December 2019 – Illinois Oil and Gas Association

Craig R. Hedin | Gesell’s Pump Sales & Service, Inc., IOGA Member at Large

Effective September 6, 2019, various revisions of the Regulations of the Oil and Gas Act were implemented. Some of the revisions were discussed as proposals in the September 2018 Mineral Law Newsletter. Final versions and publications were not completed until September 9, 2019. The Regulations are found at 62 Ill.Adm.Code, Chap. I, Part 240. The sections involved and a summary of the revisions are as follows:

Section 240.140 – Notice of Non-Compliance

Under circumstances as stated in this section, an Inspector can issue an informal notice (OG-22) indicting a non-compliant situation that requires abatement. This type of enforcement is not new but various aspects have been revised. The prior regulation referred to the non-compliance as a violation. This is a misnomer inasmuch as a violation has a specific definition and meaning within the Regulations and it would not include a non-compliance under this section. Instead, the Regulation now refer to a non-compliance as opposed to a violation. Previously, the maximum timeframe to abate the non-compliance was 120 days. This has now been increased to 180 days. Most OG-22s allow 30 days from the notice within which to abate the non-compliance. While extensions were granted, they were not specifically provided for in the Regulations. Extensions are now expressly allowed for a period not to exceed 180 days from the initial notice. Requests for extensions are made to the District Office and if denied, the requests may be submitted to the Director. Any requests must be submitted prior to the expiration of the initial deadline. If the non-compliance is not timely abated, then a notice of violation will be issued in accordance with Section 240.150. Upon abatement, an OG-22A form shall be prepared and submitted to the District Office.

Section 240.150 – Notice of Violation

This section was substantially revised as to how a Notice of Violation (NOV) is administered. Previously when a NOV was issued, it was mailed to the Permittee charged with the violation who then had 14 days to provide the Department with information in mitigation of the violation. This procedure has been eliminated. Instead, the Inspector investigates and submits the NOV directly to the Director with findings as to the nature of the violation, the action needed to abate, the timeframe for abatement, and any factors of aggravation or mitigation. The notice is not sent to the Permittee. The NOV process is between the Inspector and the Director. The Permittee is taken out of the loop. The Regulations now set out factors to consider in aggravation and mitigation. The revisions were initiated based upon a determination by the Department that the procedure involving the Permittee in the NOV process was not authorized by the applicable statute.

Section 240.160 – Director’s Decision

Upon receipt of an NOV, the Director conducts an investigation based upon the Inspector’s report and any other available information. The Director shall render a Director’s Decision which affirms, vacates, or modifies the NOV. Subsection (d) sets forth specific violations whereby the Department may assess a civil penalty even if the violation was timely abated. Correspondingly, violations not specifically stated for penalty shall not be the subject of a penalty if the violation is timely abated. The factors which determine the amount of the penalty have been eliminated. The factors were comprised of history of prior administrative or operating violations, seriousness of the violation, and the Permittee’s actions. Civil penalties are now determined on a case by case basis but shall not exceed $1,000.00 per day from the date that the Permittee knew or should have known of the existence of a violation. The Director’s Decision shall be served on the Permittee and shall be considered served when mailed to the Permittee. Within 30 days of service, the Permittee may submit in writing any mitigating factors and may request the opportunity to enter into a settlement agreement. The Department’s goal with respect to the revisions is to allow for a penalty process to accommodate those responsible Permittees who readily abate violations and to punish Permittees who do not regularly comply or timely abate violations.

Section 240.180 – Enforcement Hearings

The revisions as to enforcement include having hearings at locations other than Springfield. Hearing Officers can select locations that promote the convenience of the parties and the conservation of Department resources. Furthermore, the Hearing Officer may order that a hearing be held by telephone conference, video conference or other electronic means. Factors to consider as to the means of conferencing include cost effectiveness, efficiency, facility accommodations, witness availability, public interest, parties’ preferences, and the complexity and contentiousness of the proceeding.

Provisions as to cessation orders in the event abatement does not timely occur have been eliminated and now are addressed in Section 240.185.

Section 240.185 – Cessation of Operations

This section now provides that if a violation is not timely abated, the Department can order an immediate cessation of operations. Cessation can also be ordered if a condition exists that creates an imminent danger to the health or safety of the public or environmental harm or damage to property. The determining criteria provides for greater discretion inasmuch as the prior enumeration of specific conditions which can result in cessation have been eliminated. If such conditions are observed, the Department shall make reasonable efforts to locate and advise the responsible Permittee and provide an opportunity to immediately abate the condition. If the Permittee cannot be located or does not abate the condition, then the Department can take such action to cause a cessation of operations and abate the condition. Cessation orders can be issued with or without notice. Provisions as to hearings on an order of cessation have been eliminated and are now addressed in Section 240.190.

Section 240.186 – Cessation of Conditions Creating an Imminent Danger to Public Health and Safety and the Environment

This section has been repealed in its entirety and is now addressed by Sections 140.185 and 140.190.

Section 240.190 – Temporary Relief Hearings

This section provides for hearings relating to cessation orders. The revisions include conducting the hearings at a site closer to the subject of the order rather than in Springfield and selecting locations that promote the convenience of the parties and the conservation of Department resources. The Hearing Officer may also order that the holding of hearings be done by telephone conference, video conference, or other electronic means. Factors to consider as to the means of conferencing include cost effectiveness, efficiency, facility accommodations, witness availability, public interest, the parties’ preferences, and the complexity and contentiousness of the proceedings.

Section 240.420 – Well Location Exceptions Within Drilling Unit

This section is now limited to the addressing of a non-conforming well location in the permit application process. Reasons for moving a well location and the right to move the location a maximum of 30 feet after the issuance of a permit have been eliminated from this section. The conditions for moving the location are now generally limited to those that are impractical to drill at a location as authorized by the Regulations. The well can be moved to any location providing it is not less than 330 feet from the lease boundary line. If it is within 330 feet, then written consent of the adjacent leaseholders or mineral owners is required or if no consent is obtained, then a notice is given as to the well location with a possible hearing as to any objection. The provision for moving the well location up to 30 feet because of a lost well during drilling operations has been eliminated.

Section 240.425 – Change of a Permitted Drilling Location

This is a new section. While Section 240.420 pertains to well location issues in the permitting process, this new section pertains to well location issues after the permit is issued. If after a permit is issued but prior to commencement of drilling, it is determined that the permitted well location is impractical to drill, the location can be unilaterally moved a maximum of 60 feet provided the new location meets the requirements of Sections 240.410 and 240.420. An amended application setting out a revised survey and the reasons for relocation shall be filed within 10 days after moving the location.

If the location is moved more than 60 feet, the same requirements must be met but the location must also be approved by the Department prior to the commencement of drilling operations.

If a well is lost during drilling operations, the well location may be moved up to 30 feet from the permitted location and drilling commenced again. But, the District Office must be advised and grant approval prior to the move, and a new application and fee must be submitted to the Department within 10 days. The new location must also be in compliance with other requirements of the section.

Section 280.810 – Tanks, Tank Batteries and Containment Dikes

A revision of this section now allows a Permittee to petition the Department to utilize an alternative construction method for containment dikes other than the ones described in the section. The request must be in writing and the Department is to respond to the request within 30 days.

Craig R. Hedin | Gesell’s Pump Sales & Service, Inc., IOGA Member at Large

In 2015, the United States Environmental Protection Agency (EPA) promulgated a revision of regulations with respect to methane emissions. The approach taken by the EPA was that “one size fits all” with respect to all oil and natural gas operators in the United States. This approach had a disproportional impact on conventional operations such as those in Illinois where the norm is low production wells and small business operators.

Prior to 2015, the EPA had promulgated regulations to address Volatile Organic Compounds (VOCs). The regulations addressed storage vessels with the Potential to Emit (PTE) the VOCs in an amount equal to or greater than six tons per years. VOCs are organic chemicals that have a high vapor pressure at ordinary room temperatures. If the regulations are applicable, an operator with respect to a tank battery in a conventional operation must reduce VOC emissions by 95% by a control device or establish an alternative mass based emissions limit. There are also requirements for compliance monitoring, record keeping, and reporting requirements for various control devices.

The regulatory revisions issued in 2015 set forth standards to reduce emissions of methane as to well operations. This would have been in addition to the procedures to reduce VOCs. The regulations included requirements for detecting and repairing methane leaks at oil well sites. Leaks known as “fugitive emissions” can occur at a number of points at an oil well site when connections are not properly fitted, hatches are not properly weighted and sealed, or when seals and gaskets start to deteriorate. The EPA was of the opinion that these leaks could be a significant source of methane emissions in the Industry. The rule did not exempt low production well sites (those with an average combined oil and natural gas production of less than 15 barrels of oil equivalent per well per day). Operators were required to conduct surveys to determine leaks and to undertake repairs. The extent of surveys and the equipment to be utilized was very burdensome and costly to a typical Illinois operator.

Since the advent of the Administration of President Trump, the Industry has advocated for policies to rewrite the methane emission regulations. The EPA has now proposed to change the regulated emission from methane to VOCs. The proposal to change the targeted emissions would give to the EPA the opportunity to fully understand the potential consequences of future options and design those that are necessary to be fair and cost effective to oil and gas operators.

The Industry in Illinois through the Illinois Oil and Gas Association, together with other associations, have submitted comments to the EPA with respect to the revision of regulations as to methane emissions. The substance of the comments is as follows:

Various aspects of the methane emission regulations are supported only by politics and not justified under the Clean Air Act. The EPA in 2015 failed to consider the differences between large volumes of production when a well is initially drilled and low volumes when production declines because of the production curve. What is cost effective with initial production is not cost effective when production declines. The EPA was unwilling to recognize the unique economic realities and disproportionate impact of its regulations on low production wells. The failure to provide an exemption to low production wells was based on a single study presented during the comment period and not the consensus of other data supporting the exemption. Furthermore, the EPA failed to comply with the Administrative Procedure Act in promulgating the regulations in that it failed to justify its decision to add methane as a regulated pollutant and its decision to not include the exemption. EPA’s proposed revisions to the rules are simply an attempt to correct the prior errors.
The addition of methane sources from the transmission and storage segments of the Industry by the EPA was without legal authority. A source category was first established in 1979 pursuant to a significant contribution finding. The EPA rationalized that the 1979 source category was broad enough to include sources from transmission and storage operations. This was legally insufficient and the sources should be removed. Revisions to the production and processing source category are warranted but only if the low production exemption is recognized and made a subcategory in order to prevent a disproportionate impact. The EPA’s proposal to remove the transmission and storage segments as sources for methane emissions is correct.
The Clean Air Act requires the EPA to make a pollutant-specific significant contribution finding before regulating that pollutant as to a source category. It is insufficient that the source category may emit that pollutant. In 1979, the EPA found that hydrocarbons and SO2 from oil and gas production fields were emissions that contributed significantly to air pollution. While methane is a hydrocarbon, in 1979, the EPA was not analyzing methane as a pollutant and to now contend that it did is without basis. The pollutant-specific significant contribution finding required by the Clean Air Act must be conducted prior to promulgating any methane regulations. This finding has never been made.

The EPA will now consider the comments submitted as to the proposed rule. The thrust of the comments from the Illinois Industry and other states is that the existing methane emission rules are too burdensome and expensive and would have the effect of terminating many aspects of the Illinois Industry. While the rules as to VOCs should continue, those as to methane should be limited.

Oil and Gas Regulatory Revisions

USEPA Considers Emission Standards for Methane