On March 29, 2019, the U.S. Environmental Protection Agency (EPA) announced it had finalized a voluntary disclosure program for new owners of upstream oil and natural gas exploration and production facilities. Under the program, EPA will not impose any civil penalties on new owners of these facilities (which include well sites and associated tanks and vapor control systems) who find, self-disclose, and correct Clean Air Act violations pursuant to an audit program agreement with EPA. EPA is offering the program to such new owners because EPA and states have seen significant excess emissions and Clean Air Act noncompliance from vapor control systems at these facilities.
In most cases, new owners will have nine months from the date of acquisition to notify EPA of their interest in participating in the program. New owners who acquired facilities in the twelve months before EPA finalized this program are also eligible. EPA has reserved the right not to enter into an agreement under this program if EPA or a state has already discovered Clean Air Act noncompliance at these newly-acquired facilities.
Following notification, the new owner will consult with EPA to determine the scope of the audit and the number of facilities covered by the audit. That scope will then drive the schedule for completing the audits and corrective action, which will be set forth in the customized audit agreement between the new owner and EPA. As part of this agreement, the new owner will be required to ensure its newly-acquired vapor control systems are: (1) designed to handle maximum and minimum system pressures based on production, and (2) operated and maintained in a manner that prevents excess emissions. According to the template for the audit agreement, violations identified through this vapor control system assessment process must be corrected within 180 days of discovery, although that timeframe can be extended. The template provides that new owners have 60 days to correct other violations, but that time may be extended as well.
Under the template, EPA will not impose any civil penalty for those violations that were disclosed and “satisfactorily corrected” consistent with the agreement’s requirements. EPA has acknowledged that this penalty relief is greater than what it offers under its preexisting audit policies – Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations, 65 Fed. Reg. 19618 (April 11, 2000), and Interim Approach to Applying the Audit Policy to New Owners, 73 Fed. Reg. 44991 (Aug. 1, 2008) – which allow for the elimination of the gravity component of the penalty rather than the entire penalty. EPA has said that this new program for upstream oil and gas facilities “is separate from” and “does not change” those preexisting audit policies.
Notably, this new program is based on an audit policy agreement that EPA negotiated in 2017 with Range Resources, after it acquired numerous oil and gas assets in Louisiana. Under that agreement, Range Resources was given three years to complete audits for its 390 newly-acquired facilities, rather than the shorter timeframe that would have been available under preexisting audit policies. Mr. Louis Buatt of Liskow & Lewis provided legal counsel to Range Resources in connection with that audit.
Companies acquiring upstream oil and natural gas assets may find the new policy to be an effective way to mitigate environmental risk and to assure future compliance at the newly-acquired facilities.
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