Tuesday, January 17, 2012


BCI

Memo to Our Clients

Louisiana Environmental Law & Regulatory Update

May 29, 2011

Regular Session, 2011, House Bills 563 & 564 and Senate Bill 146



Note to the Reader: The following is a summary based on the synthesis of regulatory review both federal and state, published news articles, blogs, interviews and firsthand knowledge of the implications for both sides on the issue of “Legacy” or “Legacy Oil Field Sites” or formerly used exploration or production sites (E&P).  Feel free to comment as this subject is a moving target. We do our best to check facts and relish in updating the action on this subject.  In this memo we refer to the Louisiana Department of Natural Resources as the LDNR and this can be substituted for the Louisiana Legislatures reference to Office of Conservation or “OOC”.

This year in the regular session of Louisiana Legislature, three bills were set out, two in the House (HB 563 & 564) and one in the Senate (SB 146). The House Bills 563 & 564 were voted down (deferred) in committee in a 10-7 vote on May 18, 2011, thus killing the bills for this regular session.   The sister Bill 146 in the Senate is still alive as of this writing, but is probably dead for this session.

Proponents of these bills presented fairly bold language as compared to past attempts at regulating what the oil industry believes are frivolous claims that are impacting mainly smaller operators from speculation, exploration and production. HB 563[i] and SB 146 present “primary jurisdiction” for the LDNR that would cover any claims of environmental damages resulting from oil and gas exploration and production on Louisiana land based operations.  HB 564[ii] makes “specific performance” the “preferred remedy” for environmental claims under the Louisiana Oil Field Restoration Law.  It appears that these bills are attempting to eliminate stakeholders and landowners rights to file suit to recover damages for environmental impact claims by broadening the LDNRs power over these matters like a separate court,  specifically for the oil and gas operators that engage, or have engaged, in both exploration and production.  Opponents to the bills make many claims, but the most salient one is that the foundation and spirit of these bills are unconstitutional. This battle does not seem to have a sunset.  We believe it should be settled at the federal level by reassessing the applicability of the exemptions and exclusions that exist for this industry.  LDNR remained neutral throughout the hearings and this frustrated numerous representatives of both sides. The goal of the proponents was to give LDNR more power and thus reduce litigation time.  Opponents said it should do just the opposite. 

This recent effort injected some new language that warrants attention.  In particular, the proposal of authorizing the Louisiana Department of Natural Resources to have primary jurisdiction for ALL demands arising as a result of actual or potential impacts, damages, or injury to environmental media caused by impacts from oil field operators of exploration and production.  It also attempted to advance that all monies recovered would be placed in the Oil Site Restoration Fund[iii].  According to the Daily Comet, May 19, 2011[Jeremy Alford - Capitol Correspondent] paraphrasing…..“Members of the House Natural Resources Committee said they were concerned about passing a bill with enormous complexities, while state officials wavered on the question of whether the Louisiana Department of Natural Resources could take the specialized claims process from the courts”.

These bills bring up issues on constitutionality by granting the LDNR the authority to adjudicate claims as opposed to the courts.  Property rights could also be thwarted as opposed to increased protection with 312. Another major concern by the opposition is that this would apply retroactively to current claims pending in the courts.

The opponents to this bill say that there is inadequate funding for the expansion of the responsibilities of the LDNR, to include all the required testing, monitoring, and regulatory hearings that be expected to overwhelm the capabilities of the LDNR.  They also claim that there is no budget that can cover these additional functions that the bills present.  In essence, the LDNR would be promoting the oil and gas industry and also be the agency for cleanup. Opponents believe Act 312 keeps the LDNR in the loop to protect the stakeholders and the people of the state without shifting this new financial burden to the state.

The typical discovery process is also said to be negated by the LDNR if these bills come to fruition. This could prevent full disclosure from ever happening.  On non-oil field sites like a solid or hazardous waste site “deed recordations” are sometimes required, and certainly full disclosure must occur prior to a transaction of that property where the activity took place. Determination of who is liable typically happens before the LDNR gets involved under 312. 

The process that would result from these bills would also require that verification of every operator be conducted at a hearing to determine the PRPs for that specific claim.  It also seems that these bills would delay the cleanup and increase soft costs that have nothing to do with remediation. 

Proponents are saying that these bills will promote stability for operators going into new E&P projects.  The oil and gas industry claims that there has been too much uncertainty with potential liability to risk start up activities in Louisiana.

Proponents of these bills say that 312 and the possibility of false claims against current and past operators has decreased activity in this market, however, more independent operator permits have been issued in recent years.  Opponents say the bills also fail to provide any answers towards better accountability before any litigation issues arise. There should be more attention made to operator’s responsibility to notify LDNR and land owners prior to vacating sites.  The lack of communication with landowners creates a chiasm of distrust. 

Here is an excerpt from Capitol Correspondent Jeremy Alford published in the Daily Comet:   

David Russell, president of McGowan Working Partners, said he deserves protections, too:

“Obtaining proper insurance ... for oilfield operations is not difficult to get,” Russell said. “It’s impossible. After 15 years of providing coverage, my company’s provider declined pollution liability insurance coverage simply due to the legacy-lawsuit issues in the state. Developments like this are going to shut this industry down, as far as Louisiana is concerned.”

Regardless of Wednesday’s outcome, opponents and proponents both agreed the program has faults.

Of the 250 cases recognized by the state, only two have been cleaned up since the latest law went into effect five years ago and another 16 cases are working through the system, according to Natural Resources attorney Blake Canfield.

Back Story:

During the 2006 Louisiana Legislative Session, Act 312 was successfully enacted.  This was viewed by many as a sound compromise for Big Oil and landowners and their advocates. This was done to reform the procedure in litigation claiming environmental damages.  These claims are commonly known as “legacy litigation”.  BCI is keenly aware of our clients/stakeholders desire to monitor ongoing bills or policy changes at LDNR or LDEQ that can affect ongoing claims. Act 312 will continue to be challenged based on constitutionality.  District and appellate courts continue to address issues that should have been vetted by now as compared to other contaminated site litigation under CERCLA.  Example issues are: 1) When to defer to LDNR on actual remediation plan approvals (we believe is best suited for LDEQ), 2)How to apply provisions of the Act 312, 3) Who should decide who the PRPs (principle responsible parties) are, and a host of other issues key to navigating or fighting any claim in state court. 



This is a nationwide issue and originates back to the RCRA Oil Field Wastes Exemption and CERLCA Petroleum Exclusion [See excerpt from LDNR Website at the bottom of this memo on Exempt and Non-Exempt Wastes[iv]].  E&P wastes have remained exempt (meeting discreet definitions and proof of “mixed wastes”) from Subtitle C based on the notion that “special wastes” are lower in toxicity as compared to other materials generated upstream from E&P.  The reader should not confuse this with OPA 1990 or LDEQ/EPA UST provisions. The CERCLA Notification Form promulgated in 1981 contained instructions which clearly excluded E&P wastes from regulation as CERCLA hazardous substances.  Wastes not subject to notification under Section 103(c) of Superfund (solid wastes not presently regulated as “hazardous waste” under RCRA) are generally drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal energy. Therefore, even the EPA notification form acknowledged the CERCLA E&P Exclusion. 



Both sides agree that the system needs serious improvement. Hundreds of sites remain to be cleaned up and there seems to be little serious talk or better ideas of actual streamlining the process.  If the system is streamlined for both sides and clean-up is routine, it will inevitably be more conducive for exploration and production to take place.  Restitution for restoration through the courts is incredibly slow and the cleanup is often delayed or marginalized.



[i] The following are the key points of each bill that originated from the House as it was presented in committee:
HB No. 563
Abstract: Provides that the jurisdiction of the office of conservation includes claims for certain environmental damages resulting from oil and gas activity and authorizes the secretary of the Dept. of Natural Resources to take legal action to meet the purpose of the La. Oilfield Site Restoration Law.

Proposed law provides that the office of conservation shall have primary jurisdiction for all demands arising as a result of any actual or potential impact, damage, or injury to environmental media caused by contamination resulting from activities associated with oilfield sites or exploration and production sites.

Proposed law requires that all judicial demands which have been filed or amended as of July 1, 2011, and which the office has not approved a plan to evaluate or remediate the environmental damage be stayed and referred to the office for approval of a plan.

Present law provides for the proper and timely cleanup, closure, and restoration of orphaned oilfield sites and creates the Oilfield Site Restoration Fund (fund) for that purpose.

Proposed law provides that monies recovered from activities conducted pursuant to the La. Oilfield Site Restoration Law shall be placed in the fund.

Proposed law authorizes the secretary of the Dept. of Natural Resources to take legal action to meet the purpose of the La. Oilfield Site Restoration Law.

[ii] HB No. 564
Abstract: Authorizes the secretary of the Dept. of Natural Resources to take legal action to meet the purpose of the La. Oilfield Site Restoration Law and provides that specific performance is the preferred remedy in a case of failure to restore the property subject to a mineral lease or mineral servitude.

Present law provides for the proper and timely cleanup, closure, and restoration of orphaned oilfield sites and creates the Oilfield Site Restoration Fund (fund) for that purpose.

Proposed law provides that monies recovered from activities conducted pursuant to the La. Oilfield Site Restoration Law shall be placed in the fund.

Proposed law authorizes the secretary of the Dept. of Natural Resources to take legal action to meet the purpose of the La. Oilfield Site Restoration Law.

Proposed law provides that specific performance is the preferred remedy in a case of failure to restore the property subject to a mineral lease or mineral servitude.

Proposed law requires notice be sent to the lessor or grantee and a reasonable opportunity to respond and perform.

[iii] LDNR WEBSITE
Background
The Louisiana Oilfield Site Restoration Program was created in 1993 within the Department of Natural Resources to address the growing problem of unrestored orphaned oilfield sites across the State.  Orphan wells are abandoned oil and gas wells for which no viable responsible party can be located, or such party has failed to maintain the wellsite in accordance with State rules and regulations.  The specific focus of the Oilfield Site Restoration Program is to properly plug and abandon orphan wells and to restore sites to approximate pre-wellsite conditions suitable for redevelopment.
Oilfield site restoration projects range in size and scope from the repair of small wellhead leaks and the removal of exploration and production related trash and debris to the plugging of wells and removal of associated facilities and structures.  Orphan wells are found throughout the State in all areas where there has been historic oil and gas activity.  These sites deteriorate over time due to neglect from the operator of record and therefore become susceptible to releasing oil, gas, and saltwater to the surrounding area.  The Program has addressed sites near schools and public buildings, in sensitive coastal wetland areas, and near residential areas.
Orphan wellsites are prioritized to direct available funding to those sites that pose the greatest threat to public safety and environment.  However, in order to also economically decrease the total number of orphaned wells in the State, lower priority sites located near a proposed project area are often included in the project scope of work to increase cost-effectiveness by lowering overall individual well plugging costs.  Project design and oversight is handled by in-house petroleum engineering staff while all other restoration-specific tasks are contracted to approved oilfield contractors.  Project bids are solicited in accordance with the State bid law and projects are awarded to the lowest qualified bidder.
Funding
Revenue for the Program is entirely generated from a fee on oil and gas production in the State of Louisiana which is paid quarterly by Louisiana oil and gas operators.  These flat-rate fees are deposited to the oilfield site restoration fund (Fund) which is dedicated by statute to fund the operation of the Program.  No tax-payer dollars are utilized.  The fee consists of one and one-half cents ($.015) for every barrel of oil and condensate produced, and three-tenths of one cent ($.003) for every thousand cubic feet of gas produced.  This currently equates to roughly $4 million dollars a year to be utilized by the Program for orphan oilfield site restoration projects.
Recovery of Restoration Costs
The operator of record for an orphan wellsite is in all cases the primary party required to restore an oilfield site once it becomes unusable.  This responsibility remains whether or not a site specific trust account has been established for this purpose.  Should a site be restored using monies from the Fund, and a site specific trust account has not been created for the site, former operators and their working interest owners may then also have some liability in addition to the responsible party for repayment of the monies spent from the Fund.
The process of recovery of site restoration costs of orphaned oilfield sites from the responsible party and others who may share in this liability is addressed in LSA-R.S. 30:93.  The Secretary of the Department of Natural Resources is empowered by law to recover all costs incurred by the Program resulting from orphan site restoration operations.  The procedures to be utilized in this matter are dependent on the specific cost of site restoration activity and whether or not a site specific trust account has been established for the site restored.  For a site without a site specific trust account, the Secretary is authorized to collect only from the responsible party (i.e. the last operator of record and his working interest owners) unless the cost of the site restoration exceeds $250,000.00, at which time all former operators and working interest owners become liable for the entire restoration cost in inverse chronological order.
Site Specific Trust Accounts
In accordance with the provisions of the Oilfield Site Restoration Law (LSA R.S. 30:80 et seq), when a transfer of ownership interest of an oilfield site occurs, either party of the transfer can elect to file an application to establish a site specific trust account (SSTA) to cover future site restoration costs.  To the extent permitted under the law, once established and fully funded, a SSTA will release from liability the Transferor and all prior responsible parties for site restoration costs for the transferred oilfield site.  Thereafter, the Transferee will be considered the responsible party for the purposes of site restoration.  For more information, please see the document entitled 'Establishing a Site Specific Trust Account (SSTA)' or contact Program staff.  The following forms related to SSTAs are also available:
·         FORM 9604 - Site Specific Trust Account
·         FORM 9604-1 - Site Specific Trust Account Reassessment (MS Word, PDF).
The Oilfield Site Restoration Commission
The Program is domiciled within the Engineering Division of the Office of Conservation of the Department of Natural Resources.  Program oversight is provided by an Oilfield Site Restoration Commission which consists of ten members.  The Secretary of the Department of Natural Resources serves as chairman of the Commission, while the Commissioner of the Office of Conservation serves as vice-chairman.  The remaining eight members of the Commission are appointed by the Governor from a list of nominees submitted by various industry and environmental groups.  The Commission meets quarterly in Baton Rouge.
 Oilfield Site Restoration Commission
 Scott A. Angelle, Chairman, Secretary of DNR
James H. Welsh, Vice-Chairman, Commissioner of Conservation
Paul Frey, Louisiana Land Association
Don Briggs, Louisiana Oil & Gas Association
Wilfred Fruge, Louisiana Oil & Gas Association
Karen Gautreaux, Nature Conservancy
Randy Lanctot, LWF, Sierra & Audubon Societies
James Maranto, At Large
Michael Lyons, Mid-Continent Oil & Gas Association
Troy Vickers, Mid-Continent Oil & Gas Association

[iv]LDNR WEBSITE
 *Source-EPA document EPA530-K-95-003, May 1995
In December, 1978, the Environmental Protection Agency (EPA) proposed hazardous waste management standards that included reduced requirements for several types of large volume wastes. Generally, EPA believed these large volume "special wastes" are lower in toxicity than other wastes being regulated as hazardous waste under RCRA. Subsequently, Congress exempted these wastes from the RCRA Subtitle C hazardous waste regulations pending a study and regulatory determination by EPA. In 1988, EPA issued a regulatory determination stating that control of exploration and production (E&P) wastes under RCRA Subtitle D was not warranted. Hence, E&P waste have remained exempt from Subtitle C regulations. This exemption, however, did not preclude these wastes from control under state regulations, under the less stringent RCRA Subtitle D solid waste regulations, or under other federal regulations. In addition, although they are relieved from regulation as hazardous wastes, the exemption does not mean these wastes could not present a hazard to human health and the environment if improperly managed. Statewide Order No 29-B provides guidelines for environmentally sound management of these exempt wastes.
In the 1988 regulatory determination, EPA published lists of wastes regarded as exempt and non-exempt. The lists were provided as examples of wastes regarded as exempt or non-exempt; the lists were not to be considered comprehensive. The E&P waste wastes listed in this brochure closely track the exempt listing of the 1988 regulatory determination. Examples of non-exempt wastes are as follows:
  1. Gas plant cooling tower cleaning wastes;
  2. Painting wastes and waste solvents;
  3. Refinery wastes;
  4. Used equipment lubricating oils;
  5. Waste compressor oil, filters, and blowdown;
  6. Used hydraulic fluids.

[1] The following are the key points of each bill that originated from the House as it was presented in committee:

HB No. 563

Abstract: Provides that the jurisdiction of the office of conservation includes claims for certain environmental damages resulting from oil and gas activity and authorizes the secretary of the Dept. of Natural Resources to take legal action to meet the purpose of the La. Oilfield Site Restoration Law.



Proposed law provides that the office of conservation shall have primary jurisdiction for all demands arising as a result of any actual or potential impact, damage, or injury to environmental media caused by contamination resulting from activities associated with oilfield sites or exploration and production sites.



Proposed law requires that all judicial demands which have been filed or amended as of July 1, 2011, and which the office has not approved a plan to evaluate or remediate the environmental damage be stayed and referred to the office for approval of a plan.



Present law provides for the proper and timely cleanup, closure, and restoration of orphaned oilfield sites and creates the Oilfield Site Restoration Fund (fund) for that purpose.



Proposed law provides that monies recovered from activities conducted pursuant to the La. Oilfield Site Restoration Law shall be placed in the fund.



Proposed law authorizes the secretary of the Dept. of Natural Resources to take legal action to meet the purpose of the La. Oilfield Site Restoration Law.



[1] HB No. 564

Abstract: Authorizes the secretary of the Dept. of Natural Resources to take legal action to meet the purpose of the La. Oilfield Site Restoration Law and provides that specific performance is the preferred remedy in a case of failure to restore the property subject to a mineral lease or mineral servitude.



Present law provides for the proper and timely cleanup, closure, and restoration of orphaned oilfield sites and creates the Oilfield Site Restoration Fund (fund) for that purpose.



Proposed law provides that monies recovered from activities conducted pursuant to the La. Oilfield Site Restoration Law shall be placed in the fund.



Proposed law authorizes the secretary of the Dept. of Natural Resources to take legal action to meet the purpose of the La. Oilfield Site Restoration Law.



Proposed law provides that specific performance is the preferred remedy in a case of failure to restore the property subject to a mineral lease or mineral servitude.



Proposed law requires notice be sent to the lessor or grantee and a reasonable opportunity to respond and perform.



[1] LDNR WEBSITE

Background

The Louisiana Oilfield Site Restoration Program was created in 1993 within the Department of Natural Resources to address the growing problem of unrestored orphaned oilfield sites across the State.  Orphan wells are abandoned oil and gas wells for which no viable responsible party can be located, or such party has failed to maintain the wellsite in accordance with State rules and regulations.  The specific focus of the Oilfield Site Restoration Program is to properly plug and abandon orphan wells and to restore sites to approximate pre-wellsite conditions suitable for redevelopment.

Oilfield site restoration projects range in size and scope from the repair of small wellhead leaks and the removal of exploration and production related trash and debris to the plugging of wells and removal of associated facilities and structures.  Orphan wells are found throughout the State in all areas where there has been historic oil and gas activity.  These sites deteriorate over time due to neglect from the operator of record and therefore become susceptible to releasing oil, gas, and saltwater to the surrounding area.  The Program has addressed sites near schools and public buildings, in sensitive coastal wetland areas, and near residential areas.

Orphan wellsites are prioritized to direct available funding to those sites that pose the greatest threat to public safety and environment.  However, in order to also economically decrease the total number of orphaned wells in the State, lower priority sites located near a proposed project area are often included in the project scope of work to increase cost-effectiveness by lowering overall individual well plugging costs.  Project design and oversight is handled by in-house petroleum engineering staff while all other restoration-specific tasks are contracted to approved oilfield contractors.  Project bids are solicited in accordance with the State bid law and projects are awarded to the lowest qualified bidder.

Funding

Revenue for the Program is entirely generated from a fee on oil and gas production in the State of Louisiana which is paid quarterly by Louisiana oil and gas operators.  These flat-rate fees are deposited to the oilfield site restoration fund (Fund) which is dedicated by statute to fund the operation of the Program.  No tax-payer dollars are utilized.  The fee consists of one and one-half cents ($.015) for every barrel of oil and condensate produced, and three-tenths of one cent ($.003) for every thousand cubic feet of gas produced.  This currently equates to roughly $4 million dollars a year to be utilized by the Program for orphan oilfield site restoration projects.

Recovery of Restoration Costs

The operator of record for an orphan wellsite is in all cases the primary party required to restore an oilfield site once it becomes unusable.  This responsibility remains whether or not a site specific trust account has been established for this purpose.  Should a site be restored using monies from the Fund, and a site specific trust account has not been created for the site, former operators and their working interest owners may then also have some liability in addition to the responsible party for repayment of the monies spent from the Fund.

The process of recovery of site restoration costs of orphaned oilfield sites from the responsible party and others who may share in this liability is addressed in LSA-R.S. 30:93.  The Secretary of the Department of Natural Resources is empowered by law to recover all costs incurred by the Program resulting from orphan site restoration operations.  The procedures to be utilized in this matter are dependent on the specific cost of site restoration activity and whether or not a site specific trust account has been established for the site restored.  For a site without a site specific trust account, the Secretary is authorized to collect only from the responsible party (i.e. the last operator of record and his working interest owners) unless the cost of the site restoration exceeds $250,000.00, at which time all former operators and working interest owners become liable for the entire restoration cost in inverse chronological order.

Site Specific Trust Accounts

In accordance with the provisions of the Oilfield Site Restoration Law (LSA R.S. 30:80 et seq), when a transfer of ownership interest of an oilfield site occurs, either party of the transfer can elect to file an application to establish a site specific trust account (SSTA) to cover future site restoration costs.  To the extent permitted under the law, once established and fully funded, a SSTA will release from liability the Transferor and all prior responsible parties for site restoration costs for the transferred oilfield site.  Thereafter, the Transferee will be considered the responsible party for the purposes of site restoration.  For more information, please see the document entitled 'Establishing a Site Specific Trust Account (SSTA)' or contact Program staff.  The following forms related to SSTAs are also available:

·         FORM 9604 - Site Specific Trust Account


·         FORM 9604-1 - Site Specific Trust Account Reassessment (MS Word, PDF).

The Oilfield Site Restoration Commission

The Program is domiciled within the Engineering Division of the Office of Conservation of the Department of Natural Resources.  Program oversight is provided by an Oilfield Site Restoration Commission which consists of ten members.  The Secretary of the Department of Natural Resources serves as chairman of the Commission, while the Commissioner of the Office of Conservation serves as vice-chairman.  The remaining eight members of the Commission are appointed by the Governor from a list of nominees submitted by various industry and environmental groups.  The Commission meets quarterly in Baton Rouge.

 Oilfield Site Restoration Commission
 Scott A. Angelle, Chairman, Secretary of DNR

James H. Welsh, Vice-Chairman, Commissioner of Conservation

Paul Frey, Louisiana Land Association

Don Briggs, Louisiana Oil & Gas Association

Wilfred Fruge, Louisiana Oil & Gas Association

Karen Gautreaux, Nature Conservancy

Randy Lanctot, LWF, Sierra & Audubon Societies

James Maranto, At Large

Michael Lyons, Mid-Continent Oil & Gas Association

Troy Vickers, Mid-Continent Oil & Gas Association



[1]LDNR WEBSITE

 *Source-EPA document EPA530-K-95-003, May 1995

In December, 1978, the Environmental Protection Agency (EPA) proposed hazardous waste management standards that included reduced requirements for several types of large volume wastes. Generally, EPA believed these large volume "special wastes" are lower in toxicity than other wastes being regulated as hazardous waste under RCRA. Subsequently, Congress exempted these wastes from the RCRA Subtitle C hazardous waste regulations pending a study and regulatory determination by EPA. In 1988, EPA issued a regulatory determination stating that control of exploration and production (E&P) wastes under RCRA Subtitle D was not warranted. Hence, E&P waste have remained exempt from Subtitle C regulations. This exemption, however, did not preclude these wastes from control under state regulations, under the less stringent RCRA Subtitle D solid waste regulations, or under other federal regulations. In addition, although they are relieved from regulation as hazardous wastes, the exemption does not mean these wastes could not present a hazard to human health and the environment if improperly managed. Statewide Order No 29-B provides guidelines for environmentally sound management of these exempt wastes.

In the 1988 regulatory determination, EPA published lists of wastes regarded as exempt and non-exempt. The lists were provided as examples of wastes regarded as exempt or non-exempt; the lists were not to be considered comprehensive. The E&P waste wastes listed in this brochure closely track the exempt listing of the 1988 regulatory determination. Examples of non-exempt wastes are as follows:

  1. Gas plant cooling tower cleaning wastes;
  2. Painting wastes and waste solvents;
  3. Refinery wastes;
  4. Used equipment lubricating oils;
  5. Waste compressor oil, filters, and blowdown;
  6. Used hydraulic fluids.

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