EPA Is Conducting Flyover Inspections of Texas and New Mexico Permian Basin Energy Facilities

Vinson & Elkins LLP

Vinson & Elkins LLP

The U.S. Environmental Protection Agency (“EPA”) recently announced that it is conducting another round of aerial inspections of upstream and midstream facilities in the Texas and New Mexico Permian Basin. As in previous campaigns in 2019 and 2020, the EPA is using infrared cameras to observe methane and volatile organic compound (“VOC”) emissions from storage vessels and flares. Owners and operators face the very real prospect that the EPA will commence formal enforcement actions, depending on the significance of observed emissions. This brief Update summarizes the kinds of observations that could trigger formal enforcement, what companies can expect in an enforcement action, and how companies can prepare for ongoing EPA attention to facilities in these sectors.

What kinds of observations might trigger formal enforcement?

The EPA will pursue enforcement where it observes emissions from storage vessels that are meant to be sealed or closed, or excess emissions from air pollution control devices like flares. For example, at upstream and midstream storage vessels, an aerial inspection can detect emissions from thief hatches, pressure relief valves, open-ended lines, and other openings in the vessels’ vapor control system. Aerial inspections allow the EPA to detect methane and VOC emissions at upstream and midstream facilities from various sources that are invisible to the human eye. The EPA takes the position that there should be no observable emissions from these sources, so any aerial detection will likely result in the EPA taking further action. These inspections can also detect emissions from unlit or ill-tuned flares.

What can companies expect if enforcement takes place as a result of these inspections?

Informal Letters. If the EPA identifies observable emissions, it generally sends a letter to the company that summarizes its findings, asks the company to confirm that it owns or operates the observed facility, and solicits additional information about the reasons for the observed emissions. Because the letter is not a formal Notice of Violation (“NOV”), often companies will engage with the EPA and offer commitments that go beyond what the EPA has requested or may rightly request. Companies should understand that these seemingly informal letters are actually the commencement of formal enforcement that could have costly implications.

Notice of Violation. After the EPA collects information through these letters, often the agency will issue an NOV. The EPA will recite its aerial inspection findings and include any admissions that the company provided in response to the letter.

Administrative Settlements. The EPA regional office in Dallas that oversees these Texas and New Mexico inspections will almost always attempt to resolve the NOV claims using its administrative enforcement authority. Although the EPA has often offered to resolve claims of unauthorized emissions from upstream facilities in the Permian Basin using administrative compliance orders without any penalty, recent cases indicate that the EPA now believes these cases necessitate a “consent agreement and final order” that includes a penalty. While any administrative resolution is preferable to the involvement of the Department of Justice in a civil judicial action, the administrative penalties can still be substantial — up to $414,000. An administrative settlement will also require the company to correct the source of emissions and update its operational practices to ensure future compliance. The EPA is increasingly demanding that the company hire an independent auditor to survey the facility after all corrections are made to ensure that the observed emissions have been stopped.

Civil Enforcement. In the case of more serious observations, the EPA could refer the matter to the Department of Justice for civil enforcement — meaning that the EPA goes from sole negotiator and enforcement party to the “client” of the Department of Justice. The cost of a systemwide settlement could easily approach or exceed eight figures, which could include mitigation for past excess emissions.

What can companies do to prepare for these types of inspections?

Consider conducting your own investigations promptly after a flyover inspection. The EPA’s latest round of flyovers ran through August 15. If a company knows that its facilities were overflown, they can conduct their own infrared camera observations to determine if there are unexpected emissions. Often these can be corrected with targeted maintenance. Sometimes, these excess emissions may be the result of design deficiencies that can be more complicated to address. In either case, prompt attention will cut off the duration of any noncompliance and demonstrate that the company has been responsive to an EPA inspection.

Consider conducting broader self-audits before or after a flyover inspection. The EPA is becoming more and more aggressive with respect to this sector. Once a company has a facility on the EPA’s proverbial enforcement radar, the EPA could show interest in confirming compliance at an enterprise level. In response to an inspection, some companies commission a corporate-wide compliance evaluation to ensure that emissions are being well controlled and that all required Clean Air Act registrations and permits have been obtained. Some companies perform a compliance evaluation even if the company has not been inspected recently. Self-audits are valuable and useful, in part, because the EPA and many states have voluntary self-disclosure policies that can be used as a way to minimize or even eliminate the risk of penalties.

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Vinson & Elkins LLP

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