What has the EPA announced and why is the EPA doing this?
The EPA has finalized its Oil and Natural Gas Exploration and Production Facilities New Owner Audit Program (Oil and Gas New Owner Audit Program or Program) tailored for new owners of upstream oil and natural gas exploration and production facilities. This Program will ensure environmental protection, while providing certainty at upstream oil and natural gas exploration and production facilities based on the EPA’s analysis of these facilities’ unique operations. This is an opportunity to achieve timely and cost-effective public health and environmental protections and Clean Air Act compliance.
This Program offers new owners of upstream oil and natural gas exploration and production facilities (i.e., well sites, including associated storage tanks and pollution control equipment) (New Owners) incentives specifically tailored to encourage them to make clean starts at recently-acquired facilities by finding, correcting, and disclosing Clean Air Act violations. This Program provides additional flexibilities and is designed to encourage self-disclosures of violations that will, once corrected, yield significant pollutant reductions and public health and environmental protections. New Owners satisfying the Program’s conditions will receive penalty reductions beyond those provided in the EPA’s Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations, 65 Fed. Reg. 19,618 (Apr. 11, 2000) (Audit Policy) and Interim Approach to Applying the Audit Policy to New Owners, 73 Fed. Reg. 44,991 (Aug. 1, 2008) (New Owner Audit Policy).
The EPA is initially offering this Program to New Owners because the EPA and states have seen significant excess emissions and Clean Air Act noncompliance from vapor control systems at these facilities. Offering additional flexibilities under this Program encourages New Owners with vapor control systems at these facilities to identify, correct, and self-disclose Clean Air Act violations, thereby providing additional public health and environmental protections.
What incentives is the EPA offering to New Owners under this Program?
This Program offers New Owners certainty with respect to their investments and operations through clearly defined civil penalty mitigation beyond what is offered by the EPA’s Audit Policy and New Owner Audit Policy. This Program will be implemented through the Final Agreement Template, which will reduce transaction costs and improve efficiencies for the EPA and New Owners. The EPA identified the need for these efficiencies through its past experiences working with new owners of upstream oil and natural gas exploration and production facilities. These past experiences led the EPA to conclude that developing this Program in a way that streamlines the process for reaching agreement on the audit terms and that sets clearer expectations up front for corrective actions and penalty mitigation would lead to efficiencies that result in enhanced compliance and environmental benefits sooner than might otherwise occur.
This Program is a voluntary program available to New Owners who have newly-acquired exploration and production facilities—i.e., well sites and associated tank systems and vapor control systems. This Program has been tailored to address concerns regarding excess emissions from tanks and vapor control systems related to operation, maintenance, and/or design issues at newly-acquired oil and natural gas exploration and production facilities. The EPA will not impose civil penalties for violations that are discovered, corrected, and disclosed to the EPA by New Owners that enter into, and fulfill all obligations under, an Oil and Natural Gas Exploration and Production Facilities New Owner Audit Program Agreement (Agreement).
Why does this Program focus on New Owners and why would New Owners want to participate in this Program?
New Owners have a unique opportunity to focus on and invest in making a clean start at newly-acquired facilities by addressing Clean Air Act compliance issues. Under this Program, the EPA will be able to secure public health and environmental protections sooner than might otherwise occur. Despite New Owners’ best efforts to reduce public health and environmental risks through pre-closing due diligence or post-closing assessments, some causes of excess emissions and Clean Air Act noncompliance that the EPA and states have observed at vapor control systems at upstream oil and natural gas facilities may not always be identified during these assessment processes when there are transactional time constraints and a significant number of newly-acquired assets. This Program provides flexibilities and certainties that incentivize comprehensive Clean Air Act compliance assessments and corrective actions so that noncompliant facilities return to compliance and achieve public health and environmental protections sooner than might otherwise occur.
Based on the EPA’s experience developing and implementing the 2008 New Owner Audit Policy, New Owners of these facilities may already be well-situated and motivated to use the Program because these New Owners were not responsible for violations that began prior to acquisition. The EPA expects that most violations that might be discovered during a comprehensive, post-transaction Clean Air Act audit would likely have started with the prior owner. In addition, New Owners may already be assessing newly-acquired facilities to manage risk and may have funding available to fix problems or have budget commitments that are still relatively flexible.
The Oil and Gas New Owner Audit Program and its Relation to the EPA’s Audit Policy and New Owner Audit Policy
This Program is separate from, and does not change, the EPA’s Audit Policy or New Owner Audit Policy. Furthermore, a New Owner may choose to enter into an agreement with the EPA under the Audit Policy or New Owner Audit Policy if the New Owner can satisfy the respective terms of those policies and believes one of those policies is better suited to the operational considerations of its newly-acquired facilities. However, a New Owner that enters into an agreement with the EPA under the Audit Policy or New Owner Audit Policy will be bound by those policies’ respective guidelines for resolving any corrected and disclosed violations, including guidelines related to the collection of civil penalties.
For additional information on the Audit Policy, click here.
For additional information on the New Owner Audit Policy, click here.
Timeframe to Complete the Audit and Audit Scope
The schedule for completing the audits and corrective actions under the Program will be based primarily on the number of facilities subject to the Agreement and the scope of the audit. With respect to the audit’s scope, the EPA strongly encourages New Owners of these facilities to conduct a comprehensive Clean Air Act audit of all applicable statutory and regulatory requirements, including permitting requirements. While the EPA is willing to entertain proposals for more targeted Clean Air Act compliance audits, the EPA reserves its right not to enter into an Agreement under this Program if the proposed audit appears insufficient to address the engineering and design, and operation and maintenance, issues related to storage tanks at upstream oil and natural gas exploration and production facilities that this Program seeks to address. We would expect the following process to be followed:
Existing Noncompliance at Newly-Acquired Facilities
The EPA reserves the right not to enter into an Agreement under this Program if the EPA or a state has already discovered Clean Air Act noncompliance at newly-acquired facilities that a New Owner has proposed to audit under this Program (e.g., a notice of violation has been issued or there is an ongoing enforcement action for violations at the newly-acquired facilities).
State Audit Programs
A New Owner participating in this Program may choose to enter into a parallel audit agreement with a state that has an audit policy or equivalent self-disclosure program. However, a parallel agreement with a state (or states) with an equivalent audit policy or self-disclosure program is not required for participation in this Program. Further, a New Owner may choose to enter into an audit agreement with a state that has an audit policy or equivalent self-disclosure program in lieu of an agreement with the EPA, though the EPA may take enforcement action with respect to violations that were not disclosed or disclosed but not corrected.
Stakeholder Feedback and Changes to the Final Agreement Template
Following stakeholder feedback, the EPA made several changes when finalizing the Final Agreement Template. Notable changes are highlighted below.
Why is the EPA Requiring Participating New Owners to Complete Appendix B?
The EPA is requiring participating New Owners to complete Appendix B because its engineering and design considerations, and field evaluations, are designed to help participating New Owners ensure that their newly-acquired vapor control systems are:
In 2015, the EPA issued a Compliance Alert about excess emissions from controlled storage tanks due to engineering and design, and operation and maintenance, issues. Following the Compliance Alert and federal and state enforcement actions involving violations of the Clean Air Act and/or state air pollution control laws, the EPA and state inspectors continue to observe excess emissions from controlled storage tanks in violation of federal and state requirements (e.g., State Implementation Plan and federally enforceable state permitting requirements). The primary causes of these excess emissions are:
Appendix B provides a systematic process for estimating vapor control system pressures and vapor flow rates to control devices. New Owner can then use the data generated from the Appendix B analyses to evaluate the following technical and operational considerations:
New Owners can also use the data generated from the Appendix B requirements to assess the following Clean Air Act compliance considerations:
As part of its federally-enforceable state or federal implementation plan, each state has several potentially applicable requirements for well site equipment that should be evaluated as part of the New Owner Program. These requirements may include minor source permitting, well site equipment-specific regulations (e.g., tank rules, and combustor or flare requirements) and oil and natural gas sector-specific permits and/or regulations. State minor source permitting programs typically have requirements for estimating worst-case emissions as part of the application process to ensure that the appropriate permit type is issued and enforceable emissions limits can be set. The engineering and design considerations and field evaluations in Appendix B are used to evaluate compliance with the applicable emissions limits, including underlying assumptions and application representations, and to ensure that the appropriate permit type has been issued. The resulting federally enforceable emissions limits and the underlying application assumptions and representations should be evaluated, in part, because these limits may impact applicability for other regulations (e.g., the limits may be used to avoid NSPS applicability). Accordingly, failure to design a vapor control system to adequately handle system pressures generated by production or consistent with control device manufacturer specifications can lead to excess emissions that would be inconsistent with the permit application representations and applicable permit limits and conditions, and would be actionable violations. In addition, failure to properly operate and maintain vapor control systems can also lead to excess emissions that violate permit limits and conditions, as well as other federally-approved and enforceable air pollution control requirements.
Appendix B outlines a practical approach for completing comprehensive Clean Air Act compliance audits at multiple facilities and provides a framework that will help participating New Owners consistently evaluate compliance with regulatory and permitting requirements at their newly-acquired oil and natural gas exploration and production facilities. The engineering, emission, and operational analyses required by Appendix B will help New Owners ensure that they have appropriately characterized their emissions and designed their vapor control systems to control those emissions. The correct characterization of emissions and design of vapor control systems will help New Owners assess whether:
Finally, because this is a voluntary self-audit program, it is the participating New Owners’ responsibility to:
Participating New Owners who discover, correct, and disclose violations pursuant to the Agreement, will not be assessed a civil penalty for those violations.
The EPA is Providing Participating New Owners with Additional Operational Flexibility for Completing Appendix B
For up to one year following the Agreement’s effective date, a New Owner may propose equivalent engineering, design, and/or operational measures in lieu of those specified in Appendix B. The proposed measures shall demonstrate that:
EPA Points of Contact for the Oil and Gas New Owner Program
New Owners interested in participating in this Program or with questions about the Program should contact Apple Chapman at email@example.com or (202) 564–5666 or Tim Sullivan at firstname.lastname@example.org or (303) 312–6196.