, interpretations can vary between how a company reports and ONRR’s assessment. When differences arise, a high proportion of those differences are the result of honest mistakes or differing interpretations of highly complex statutes to the particular situation at hand. The fact that the agency has a 490-page handbook is testimony to the complexity of reporting Consolidated Federal Oil & Gas Valuation Reform RIN 1012-AA13 May 8, 2015 Page 2 of 8 requirements. There are several instances of federal reporting requirements remaining unresolved, leaving companies and auditors no choice but to put their own interpretations on the regulations. Often there is no single “correct” answer to a given situation. Yet ONRR is now proposing a rule that will increase the complexity and reduce the clarity of royalty valuation. Rather than a collaborative relationship that ensures an open and honest dialogue toward the goal we all share–that of ensuring royalties are fairly paid – this rule will exacerbate needless tension between ONRR and companies. Ultimately, increasing the complexity and cost of complying with uncertain regulations will further discourage oil and natural gas development on federal lands, resulting in less revenue to the federal treasury. Creating rules that result in companies paying more royalty than is owed is not in the best interest of taxpayers or consumers because increasing costs on the producer ultimately decreases supply which eventually drives up prices. By decreasing the value of operating on federal lands to producers, ONRR’s rule will drive production off federal lands, resulting in lower returns from leaseholds to the American taxpayer. This rule as written will create hesitancy on the part of industry to seek ONRR feedback and approval for reporting problems and scenarios that may arise as a result of normal business operations. This will serve to breakdown communication between industry and ONRR and thereby make the ultimate goal of the Federal Oil and Gas Royalty Management Act (FOGRMA) and the stated function of ONRR unattainable. On the other hand, the oil and natural gas industry, primarily through and utilizing the technical expertise of COPAS, is very willing to sit down with ONRR and work out solutions. We encourage ONRR to view industry as a partner in developing solutions that work for the government as well as companies. Our specific comments on the proposed rule follow. Economic Analysis Western Energy Alliance agrees with COPAS that the true cost of the proposed rule likely exceeds $100 million. ONRR has not considered many cost elements that will cause the rule to exceed the threshold that carries the obligation for thorough agency economic analysis. In addition, ONRR has not considered the impact on small businesses. ONRR has the obligation to conduct a thorough analysis of this rule under: i) Executive Order 13563; ii) Executive Order 12866 (Regulatory Planning and Review); iii) the Regulatory Flexibility Act of 1980; iv) the Small Business Regulatory Enforcement Fairness Act; and v) the Unfunded Mandates Reform Act. Rule Should be Bifurcated Oil and natural gas production is a completely different industry than coal mining, with different organizational structures, marketing arrangements, and in many cases unrelated Consolidated Federal Oil & Gas Valuation Reform RIN 1012-AA13 May 8, 2015 Page 3 of 8 end uses. As such, we see no reason for the two separate industries to be treated in one rule, and believe it should be bifurcated. Index Option Western Energy Alliance supports the concept of an index option that simplifies the calculation and auditing of royalties. If an index methodology results in less complexity of royalty calculations and reporting procedures and the index prices does not exceed the costs to comply with the traditional gross proceeds reporting methodology, the option could be a benefit to both ONRR and the industry. In such a scenario, ONRR obtains the royalties due with lower overhead costs, and companies benefit from lower costs of compliance. Both the taxpayer and companies benefit. However, as written, few companies will choose the index option because it would result in costs that significantly exceed any benefit derived from lower complexity reporting. The complexity and additional costs otherwise arising from the proposed rule will not be going to the taxpayer, but will be spent on accounting systems, complex auditing, and lawyers, both on the side of ONRR and industry. As such, the additional costs wrung from producers will not be advantaging the American taxpayer through higher returns on federal energy, but will rather go into further bureaucratic costs and overhead, not to mention providing yet more incentive for producers to abandon federal minerals for greater regulatory certainty elsewhere. In addition, small producers will be particularly disadvantaged, as many do not choose to market their gas through an affiliate. We suggest that the index methodology be adjusted and that it be available to all companies, whether or not an affiliate is used. There is considerable desire among the Alliance’s membership for a simple, equitable index, which we believe would be used extensively if structured correctly. Several members have been struggling to comply with new interpretations of existing regulations over past years, and incurring considerable costs to retrofit accounting systems and apply the new interpretations to past years. A simple methodology that eliminates the need to retrofit systems while reducing auditing risk is very attractive. However, if it results in paying costs well above the cost of current compliance, it will simply not be used. We request that ONRR adjust the rule as recommended by COPAS. The index option represents a good opportunity for ONRR and industry to sit down together and work out an acceptable methodology. The recently finalized rule on Indian oil valuation provides an example of ONRR and industry working together to craft an index methodology. While the results are unique to Indian country and not applicable to this rule, the process and collaboration are a model for ONRR to consider. Western Energy Alliance was a key participant in that rule. Consolidated Federal Oil & Gas Valuation Reform RIN 1012-AA13 May 8, 2015 Page 4 of 8 Discretion in Royalty Valuation The proposed rule gives ONRR too much discretion to determine royalty value. The proposed rule allows ONRR to determine the value of oil and natural gas if it determines: 1) the reported value is inconsistent with the requirements of the applicable subpart; 2) a gross proceeds contract does not reflect total consideration that was directly or indirectly transferred; 3) the lessee or its affiliate cannot provide copies of all contracts, which must be signed; 4) the gross proceeds accruing to the lessee do not reflect “reasonable consideration” because of “misconduct” by the lessee or contracting parties, 5) the gross proceeds accruing to the lessee do not reflect “reasonable consideration” when the sale of oil or natural gas is 10% less than the lowest “reasonable measures” of market price including index price; 6) the gross proceeds accruing to the lessee do not reflect “reasonable consideration” because ONRR cannot determine the value of oil or natural gas “for any reason;” or 7) the lessee failed to retain all data relevant to the determination of a royalty value. See proposed sections 1206.104, 1206.106(c), 1206.143, 1206.145(b). ONRR's ability to determine royalty value in so many circumstances introduces a great deal of uncertainty into a lessee's expected royalty valuation. Further, some circumstances are wholly inappropriate. For example, ONRR's ability to determine royalty value when oil or natural gas is sold for 10% less than the lowest “reasonable measures” of market price ignores that different producers can command different prices depending on their size and bargaining power. Finally, the proposed rule uses ambiguous terminology to define the circumstances in which the ONRR may value royalty. The proposed rule does not attempt to define “total consideration,” “reasonable consideration,” or “reasonable measures” of market price. These ambiguities yield little guidance to lessees. Given ONRR’s unforgiving assertion of authority to determine royalty value, it must provide lessees with clear guidance if the lessees wish to base their royalty value on the value of their actual sales. ONRR should also incorporate a provision into the final rule that expressly allows a lessee to seek review of an ONRR decision to determine royalty value by the ONRR Director and if necessary, the Interior Board of Land Appeals. Transportation Allowances Similarly, proposed sections 1206.110(f) and 1206.152(g) allow ONRR to determine a lessee’s transportation allowance if ONRR determines there is “misconduct” between the contracting parties, consideration does not reflect the “reasonable cost” of transportation for a variety of reasons, or an allowance is unreasonably high because it is 10% more than the “highest reasonable measure” of transportation costs. ONRR may also determine a transportation allowance if it cannot determine whether the lessee properly calculated a transportation allowance. Consolidated Federal Oil & Gas Valuation Reform RIN 1012-AA13 May 8, 2015 Page 5 of 8 The provisions afford ONRR too much discretion to determine a lessee’s transportation allowance. Further, the provision suggesting that a transportation allowance may be unreasonably high if it is 10% higher than the "highest reasonable measure" of transportation costs ignores both that different producers negotiate different prices based on their size and that producers often negotiate long-term transportation agreements reflecting the economic conditions at the time they enter into an agreement. ONRR should also incorporate a provision into the final rule that expressly allows a lessee to seek review of an ONRR decision to determine a transportation allowance by the ONRR Director and if necessary, the Interior Board of Land Appeals. Transportation allowances in the federal reporting system have not kept pace with today’s industry and innovation. Deductions should be adjusted in line with current practices. In the rule as proposed, the maximum transportation allowance is $.30 per Mcf. The cap on the allowance does not seem justifiable when producers regularly pay more in transportation costs. In addition, the rule would not allow the deduction of compression costs, even though compression is a major component of transportation. Since compression is a major and necessary cost component of transportation, why is it arbitrarily disallowed? This seems to be incompatible with CFR 30:1206.152 unprocessed gas and 30:1206.153 for processed gas, which requires that producers must get the gas into a marketable condition. “Misconduct” The proposed definition of misconduct is too broad. The proposed rule would allow ONRR to determine both royalty value and transportation allowances when it determines that “misconduct” has occurred by or between the contracting parties. See proposed sections 1206.104(c)(1), 1206.110(f)(1), 1206.143(c)(1), 1206.152(g)(1). ONRR proposes to define “misconduct” as “any failure to perform a duty owed to the United States under a statute, regulation, or lease, or unlawful or improper behavior, regardless of the mental state of the lessee or any individual employee by or associated with the lessee.” This definition is problematic for a host of reasons. First, ONRR proposes to define misconduct to mean a failure to perform any duty owed to the United States, regardless of whether it relates to the payment of royalty. Conceivably, a lessee could mistakenly paint a tank the wrong color, in violation of a Bureau of Land Management requirement, and that mistake could result in ONRR determining royalty value and transportation allowances. Such a broad definition is arbitrary, as ONRR has not defined why a failure to perform any duty owed the United States justifies the need for the agency to determine royalty value or transportation allowances. ONRR should narrow the definition of misconduct to relate to royalty payment and reporting issues. Consolidated Federal Oil & Gas Valuation Reform RIN 1012-AA13 May 8, 2015 Page 6 of 8 Second, the definition of misconduct does not limit the misconduct to a particular lease. Larger producers may own or operate thousands of federal oil and gas leases. Because of the broad definition of misconduct, the failure to properly paint a tank in New Mexico the correct color would allow ONRR to determine royalty value of oil and natural gas produced from onshore leases across the United States as well as offshore leases. Even if ONRR narrowed the definition of misconduct to relate to royalty payment and reporting issues, it should further narrow the proposed rule to only allow ONRR to determine royalty value or transportation allowances for the federal leases on which the misconduct occurred. Third, in light of the fact that ONRR has defined misconduct as the failure to perform any duty owed the United States for any reason, its proposal to ignore the mental state of an individual employee has the effect of being punitive. Oil and natural gas producers strive to comply with federal law, yet there are thousands of requirements applied to this very complex industry, and honest mistakes are made that are diligently corrected when brought to light, either by the producer or the regulator. In addition, regulatory complexity means there can be many different interpretations of regulation that lead to different “answers,” even from one ONRR auditor to the next. Congress has afforded ONRR the authority to penalize lessees that knowingly and willfully fail to correctly report and pay federal royalties. ONRR should not determine royalty value or transportation allowances because of honest mistakes, particularly when honest mistakes may not relate to duty to report and pay royalty or the lease at issue. Fourth, the breadth of the definition of “misconduct” is particularly troubling when read with the language of proposed sections 1206.104(c)(1), 1206.110(f)(1), 1206.143(c)(1), and 1206.152(g)(1). These sections allow ONRR to determine royalty value and transportation allowances when misconduct has occurred “by or between” contracting parties. This language, with the definition of misconduct, could allow ONRR to value royalty when the third party with whom a lessee is contracting for sale or transportation of oil or gas has engaged in “misconduct” outside of the transaction. The definition is arbitrary because “misconduct” by a purchaser of transportation that is unrelated to a transaction with a lessee has no bearing on the price or transportation allowance the lessee accepts for its oil or gas. Furthermore, the definition imposes an unreasonable burden on lessees to attempt to discern whether a party with whom they are contracting has failed to perform a duty to the United States that is unrelated to the particular transaction. Finally, given the extraordinarily and unnecessarily broad definition of misconduct, ONRR must afford lessees an opportunity to seek review of a determination that misconduct has occurred by the ONRR Director and, if necessary, the Interior Board of Land Appeals. Contracts The proposed rule contains the requirement that all contracts must be made in writing, otherwise a company carries a large risk of audit. There are several reasons that all Consolidated Federal Oil & Gas Valuation Reform RIN 1012-AA13 May 8, 2015 Page 7 of 8 contracts cannot be made available without revealing sensitive business information that affects the ability of a company to compete. ONRR should not impose a punitive requirement that could potentially harm the ability of a company to compete in the marketplace successfully. Western Energy Alliance agrees with COPAS that keepwhole accounting and reporting as processed gas (30 CFR 1206.142) needs to be eliminated because not only is it impossible to accurately report product volumes without complete plant data it requires payment of royalty on a value far greater than the producers owes. Although the proposed rule provides an example of how keepwhole accounting is to be calculated, the plant statement usually does not contain sufficient information on such items as plant efficiencies and NGL values to perform all the calculations. The requirement should be eliminated or simplified, including in the index option. For keepwhole contracts, plant data to accurately determine the volumes on which royalty is owed is simply not available. ONRR's guidance suggest paying royalty on theoretical volumes with no adjustment for plant efficiency. Creating a situation whereby producers would have to pay royalties on amounts that cannot be attained creates a huge disincentive to maximizing royalties by delivering as much Natural Gas Liquids (NGLs) as possible. The situation will continue to worsen if natural gas prices remain low while NGL prices remain steady or increase, as has been the case for many years. Unbundling ONRR’s fairly recent re-interpretations of regulations related to unbundling costs have greatly increased the complexity of reporting royalties and audits. Unbundling is resulting in greater overhead costs for ONRR as well as for companies as transactions from years ago are reinterpreted to unbundle costs that were previously considered deductible. Western Energy Alliance members report considerable costs to redesign accounting systems and comply with the new unbundling interpretation. A medium-size company reports spending $2 million on new systems, and even small companies are spending considerable capital, with one six-person company reporting costs of $110,000. Furthermore, once these companies spend millions on accounting system upgrades, there is nothing to prevent further reinterpretation of the rules a few years from now, once again restarting the expenditure cycle. Finally, ONRR itself has a very difficult time unbundling plants and getting access to the required information for such efforts. These rules should significantly simplify reporting requirements while also providing some assurances that the interpretation will stay grounded in the realities of the oil and natural gas business. ONRR should not lose sight of the fact that both the federal government and the producer have an incentive to maximize value. Punitive methods for maximizing royalties by Consolidated Federal Oil & Gas Valuation Reform RIN 1012-AA13 May 8, 2015 Page 8 of 8 arbitrarily requiring royalties be paid in excess of the value a producer can ever achieve are counterproductive, especially over the long term. For example, both ONRR and producers have an incentive to maximize the delivery of Natural Gas Liquids (NGLs), as their value is much higher than dry gas. The proposed rule contains unnecessary complexity that discourages producers from delivering NGLs, and hence much higher royalties to ONRR and the taxpayer. Because ONRR is pursuing a strategy of unbundling and disallowing processing costs, it is creating a situation of minimizing royalties. If producers cannot fairly deduct actual costs of processing, ONRR is being penny wise and pound foolish. Finally, retroactively applying new interpretations of unbundling has been very counterproductive to the efficient reporting of actual royalties due. If the proposed rule is finalized, it should only be applied prospectively to production months after the effective date of the rule. The ONRR should not revisit royalties paid previously based on the new rule. Thank you for considering our comments. Western Energy Alliance is available to work collaboratively with ONRR on this rule, as we have done on previous rules, and would welcome the opportunity. Sincerely, Kathleen M. Sgamma Vice President of Government & Public Affairs United States Department of the Interior OFFICE OF NATURAL RESOURCES REVENUE RU. Bo); 25165 Denver. Colorado HtlEES-tl Fri FEB 2 2 201? Subject: Stay ofthe Consolidated Federal Oil 63: (las and Federal ti: Indian Coal Valuation Reform Final Rule Dear Reporter: The Office ofNatural Resources Revenue (ONRR) published the Consolidated Federal Oil Gas and Federal Indian (.?oal Valuation Reform Final Rule (2017 Valuation Rule) on July 1, 21116.1 The 2017 Valuation Rule took effect on January 1, 201?, with reports due on February 28, 2017. On December 29, 2016, several petitioners tiled separate petitions challenging the rule in U.S. District Court for the District of In light ofthe pending litigation, ONRR has decided to postpone the effective date ofthe 2017 Valuation Rule until the litigation is resolved pursuant to Section 7'05 ofthc Administrative Procedure Act. 5 U.S.C. 705. will publish a Federal Register notice to this effect as soon as possible. Federal and Indian Lessees should continue to value, report, and pay royalties under the rules that were in effect prior to January 1, 2017. This applies to the January 2017 production month reports due on February 28, 2017, and continues until the litigation is resolved and ONRR provides notice of the result. ONRR has prepared a Frequently Asked Questions (FAQ) document to help affected Federal and Indian lessees navigate the stay process. The FAQ document will be posted on (JNRR's website at u'wo'.onrr.eov as soon as possible. ONRR understands that some lessees have already converted their accounting systems to comply with the 2017' Valuation Rule. ONRR also understands that it may be difficult to reconvert those systen?ts to report and pay royalties under the prior rules by the February 23. 2017 deadline. As such. ONR provides the following, interim guidance on how to report and pay royalties in light of the postponement. - Lessees should report and pay royalties under the prior rules as soon as possible to avoid potential misreporting and royalty underpayments. 'stat: at FR 43333 July I. 3016 3 Tutti! Peek Energy. for. v. Dry: 't ofthe Interior. Case No. ?:i-lT (D. Wyn); Petroi?ettm first. United States Hep 't ofthe Interior. Case No. (D. Wyn): fir?State Generation run." trottrmisst'mt 'tt. hie. Bust): Etertt't'c? Pun-er Cooperative. and Ill-stem Fuels- hm, v. Um'tmth'tutes Dep 't of the Interior, Case No, Wye.) I Lessees that have not converted their accounting systems to comply with the 2017 Valuation Rule should continue reporting and paying royalties under the prior rules. a Lessees that are able to convert their accounting systems to report and pay royalties under the prior rules by the February 23, 2017, deadline should report and pay royalties under the prior rules. I Lessees that cannot convert their accounting systems to report and pay January 20] 7 production month royalties under the prior rules before the February 28. 2017. deadline should report and pay royalties as their accounting system allows by February 23, 2017. ONRR will not assess a civil penalty for any reporting issue that results from the postponement of the 2017 Valuation Rule as long as the lessee corrects the reporting issue by August 31. 2017. ONRR will also work with affected lessees to correct their reporting. Lessees should convert their accounting systems to report and pay royalties under the prior rules as soon as possible to avoid royalty underpayments. 11' you have questions about the status ot'the 2017 Valuation Rule or the el?fcct ol? this stay. please visit website at Sincerely. pawl James D. Steward Deputy Director United States Department of the Interior OFFICE OF NATURAL RESOURCES REVENUE Washington, DC 20240 FEB 2 2 2017 Peter J. Schaumberg James M. Auslander Beveridge Diamond, PC 130 I Street, NW, Suite 700 Washington, DC. 20005-3311 Dear Mr. Schaumberg and Mr. Auslander: Thank you for your letter dated February 2017, requesting that the Of?ce of Natural Resources Revenue (ONRR) postpone implementation of the Consolidated Federal Oil Gas and Federal Indian Coal Valuation Rule (Rule) under Section 705 of the Administrative Procedure Act (APA). As you know, the Rule was published in the Federal Register on July 1, 2016 and took effect on January 1, 2017. The ?rst reports under the Rule are due by February 28, 2017. While we do not agree with all legal conclusions in your letter, in light of the pending litigation and for the following reasons, ONRR will postpone the effective date of the Rule until the issues raised in the judicial actions challenging it have been de?nitively resolved. First, while ONRR believes that the Rule was properly promulgated, we agree that you have raised serious questions concerning the validity of certain provisions in the Rule. Given this legal uncertainty, we believe that it is critical to maintain the status quo until the litigation is resolved. Second, we believe that the stay will enhance the lessees? ability to timely and accurately report and pay royalties. Many lessees, including the petitioners, have raised legitimate questions concerning how to properly report and pay royalties under the Rule. Given these judicial and administrative uncertainties, relying on the previous regulatory system will reduce uncertainty and enhance ability to collect and verify natural resource revenues while the litigation is pending, which is in the best interest of the States, Tribes, individual Indian lessors, and the general public. Third, a postponement will avoid the substantial cost to both the regulated community and ONRR of retroactively correcting and verifying all revenue reports if the Rule is invalidated as a result of the pending litigation. We realize that those lessees that have already updated their accounting systems to report and pay royalties under the Rule will incur a cost to reconvert the systems to report and pay royalties under the previous rule. But the cost of reconverting those systems now is less than what that cost would be if the Rule is invalidated and lessees must reconvert their accounting systems and correct all royalty reports submitted under the invalidated Rule. Finally. the United States will suffer no signi?cant harm from postponing the el?t'ective date ol? the Rule while the litigation is pending. As you noted. the Rule is not expected to have a signi?cant impact on the economy. 8] FR 43338. 43368 (July 1. 2016). Thus, postponing the effective date ofthc Rule will not cause any appreciable economic harm to the general public. In fact. we believe the regulatory certainty provided by the postponement will enhance mission to collect and verify natural resource revenues. which is in the best interest ol'the royalty bene?ciaries and the United States. ONRR will publish a Federal Register notice postponing the effective of the Rule under Section 705 of the APA as soon as possible. ONRR will also issue a Dear Reporter that noti?es lessees ot'the postponement and provides guidance on how to report. Sincerely Gregory J. Gould Director GUI Gail L. Wurtzler Kathleen C. Schroder Davis. Graham :52 Stubbs 1550 Seventeenth Street. Suite 500 Denver. Colorado 30202 John F. Shepherd Walter Ii. 11] Tina Van Bockern Holland l-lart 555 Seventeenth Street. Suite 3200 Post Office Box 8749 Denver. Colorado 80201-8749 Rex E. Johnson Brian D. Artery Sherard. Sherard. Artery Johnson 602 10111 Street Wheatland. Wyoming 82201 March 7, 2017 The Honorable Ryan Zinke Secretary of the Interior 1849 C Street, N.W. Washington, D.C. 20240 Dear Mr. Secretary: One of the fundamental tenets of public land law is that the American people should receive fair market value for the natural resources taken from the public lands.1 You assured me, at your confirmation hearing, that you supported this important principle and agreed that “taxpayers should always get a fair value” for the resources extracted from the public lands.2 Consistent with this principle, last July, the Department of the Interior amended its regulations governing the valuation of oil and gas produced from federal onshore and offshore leases and coal produced from federal and Indian leases. One of the stated purposes of the amendments was to ensure that mining “companies have paid every dollar due” to the American people.3 The new valuation rule went into effect over two months ago, on January 1, 2017. On February 22, 2017, however, the Director of the Department’s Office of Natural Resources Revenue “postponed the effectiveness” of the new rule, even though it had already been in effect for 53 days.4 He cited section 705 of the Administrative Procedure Act as giving him that authority. Section 705 provides that “[w]hen an agency finds that justice so requires, it may postpone the effective date of action taken by it, pending judicial review.”5 The American Petroleum Institute and others have filed suits challenging the new rule. The Director reasoned that “justice requires postponing the effectiveness of the 2017 Valuation Rule until the litigation is resolved.”6 1 Federal Land Policy and Management Act, § 102(9), 43 U.S.C. § 1701(9). Hearing Transcript at 37-38 and 132-133. 3 Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform, 81 Fed. Reg. 43338 (July 1, 2016). 4 Postponement of Effectiveness of the Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform 2017 Valuation Rule, 82 Fed. Reg. 11823 (Feb. 27, 2017). 5 5 U.S.C. § 705. 6 82 Fed. Reg. at 11824. 2 2 There are two major reasons why section 705 does not give the Department the authority the Director claims and why his attempt to postpone the effectiveness of the rule is contrary to law. First, as the courts have said, section 705 “permits an agency to postpone the effective date of a not yet effective rule, pending judicial review. It does not permit the agency to suspend without notice and comment a promulgated rule....”7 The operative verb in the statute is “to postpone.” “According to the dictionary, to ‘postpone’ means ‘to put off until a future time.’ It is implicit in this definition that one can only postpone something that has not yet occurred. If a wedding occurs on September 2, one cannot ‘postpone’ the wedding until September 30 on September 5.”8 By the same token, the Department cannot “postpone” on February 22 the effectiveness of a rule that went into effect more than seven weeks before, on January 1. Second, even if section 705 were to allow the Department to “postpone” that which has already occurred, the courts have made it clear that section 705 does not allow agencies to grant stays based upon their own notions of what may constitute “justice.” The Department may only grant stays under section 705 upon consideration of the four-part test the courts use to determine whether to grant preliminary injunctions.9 The Supreme Court has said that the proponent of a preliminary injunction “must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.”10 The Director failed to apply—or even mention—this four-part test when he postponed the effective date of the new rule. His failure to do was arbitrary and capricious, and his decision to postpone the effective date must be set aside as unlawful. We know this to be true because this is not the first time an agency has abused section 705 in this manner. In 2011, the Environmental Protection Agency issued a “Delay Notice,” staying the effective date of two air pollution rules on the basis of section 705.11 But the Agency found that “justice requires a stay, according to its broad, discretionary determination of what constitutes justice.” It “neither employed nor mentioned the four-part test in its Delay Notice.”12 7 Safety-Kleen Corp. v. Environmental Protection Agency, 1996 U.S. App. LEXIS 2324 (D.C. Cir. 1996). 8 Merriweather v. Sherwood, 235 F. Supp. 2d 339, 342 (S.D. N.Y. 2002) (construing authority to “postpone the effective date of an automatic stay” under the Prison Litigation Reform Act). 9 Sierra Club v. Jackson, 833 F. Supp. 2d 11, 30 (D.D.C. 2012). 10 Winter v. Natural Resources Defense Council, 555 U.S. 7, 20 (2008). 11 Sierra Club v. Jackson, 833 F. Supp. 2d 11 (D.D.C. 2012). Unlike the Department’s stay of the valuation rule, EPA tried to postpone the effective date of its rules before they went into effect, not after they were already in effect. Id. at 15. 12 Id. at 30-31. 3 The court said that an agency “must set forth its consideration of the [four] factors and its attendant conclusions of law.” The court held that “the failure to do so ... is arbitrary and capricious,”13 and set aside EPA’s attempt to postpone the effective date of its two air pollution rules.14 The Department has plainly failed to show sufficient grounds for staying the effective date of the valuation rule’s effective date under the four-part test. The first test is whether the plaintiffs in the lawsuits challenging the rule have “made a strong showing” that they are “likely to prevail on the merits” in the litigation. The Department’s notice announcing the postponement suggests just the opposite. It states that the Office of Natural Resources Revenue “believes the 2017 Valuation Rule was properly promulgated,” rather than fatally flawed. The second test is whether the plaintiffs challenging the rule are “likely to suffer irreparable harm” if the effective date of the rule is not postponed. The Department asserts that its lessees may “incur the unreimbursable costs of reverting back to the old system” and “of correcting its reports and royalty payments” if they pay royalties under the new rule and the courts ultimately find the new rule to be invalid. The Department contends that incurring these costs constitute “potentially irreparable harm.”15 There are two problems with the Department’s reasoning on the second test. The first is that the courts have held that “[m]ere injuries, however substantial, in terms of money, time and energy necessarily expended [complying with a regulation] in the absence of a stay, are not enough.”16 “Purely economic harm is not considered sufficiently grave under this standard unless it will ‘cause extreme hardship to the business, or even threaten destruction of the business.’”17 The Department’s rulemaking record simply does not support the claim that the lessees will suffer “irreparable harm” if the rule goes into effect and is later overturned. While the new rule is expected to result in the Department’s lessees paying more royalties, 18 the additional royalties can be reimbursed if the courts later overturn the rule. Payment of reimbursable royalties does not constitute “irreparable harm.” 13 Id. at 31, citing Gordon v. Holder, 632 F.3d 722, 724 (D.C. Cir. 2011). Id. at 35-36. 15 82 Fed. Reg. at 11824. 16 Virginia Petroleum Jobbers Association v. Federal Power Commission, 259 F.2d 921, 925 (D.C. Cir. 1958). 17 Affinity Healthcare Services, Inc. v. Sebelius, 720 F. Supp. 2d 12, 17 (D.D.C. 2010), quoting Gulf Oil Corp. v. Department of Energy,514 F. Supp. 1019, 1025 (D.D.C. 1981) (holding “irretrievable monetary loss” alone “is not enough” to establish “irreparable injury”). See also Mexichem Specialty Resins, Inc. v. Environmental Protection Agency, 787 F.3d 544, 555 (D.C. Cir. 2015), quoting Wisconsin Gas Co. v. Federal Energy Regulatory Commission, 758 F.2d 669, 674 (D.C. Cir. 1985). 18 81 Fed. Reg. 43359-43360 (estimating increased royalty collections of $71.9 million to $84.9 million). 14 4 Perhaps recognizing this, the Department contends that it is not the additional royalties, but the administrative costs the industry will bear “reverting back to the old” royalty system and “correcting its reports and royalty payments,” if the new rule is overturned, which constitute “irreparable harm.” But according to the rule’s preamble, the Department estimates that the new rule will actually save the industry $3.61 million in administrative costs each year compared to the old system.19 Allowing the new rule to go into effect will reduce the industry’s administrative costs. The industry will reap these savings if the rule is upheld. Staying the new rule’s effective date will deprive the industry of these savings. Plainly, then, allowing the new rule to go into effect plainly will not cause the industry “irreparable harm.” The other problem with the Department’s reasoning on the second test is that the most the Department claims is “potentially irreparable harm.” But the Supreme Court has said that is not enough to support a stay. It has made it clear that the four-part test requires a showing that “irreparable harm is likely.”20 The “possibility” of irreparable harm simply is not enough. The third part of the four-part test requires the Department to consider whether postponing the effective date of the rule will “substantially harm other parties,”21 and whether the “balance of equities” between the harm done to the industry from not postponing the effective date and the harm done to other parties by postponing it, “tips in ... favor” of the industry. In its preamble to the new rule, the Department estimated the new rule will increase royalty collections by over $78 million, of which over $18 million would be paid to states and $60 million would be retained by the Federal Government.22 But in its notice announcing the postponement of the effective date of the rule, the Department simply dismissed the loss of these royalties as insignificant. It declared that “[t]he United States will suffer no significant harm from postponing the effectiveness” of the rule because “the Rule is not expected to have a significant impact on the economy.”23 It made no effort to balance the equities between the loss of $78 million in additional royalties to the federal and state governments and the cost to the industry of “reverting back to the old system” and “correcting its reports and royalty payments.” Moreover, the Department did not consider the substantial harm to the lessees that have already converted their accounting systems to comply with the new rule, and must now recovert their systems in order to report and pay royalties under the old rule. Nor did it balance the equities between those lessees who are willing to pay what is due and have already incurred the administrative costs of complying with the new rule and those lessees who are challenging the new rule in order to avoid the paying royalties on the fair value of their production. The Department ignored the harm postponement causes the former and considered only the potential harm not postponing the effective date may cause the latter. 19 20 21 22 23 81 Fed. Reg. at 43359. Winter v. United States, 555 U.S. at 22 (emphasis in original). Virginia Petroleum Jobbers Association v. Federal Power Commission, 259 F.2d at 925. 81 Fed. Reg. at 43367. 82 Fed. Reg. at 11823-11824. 5 The final part of the four-part test requires the Department to determine if staying the rule is in the public interest. Here, the Department simply declares, without explanation, that “the public interest ... requires postponing the effectiveness” of the new rule. In the absence of any analysis of the public interest, the Department’s conclusion is unconvincing.24 “By summarily citing to the public’s interest without elaboration,” the Department “abdicated its responsibility to fully analyze” the fourth factor in the four-part test.25 In sum, the Department’s action in postponing the effective date of the new royalty valuation rule, which had already taken effect, exceeded the Department’s authority under section 705 of the Administrative Procedure Act and does not meet the standards the courts have long required agencies to apply when they seek to use their authority under that section.26 Postponing the effective date of the new rule in this manner was plainly contrary to law. You testified at your confirmation hearing that you “will follow the law.” 27 This may be a good place to start. You should lift the stay and let the royalty valuation rule go back into effect. Sincerely, Maria Cantwell Ranking Member 24 Winter v. United States,555 U.S. at 26 (finding that a district court had not given “serious consideration to the public interest factor,” where it addressed this consideration “in only a cursory fashion,” despite its importance). 25 Gordon v. Holder, 632 F.3d 722, 725 (D.C. Cir. 2011) (finding a “district court erred by addressing” the public interest factor “in conclusory fashion”). 26 Sierra Club v. Jackson, 833 F. Supp. 2d at 30 (“the standard for a stay [under section 705] at the agency level is the same as the standard for a stay at the judicial level: each is governed by the four-part preliminary injunction test”), citing Cuomo v. Nuclear Regulatory Commission, 772 F.2d 972, 974 (D.C. Cir. 1985); Virginia Petroleum Jobbers Association v. Federal Power Commission, 259 F.2d 921, 925 (D.C. Cir. 1958). 27 Hearing Transcript at 107. U.S. Department of the Interior Press Releases Share Interior Department Announces Proposal to Repeal Recent Amendments to Federal Energy Valuation Rules OFFICE OF THE SECRETARY Public input sought on whether or not to repeal, amend regulations 4/3/2017 Date: April 3, 2017 Contact: Interior_Press@ios.doi.gov WASHINGTON – As part of the Administration’s e ort to reduce regulation and control regulatory costs, the U.S. Department of the Interior today announced a proposal to repeal the Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform Rule (2017 Valuation Rule) in its entirety. Concurrently with this proposal, O ce of Natural Resources Revenue (ONRR), is publishing an Advance Notice of Proposed Rulemaking seeking comments on whether revisions are appropriate or needed to the pre-existing regulations governing royalty values, including comments on whether the 2017 Valuation Rule should ultimately be retained or repromulgated, in whole or in part. Developed by Interior’s ONNR, the original intent behind the 2017 Valuation Rule was to o er greater simplicity, certainty, clarity, and consistency in product valuation and reporting for mineral lessees. ONRR has since identi ed several areas in the rule that warrant reconsideration to meet policy and implementation objectives. The repeal would provide certainty and clarity to the regulated community by continuing to require compliance with lawful, longstanding, and well-known procedures. The Department intends to further evaluate changes that may be warranted to the long-established regulations, ensuring that valuation and revenue collection for the Nation’s mineral resources remain free from loopholes and that Americans receive every dollar due for production of those resources on public lands and waters. The proposal to repeal the Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform Rule as well as the Advanced Notice of Proposed Rulemaking will be published in the Federal Register on April 4, 2017, which initiates a 30-day public comment period. The notices will be available on the web at: www.regulations.gov. Comments can be made online, by email, or by hand-carrying documents: Electronically go to www.regulations.gov. In the entry titled “Enter Keyword or ID,” enter “ONRR-2017-0001” for the repeal notice or “ONRR-2017-0002”for the advanced notice, and then click “Search.” Follow the instructions to submit public comments. We will post all comments. Email comments regarding the repeal notice to Armand Southall, Regulatory Specialist, at armand.southall@onrr.gov.  Email comments regarding the advanced notice to Luis Aguilar, Regulatory Specialist, at luis.aguilar@onrr.gov. Hand-carry or mail comments, using an overnight courier service, to the O ce of Natural Resources Revenue, Building 53, Entrance E-20, Denver Federal Center, West 6th Ave. and Kipling St., Denver, Colorado 80225. PRESS RELEASE Share