EPA Methane Rule Rescission on Hold For Now

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By Craig R. Hedin, Gesell’s Pump Sales & Service, Inc.

The U.S. Environmental Protection Agency (USEPA) on Aug. 13 issued two final rules related to the New Source Performance Standards (NSPS) for the oil and natural gas industry. The policy rule revisions were published in the Federal Register on September 14, 2020, and the technical rule revisions were published in the Federal Register on September 15, 2020.  With these publications, the rules became effective.

But as expected, environmental groups and various states, including Illinois, filed petitions in the Circuit Court of Appeals for the District of Columbia on Sept. 15 to review both of the rules. Emergency motions were filed to stay (hold in abeyance) the Policy Rule and this motion was granted with the court stating it was “to give the court sufficient opportunity to consider the emergency rule for stay and should not be construed in anyway as a ruling on the merits of that motion.”  The states then also filed a motion to stay the proceedings.

A coalition of state oil and gas associations that includes IOGA have been parties to the various regulatory and legal proceedings.  It is contemplated that the coalition will intervene in the District of Columbia Circuit proceedings for purposes of opposing the motions for the stay.

In considering the foregoing, the implementation of the rules are on hold for the time being.

The foregoing final rules would exempt low production wells from fugitive emissions monitoring requirements as long as the well maintains production at or below 15 barrels per day.  This will relieve most Illinois operators from the unreasonable burden of fugitive methane emissions monitoring and repair.

Illinois operations are primarily low producing marginal wells. In fact, it is estimated that more than 90 percent of Illinois oil wells are “stripper” wells that produce one to two barrels per day. Stripper wells are estimated to be responsible for just 6.5 percent of total U.S. oil and natural gas production methane emissions.  Implementing the technology to limit methane emissions from these wells would be cost prohibitive and would make most leases uneconomical.  The industry has always advocated for relief from the requirements of emission limitations as to marginal wells.

The following is a statement from the USEPA, which highlights the final policy and technical rules for the industry:

Highlights of the Final Policy and Technical Rules for the Oil and Natural Gas Industry

            On August 13, 2020, the EPA announced two distinct final regulations for the oil and natural gas industry that streamline requirements, reduce regulatory burden and save the industry millions of dollars in compliance costs each year, while maintaining health and environmental protection from sources that the Agency considers appropriate to regulate. 

  • EPA issued the final rules at the same time to provide clarity to the industry and to streamline compliance.  Combined, the two final rules are projected to result in net benefits of $750 to $850 million over the period from 2021 to 2030, the annualized equivalent of about $100 million a year.
  • The regulations are final policy amendments to the 2012 and 2016 New Source Performance Standards (NSPS) for the oil and natural gas industry and final technical amendments to the 2016 NSPS for that industry.
  • The Obama Administration promulgated regulation of methane from the transmission and storage segment of the oil and gas sector without taking the appropriate steps to justify such an action.  These amendments reflect the Trump Administration’s position that EPA must make a finding that a pollutant, like methane, contributes significantly to air pollution anticipated to endanger public health before regulating it.
  • These amendments not only follow the text of the Clean Air Act, but also reduce regulatory burden to the industry and streamline other requirements. Protection of human health and the environment will continue through controls for smog-forming volatile organic compounds for the production and processing segments of the industry, reducing methane at the same time.

Final policy amendments

EPA is issuing the policy amendments in response to President Trump’s Executive Order on Promoting Energy Independence and Economic Growth.  The order directs agencies to review existing regulations that potentially “burden the development or use of domestically produced energy resources,” including oil and natural gas, and to rescind or suspend regulatory requirements if appropriate.

 ○ Key aspects of the policy amendments:

  • Remove the transmission and storage segment from the regulated “source category.”  EPA has determined that it was not appropriate to include this segment in the source category in the 2012 and 2016 amendments to the NSPS. 
  • Rescind all NSPS requirements that applied to the transmission and storage segment. 
  • Rescind methane standards for the production and processing segments of the industry.  Standards for smog-forming volatile organic compounds (VOCs) continue to apply for the production and processing segments. Because the controls to reduce VOCs and the controls to reduce methane are the same, methane emissions will continue to be reduced from these segments.
  • Finalize EPA’s position that the Clean Air Act requires, or authorizes, EPA to make a “significant contribution finding” for any particular pollutant as a predicate for setting performance standards for that pollutant.

○  What the policy amendments mean for existing sources:

  • Because EPA has rescinded methane standards for the production and processing segments of the industry, EPA is no longer required or authorized to issue emissions guidelines to address methane emissions from existing sources.

Final technical amendments

○ EPA is issuing the technical amendments to address a range of technical and implementation issues in response to administrative petitions for reconsideration and other issues brought to EPA’s attention since the 2016 NSPS was issued.  These include fugitive emissions requirements, recordkeeping and reporting requirements, provisions to apply for the use of an alternative means of emission limitation (AMEL), pneumatic pump standards, storage vessel standard applicability determination, and engineer certifications.  The final amendments will significantly reduce regulatory burden and save the industry hundreds of millions of dollars in compliance costs each year.

○ Key aspects of the technical amendments:

    • For Fugitive Emissions Monitoring, the technical amendments:
  • Reduce the frequency of required fugitive emissions monitoring for gathering and boosting compressor stations from quarterly to semi-annually.
  • Exempt low-production wells from fugitive emissions monitoring requirements, as long as the well maintains production at or below 15 barrels of oil equivalent (boe) per day.
  • Retain the schedule for fugitive emissions monitoring for non-low production wells at semi-annual.  EPA had proposed to change this schedule but retained it after finding that semi-annual monitoring for VOCs at non-low production well sites remained cost­effective.
  • Allow owners/operators to determine the best means to ensure that all components are monitored, rather than having to include a site map and an observation path in their monitoring plans.
  • Streamline recordkeeping and reporting requirements.
  • Revise the schedule for making fugitive emissions repairs.
  • Clarify the actions that constitute a modification for a well site that is a separate tank battery surface site.

 

    • For Alternative Means of Emissions Limitations (AMEL), the technical amendments:
  • Incorporate state fugitive emissions standards for well sites and compressor stations in California, Colorado, Ohio, Pennsylvania and Texas, and for well sites in Utah, and simplify recordkeeping for some owners/operators who choose to comply with those standards.  The final rule incorporates an alternative for gathering and boosting compressor stations in Texas; in the proposal Texas was included only for well sites.
  • Streamline the process to request new alternative emissions standards as state, local, and tribal fugitive emissions programs continue to develop.
  • Recognize that new technologies that are expected to enter the market could help locate the source of fugitive emissions sooner and at lower costs than the current technologies required in the NSPS.
  • Amend the application requirements for requesting to use an AMEL for monitoring and reducing fugitive emissions from well sites and compressor stations to allow any person to apply.
  • Notes that EPA has discretion in certain circumstances to allow for broad approval of alternatives and will work with applicants throughout the approval process as appropriate.
    • For Pneumatic Pumps, the technical amendments:
  • Expand an existing exemption from control requirements to cover pumps at greenfield sites.
  • Expand the types of monitoring that owners/operators may use to demonstrate that closed vent systems associated with pneumatic pumps are operating with no detectable emissions

 

    • For Engineer Certifications for Closed Vent Systems, the technical amendments:
  • Allow either a professional engineer or in-house engineer with appropriate knowledge of the closed-vent system design to certify that the system is designed and operated as required

 

    • For Storage Vessels (Tanks), the technical amendments:
  • Clarify how to calculate potential VOC emissions for individual storage tanks to determine whether standards in the rule apply.
  • Establish separate criteria for calculating potential VOC emissions from individual storage vessels that are part of a controlled tank battery.

IDNR Revisions to Spacing and Location of Wells

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By Craig R. Hedin

The Illinois Department of Natural Resources/Office of Oil & Gas Resource Management has made significant revisions as to how oil wells are spaced and located. The primary purpose is to increase the locations where wells can be drilled in hopes of spurring further development. The goal is to give operators more options as to how to develop a particular reservoir.

For many years, spacing regulations were static. They were based on standard governmental survey tracts and uniform density setback measurements. These methods were arbitrary and not based on any determination of drainage patterns. Spacing regulations were developed in the 1940s to prevent waste that resulted from over drilling and over production. The ability to drill unabated prevented the proper development of reservoirs to maximize the recovery of oil. The prevention of waste is the backbone of the Department’s regulations.

Historically, spacing and well location (density) regulations for oil wells were as follows:

  • 10 acres of surface area lying within the quarter-quarter section of lands for wells drilled or deepened for the production of oil from a reservoir other than limestone/dolomite, the top of which lies less than 4,000 feet beneath the surface. The location of the well shall be not less than 330 feet from the nearest external boundary lines of the drilling unit nor less than 660 feet from the nearest location of a producing well, a well being drilled, or a well for which a permit has previously been issued but not yet drilled, for a well to the same individual reservoir.
  • 20 acres of surface area lying within the east-west or north-south one-half of a quarter-quarter section of land for wells drilled or deepened for the production of oil from a limestone/dolomite reservoir, the top of which lies less than 4,000 feet beneath the surface. The location of the well shall be not less than 330 feet from the nearest external boundary lines of the drilling unit, nor less than 660 feet from the nearest location of a producing well, a well being drilled, or a well for which a permit has previously been issued but not yet drilled, for a well to the same individual reservoir.
  • 40 acres of surface area lying within a quarter-quarter section of land for wells drilled or deepened for the production of oil from a reservoir, the top of which lies between 4,000 and 6,000 feet beneath the surface. The location of the well shall be not less than 330 feet from the nearest external boundary lines of the drilling unit, nor less than 660 feet from the nearest location of a producing well, a well being drilled, or a well for which a permit has previously been issued but not yet drilled, for a well to the same individual reservoir.

The historical regulations created a distinct pattern for the primary development of a reservoir. Spacing created drilling units with required setbacks from the boundaries of the unit and from other wells producing from the same reservoir. Exceptions to the spacing configuration and well locations could be granted but generally, a petition and hearing were required. The exceptions included horizontal wells, modified drilling units, special drilling units, and pool wide drilling units. This slowed development because of the time and expense necessary to obtain the exceptions.

A further variance to the spacing and location requirements was the initiation of secondary recovery operations. Once injection of water commenced for secondary operations, the location of wells in the reservoir within a lease boundary was waived. But, a setback of 330 feet from the lease boundary was still required.

Over the past two years, the regulations as to spacing and well locations have been revised. The revised regulations now provide as follows:

  • 10 acres of surface area lying within the quarter-quarter-quarter section of land for wells drilled or deepened for the production of oil from a reservoir other than limestone/dolomite, the top of which lies less than 5000 feet beneath the surface or the top of the Trenton Formation, whichever depth is greater. The location of the well shall not be less than 330 feet from the nearest lease boundary line except any lease boundary line located within a pooled unit. The location shall be no less than 330 feet from the nearest location of a producing well, a well being drilled, or a well for which a permit has previously been issued but not yet drilled, for a well to the same individual reservoir. The location shall be no less than 10 feet from the nearest drilling unit boundary line.
  • 20 acres of surface area lying within the east-west or north-south one-half of a quarter-quarter section of land for wells drilled or deepened for the production of oil from a limestone/dolomite reservoir, the top of which lies less than 5000 feet beneath the surface or the top of the Trenton Formation, whichever depth is greater. The location of the well shall not be not less than 330 feet from the nearest lease boundary line except any lease boundary line located within a pooled unit. The location shall be no less than 330 feet from the nearest location of a producing well, a well being drilled, or a well for which a permit has previously been issued but not yet drilled, for a well to the same individual reservoir. The location shall be no less than 10 feet from the nearest drilling unit boundary line.
  • 40 acres of surface area lying within a quarter-quarter section of land for wells drilled or deepened for the production of oil from a reservoir, the top of which lies at or below 5,000 feet beneath the surface or the top of the Trenton Formation, whichever depth is greater. The location of the well shall be not less than 330 feet from the nearest lease boundary line except any lease boundary line located within a pooled unit. The location shall be no less than 330 feet from the nearest location of a producing well, a well being drilled, or a well for which a permit has previously been issued but not yet drilled, for a well to the same individual reservoir. The location shall be no less than 10 feet from the nearest drilling unit boundary line.

The revisions greatly enhance the ability of an operator to develop in the following respects:

  • 20 acre spacing is now allowed for wells down to 5,000 feet or the top of the Trenton Formation, whichever is greater, as opposed to a limitation of 4,000 feet (with no reference to the Trenton Formation). This allows for more drilling units because of the reduction from 40 acres to 20 acres.
  • Wells can be located as close as 10 feet to a drilling unit boundary line as opposed to the previous requirement of 330 feet. But, note that the well is still required to be at least 330 feet from the boundary line of the lease. This revision greatly increases where wells may be located and enhances the possibility of in-fill development of a reservoir.
  • The density of well locations has been increased. A well may now be not less than 330 feet from a well producing from the same reservoir. Previously, the well was required to be at least 660 feet from a well producing from the same reservoir. This increases the number of wells that can be developed.

All of the foregoing have increased the ability of an operator to develop a reservoir. The trend continues as the Oil and Gas Advisory Board has recommended to the Department that the spacing for all wells be a uniform 10 acres within a quarter-quarter-quarter section. The Department has indicated agreement and it is contemplated that the regulatory revision process will begin.