Environmental compliance in the oil patch has been high on the enforcement priority lists for the U.S. Environmental Protection Agency (EPA) and state agencies. Failure to design and implement adequate vapor control systems, or to maintain and operate those systems to avoid excessive emissions, have led to litigation and fines under the Clean Air Act (CAA). In 2017, for example, PDC Energy, Inc. entered a consent decree with EPA and the state of Colorado including a civil penalty of $1.5 million and injunctive relief valued at $18 million. This included third-party engineering evaluations of vapor control systems, followed by modifications to pressure relief hatches, improved "thief" hatches, and use of infrared camera inspections to assure the vapor control systems are operating properly.
On March 29, 2019, EPA announced a program to encourage Clean Air Act compliance by new owners in the upstream oil and gas exploration and production (E&P) sector, by encouraging those owners of upstream E&P sites to review their compliance with CAA requirements and self-report any violations. Self-reporting provisions are already available for violations under other environmental programs, and are now specifically made available to the upstream oil & gas sector to address EPA and state observations of “significant emissions and Clean Air Act noncompliance at these facilities.” New owners are allowed up to nine months from the date of acquisition to request an audit agreement from EPA. EPA issued a draft, standard audit agreement that allows new owners to conduct an audit of required components and correct identified violations within specified (and negotiated) timeframes.
Inducements for companies to self-report include the potential of a Notice of Determination from EPA, resolution of liability without civil penalty for violations identified, disclosed and addressed pursuant to the audit agreement, and reduced penalties if most but not all of EPA's eligibility criteria are met.
Whether to self-disclose apparent violations involves careful review of technical and legal factors, and a balancing of the risks of disclosure and the potential consequences of non-disclosure. Handling these decisions in a confidential relationship with experienced legal advice and technical consultants allows companies to reach the best result.
