VOC Emissions from Upstream Oil and Gas Operations: EPA Kicks Off 2020 Clean Air Enforcement with Two Significant Settlements

Vinson & Elkins LLP

Vinson & Elkins LLP

Last week, the EPA announced two significant settlements for violations of the Clean Air Act relating to emissions of volatile organic compounds (“VOCs”) from upstream oil and gas production facilities. These enforcement actions are a part of the EPA’s Creating Cleaner Air for Communities National Compliance Initiative, which focuses on excess emissions of VOCs and hazardous air pollutants.

These two cases—one in Colorado and one in Ohio—enforce emission standards applicable to upstream storage vessels arising under state implementation plans and New Source Performance Standard (“NSPS”) Subpart OOOO. The EPA and many states have been inspecting storage vessels and their associated emission control systems for almost a decade. The EPA has alleged that many VOC vapor control systems are inadequately designed or improperly operated and maintained. And given the pace of development in this sector—oftentimes in states with emerging oil and gas regulatory programs—companies can easily run afoul of federal and state emission standards. Companies in the upstream oil and gas sector should pay careful attention to the EPA’s ongoing series of enforcement actions across the country and take a close look at their own compliance programs. And companies in any sector with facilities that require vapor controls at tanks (e.g., storage terminals, refineries, and petrochemical facilities) should also pay attention to the EPA’s VOC-related enforcement efforts.

The case summaries below should help companies understand the kind of design, operational, and maintenance issues the EPA and some states are alleging as violations of emission standards.

United States v. K.P. Kauffman Company

The first of the two settlements relates to alleged violations by K.P. Kauffman Company, Inc. (“KPK”), a Colorado oil and natural gas producer. According to the EPA’s press release, the EPA and Colorado Department of Public Health and Environment conducted inspections of KPK’s facilities from 2013 to 2018. Inspectors allegedly observed valves in the open position, hydrocarbon odors, audible hissing, visible wave refractions, and staining indicative of past and present VOC emissions from the tanks’ pressure relief valves (“PRVs”) and thief hatches. Inspectors also allegedly observed VOC emissions from at least 41 storage tanks using optical gas imaging (“OGI”) infrared cameras and found that KPK was utilizing undersized vapor control systems, and inadequate operation and maintenance practices. KPK did not admit liability.

The settlement, reached jointly with the Department of Justice and State of Colorado, addresses allegations that KPK failed to comply with provisions of Colorado’s State Implementation Plan relating to the installation, operation, maintenance, design, and sizing of vapor control systems at condensate storage tanks. Because these provisions of the State Implementation Plan have been approved by the EPA, they are federally enforceable under the Clean Air Act. However, the settlement also resolves alleged violations of the State Implementation Plan that have not been federally approved and, thus, which are enforceable only by the State of Colorado.

The consent order requires KPK to pay a $1 million civil penalty and provides for injunctive relief, including monthly or quarterly inspections using infrared cameras, the installation of pressure monitors to detect and respond to excess emissions, and measures to ensure the vapor control systems on KPK’s storage tanks are adequately designed and sized. KPK must also undertake three environmental mitigation projects to further reduce VOC emissions, including installing rod lifts at 12 oil and gas wells to reduce or eliminate the need to unload the well (a procedure that requires emissions to be released into the atmosphere), using a Boreal Laser to scan for methane emissions at the facilities covered by the consent decree, and implementing more stringent emissions compliance requirements at four facilities that are not regulated due to their small size. In total, these measures are expected to cost $2.5 million and to reduce KPK’s VOC emissions by approximately 556 tons per year.

Notably, the violations are alleged to have occurred at KPK’s facilities in the Denver-Julesburg Basin—a region designated as serious nonattainment for the 8-hour ozone National Ambient Air Quality Standard (“NAAQS”) and in which owners and operators are subject to more stringent emission regulations. Both the EPA and Colorado have aggressively enforced compliance in the region in recent years, with 93% of production facilities with storage tanks in the region now subject to enhanced design or maintenance requirements due to either consent decrees or state-issued compliance orders.

United States v. Gulfport Energy

The second settlement relates to alleged violations of Subpart OOOO of the Clean Air Act regulations by Gulfport Energy Corporation (“Gulfport”) at its oil and natural gas production facilities in Ohio for failing to capture and control VOC emissions from its storage vessels and comply with inspection, recordkeeping, and reporting requirements. The violations were allegedly found during EPA inspections of Gulfport’s facilities in 2015 that found “systemic deficiencies” in the vapor capture and control systems for the facilities’ storage vessels.

According to the complaint, as a result of the inspections, EPA issued a Notice of Violation, Finding of Violation, and a formal request for information under Section 114 of the Clean Air Act. In response to that request, Gulfport allegedly failed to provide records required by Subpart OOOO. Instead, Gulfport asserted that the facilities were exempt from Subpart OOOO compliance requirements because Gulfport participates in Ohio’s synthetic minor program—a program under which companies may voluntarily agree to accept federally enforceable limits on emissions. According to the EPA, there was just one problem with Gulfport’s argument: Gulfport had expressly declined to accept such limits on its permit applications.

As part of the settlement, Gulfport must pay a $1.7 million civil penalty, but did not concede liability or that the facilities addressed by the consent order are subject to Subpart OOOO compliance requirements. Gulfport must nevertheless comply with Subpart OOOO at the facilities going forward and implement improvements at 17 Ohio facilities, including comprehensive compliance programs and engineering and design evaluations. The improvements are expected to cost $2 million and to reduce Gulfport’s VOC emissions by 313 tons per year.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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