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Producers question costs of EPA rule

November 12, 2010
TOPICS: EPA, In the news
The EPA's new air quality regulations for the oil and gas industry take affect in January, and independent producers across the state, including the OIPA, say the new rules will be costly to the oil and gas industry and put some marginal wells at risk.


The U.S. Environmental Protection Agency this week issued rules requiring oil and natural gas companies to track their greenhouse gas emissions. Those companies must report their annual emissions to help the agency craft future regulations aimed at cutting greenhouse gases.

“The petroleum and natural gas industries emit methane, carbon dioxide and other greenhouse gases, and are one of the largest human-related sources of methane in the United States,” according to the EPA. “Annual methane emissions from intentional venting and equipment leaks from these industries are comparable to annual emissions from more than 40 million passenger cars.”

Industry officials dispute that figure, claiming the new regulations put a disproportionate burden on oil and gas companies.

“Our industry is responsible for only 3.2 percent of all greenhouse gas emissions,” said Tom Price, Chesapeake Energy Corp.'s senior vice president of corporate development and government relations.

“This reporting rule will require the oil and natural gas industry to spend hundreds of millions of dollars to just minimally improve the EPA's existing U.S. Greenhouse Gas Inventory when those same dollars could be used to create more American jobs and increase domestic supplies of natural gas and oil.

“We question whether this is a wise investment of capital during a time when job creation and putting Americans to work is clearly the primary concern on the minds of all Americans.”

The new rules were crafted over the past 18 months, with plenty of industry input along the way. Complaints from oil and gas companies led to changes in the reporting requirements, but industry officials aren't happy with the final product.

“It appears that if the new rules are fully implemented as written it will prove to be extremely costly to the oil and gas industry as a whole and to Chaparral (Energy) as well,” said Diane Montgomery, Chaparral Energy Inc.'s associate vice president of finance and investor relations.

“We would expect to see considerable increases in costs in the form of both equipment and manpower,” she said.

Concern over the reporting rules is not limited to Oklahoma's largest producers. The Oklahoma Independent Petroleum Association maintains smaller producers could suffer as well.

“The EPA has said most small businesses would fall below the reporting threshold and will not be required to report greenhouse gas emissions,” said Angie Burckhalter, OIPA's vice president of regulatory affairs. “However, the rules require oil and natural gas producers to report GHG emissions exceeding the threshold of 25,000 metric tons of CO2 from well sites within a geographic basin as a single ‘facility,' which is contrary to the ordinary definition of facility.

“The aggregation of those sites will impact a significant number of operators in Oklahoma, including marginal well producers in the state, the small mom-and-pop companies that are the backbone of our energy industry, by requiring them to submit CO2 emission data,” Burckhalter said.

Producers still are trying to figure out how the emissions tracking rules will affect their business.

Smith said Devon initially estimated it would cost $28 million a year to track emissions as suggested by the EPA at the company's 17,0000 well sites and about 70 gas plants and compression stations.

The EPA, however, has estimated the rules would cost about $27.7 million a year for the entire industry, a disparity Smith said spurred officials to change some of the proposed rules.

Devon officials have not had time to re-evaluate the potential financial toll of the finalized rules, he said.

“We're looking at multiple millions of dollars each year to comply,” he said.

Smith said companies will be allowed to estimate emissions from equipment at their well sites, but officials must acquire a large amount of data to be able to do that.
Chesapeake and Devon intend to comply with the new rules, despite their concerns about the financial implications, officials said.

The new rules go into effect in January, with the first annual report due in March 2012

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