CHAPTER 11 OFFSHORE PIPELINE ISSUES

• Jurisdiction: United States

Midstream Oil & Gas from the Upstream Perspective
(Apr 2018)
CHAPTER 11
OFFSHORE PIPELINE ISSUES
Jana L. Grauberger
Shareholder
Liskow & Lewis
Houston, TX
Robert L. Theriot
Shareholder
Liskow & Lewis
Houston, TX

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JANA GRAUBERGER is a shareholder and leader of the law firm of Liskow & Lewis' Houston oil and gas section. Jana has represented clients in negotiating a wide variety of onshore and offshore contracts, including purchase and sale agreements, farmouts, participation agreements, joint operating agreements, production handling agreements, platform use agreements, gathering agreements, connection agreements, construction contracts, transportation contracts, and decommissioning agreements. She also represents clients in connection with regulatory matters involving Department of Interior agencies the Bureau of Ocean Energy Management (BOEM), the Bureau of Safety and Environmental Enforcement (BSEE), and the Office of Natural Resources Revenue (ONRR). Jana is a trustee for the Rocky Mountain Mineral Law Foundation (RMMLF) and she co-chaired a RMMLF Federal Offshore Regulatory Enforcement seminar in Houston in January 2016. As a litigator, she practices before state and federal district and appellate courts in Texas and Louisiana and has 20 years of experience representing clients in connection with a wide variety of oil and gas matters. She also has handled dozens of appeals of BOEM, BSEE, and ONRR orders to the Interior Board of Land Appeals (IBLA) concerning issues such as royalties, transportation deductions, supplemental bonding, and decommissioning of federal leases and pipeline right-of-ways (ROWs). Prior to joining Liskow & Lewis, Jana was a law clerk to the Honorable Walter F. Marcus, Jr., Associate Justice, Supreme Court of Louisiana. Before attending law school, she worked as a television reporter for KPLC-TV in Lake Charles, Louisiana.

ROBERT L. THERIOT is a shareholder with the law firm of Liskow & Lewis and heads the oil and gas practice in its Houston office. His practice for the past 30 years has focused on oil and gas trials and transactions, with deep experience in land, lease, royalty, operational, marketing, and midstream matters. Robert is Board Certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization, and is licensed in Texas, Louisiana, and North Dakota. He has chaired the Oil, Gas & Mineral Section of the Houston Bar Association, chaired the South Texas College of Law Energy Law Institute, serves on the Advisory Committee for the Texas Board of Legal Specialization, has been a participant in the Rocky Mountain Mineral Law Foundation for many years, and has spoken at a number of Foundation institutes. Robert graduated from the University of Southwestern Louisiana and Tulane Law School, served as Editor-in-Chief of the Tulane Law Review, and clerked for the Honorable John Minor Wisdom on the U.S. Court of Appeals for the Fifth Circuit.

I. Introduction

This paper addresses the regulatory framework governing the construction, operation, and abandonment of federal OCS pipelines.

II. Pipeline ROWs

Section 1334(e) of Outer Continental Shelf Lands Act ("OCSLA") allows the Secretary of the Interior to grant OCS pipeline right-of-ways ("ROWs").¹ A critical first step for owners and/or ROW holders for OCS pipelines is to determine where their lines fit within a complex and overlapping regulatory scheme. The principal distinctions are between "DOI" and "DOT" pipelines and between "lease term" and ROW pipelines.

Pursuant to a 1996 Memorandum of Understanding ("MOU"),² the Department of the Interior ("DOI") and the Department of Transportation ("DOT") divided much of their regulatory authority over pipelines on the OCS. The MOU places pipelines operated by producers under DOI responsibility and pipelines operated by transporters under DOT responsibility "to the greatest extent practicable."³ To this end, the Bureau of Safety and Environmental Enforcement ("BSEE") has regulations regarding design, construction, operation, and maintenance of pipelines that apply only to "DOI pipelines." The term "DOI pipelines" is defined to include producer-operated pipelines extending "upstream (generally seaward) from each point on the OCS at which operating responsibility transfers from a producing operator to a transporting operator" or "upstream (generally seaward) of the last valve (including associated safety equipment) on the last production facility on the OCS that do not connect to a transporter-operated pipeline on the OCS before crossing into State waters" and producer-operated pipelines that connect production facilities on the OCS.⁴ The regulations also provide a catch-all provision; any OCS pipeline not subject to DOT's design and construction requirements is a DOI pipeline.⁵ BSEE's regulations require producing operators to identify and mark the point where operating responsibility transfers from a producer to a transporter, and that point serves as the regulatory boundary.⁶

Transporter-operated pipelines, in contrast, are typically DOT pipelines and must adhere to DOT's standards as promulgated and enforced by the Pipeline and Hazardous Materials Safety Administration,

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commonly referred to as "PHMSA," for such things as pipe design, testing, installation, and repair.⁷ Classification as a DOT pipeline does not mean that a transporter on the OCS will not have to work closely with BSEE, however. DOT pipelines remain subject to BSEE's regulations that do not concern the design, construction, operation, and maintenance of pipelines, and BSEE retains a large amount of regulatory authority through the process of granting and administering ROWs.

"Lease term" pipelines are those pipelines contained within a single lease, unitized leases, or contiguous leases held by the same lessee or operator.⁸ All other pipelines are ROW pipelines.⁹ Thus, most DOT pipelines are ROW pipelines. All ROW pipelines, whether DOI or DOT, require a ROW from BSEE before installation.¹⁰ DOT pipelines must adhere to all of BSEE's regulations imposed by virtue of its ROW, as well as any conditions or requirements contained in the ROW grant.¹¹ Finally, even where BSEE does not have jurisdiction in its own right, the MOU provides BSEE with broad inspection and enforcement power. Under the MOU, DOT granted DOI the right to conduct inspections of DOT-regulated equipment in some circumstances as DOT's agent.¹² BSEE inspectors must also report any violations of DOT's regulations that they observe during any inspection.¹³ Thus, any federal pipeline ROW holder on the OCS must be familiar with BSEE's pipeline regulations.

BSEE's regulations governing pipelines and pipeline ROWs in 30 C.F.R. Part 250, subpart J have not been comprehensively updated since 1988. Further, many of the requirements applicable to ROW holders are spread throughout various sections and/or regulations, and, frequently, in guidance documents, such as Notices to Lessees ("NTLs") and Letters to Lessees or as a condition to approval of the ROW grant that is not in the regulations at all. The Minerals Management Services ("MMS," subsequently redesigned and renamed to encompass the Bureau of Ocean Energy Management or "BOEM" and BSEE) published a proposed rule in 2007 in an attempt to overhaul subpart J and capture all requirements in one body of regulations.¹⁴ MMS accepted comments and held public meetings on the proposed rule throughout 2007 and 2008.¹⁵ Despite these efforts, the DOI has yet to issue a final rule revising subpart J.

A. New Grant

1. Qualified Entity

A ROW grant is a prerequisite to install any ROW pipeline on the OCS or to convert a lease-term pipeline into a ROW pipeline.¹⁶ To obtain a ROW, an entity must first qualify with BOEM as an eligible OCS lessee and/or ROW holder.

Pursuant to OCSLA, Congress delegated the administration of the offshore leasing program to the Secretary of the Interior. In turn, the Secretary of the Interior delegated that authority to MMS, and the reorganization of the MMS in 2010 and 2011 transferred oversight of the qualification requirements to

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BOEM. As a result of OCSLA's silence on the criteria for acquiring OCS federal ROWs, the Secretary of the Interior has considerable discretion to adopt rules and standards. Regulations promulgated by the former MMS implement DOI's statutory authority in this area. 30 C.F.R. § 250.1009(a) provides as follows:

The right-of-way grant is issued pursuant to 43 U.S.C. 1334(e) and may be acquired and held only by citizens and nationals of the United States; aliens lawfully admitted for permanent residence in the United States as defined in 8 U.S.C. 1101(a)(20); private, public, or municipal corporations organized under the laws of the United States or territory thereof, the District of Columbia, or of any State; or associations of such citizens, nationals, resident aliens, or private, public, or municipal corporations, States, or political subdivisions of States.

The regulations governing assignments incorporate these same criteria:

Any application for approval for an assignment, in whole or in part, of any right, title, or interest in a right-of-way grant must be accompanied by the same showing of qualifications of the assignees as is required of an applicant for a ROW in § 250.1015 of this subpart and must be supported by a statement that the assignee agrees to comply with and to be bound by the terms and conditions of the ROW grant. ¹⁷

Although the regulations do not specifically mention limited liability companies ("LLCs"), MMS/BOEM has long considered LLCs to fall within "associations of such citizens."

For many years, the MMS/BOEM Adjudication Unit in the Gulf of Mexico Region has administered the process for natural and juridical persons to become qualified to own and operate ROWs in the Gulf of Mexico. Because the documents required by BOEM will depend on the type...