CHAPTER 11 PLANNING FOR AND FUNDING CONSERVATION AND COMPLIANCE: ENDANGERED SPECIES ACT ISSUES UNIQUE TO THE OIL & GAS INDUSTRY

• Jurisdiction: United States

Endangered Species Act
(Nov 2015)
CHAPTER 11
PLANNING FOR AND FUNDING CONSERVATION AND COMPLIANCE: ENDANGERED SPECIES ACT ISSUES UNIQUE TO THE OIL & GAS INDUSTRY
Myles Culhane ²
Managing Counsel
Occidental Oil and Gas Corporation
Houston, TX
Jim Farrell ¹
Continental Resources, Inc.
Oklahoma City, OK
Bailey Schreiber ³

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MYLES CULHANE is Managing Counsel for Occidental Petroleum Corporation headquartered in Houston, Texas. Myles has more than 25 years of experience in the wildlife, environmental, safety, and health field, including 15 years of experience working as a chemical engineer in the refining, energy, and industrial markets. Myles' legal career began as an attorney with Paul Hastings' Energy Practice in San Francisco, California where he worked on a variety of air, TSCA, waste, and remediation matters. In 2011 he joined Occidental Oil and Gas Corporation. Myles worked closely on the development of the Oil and Gas Candidate Conservation Agreement with Assurances for the Lesser Prairie Chicken, and currently serves as the Chairman for the Range-wide Conservation Plan's Lesser Prairie Chicken Advisory Committee. Myles has worked on a variety of species issues including plans to conserve lizards in the dunes of Texas and New Mexico, threatened penstemons living on the loose shale deposits in western Colorado, endangered Houston Toads and Golden Cheeked Warblers along Texas stream crossings, and numerous section 7 consultations for pipelines projects. Myles has a B.S. in Chemical Engineering from the University of Texas at Austin and his juris doctorate from Loyola Law School, Los Angeles.

JIM FARRELL joined Continental Resources, Inc. in early 2012 as the company's Senior Health, Safety & Environment/Corporate Attorney. He is responsible for ensuring the company's compliance with applicable health, safety, and environmental laws and regulations, influencing state and federal energy policy, and handling many of the day-to-day operational issues of one of our country's leading independent exploration and production companies. He is a 1999 graduate of the U.S. Naval Academy, where he earned a B.S. in English, and he served on active duty as a naval officer for five years. With a passion for the energy industry and environmental policy, he left the military to attend the University of Mississippi School of Law. He worked during law school as a staff writer for the National Sea Grant Law Center, an organization focused on analyzing environmental policies affecting the Gulf of Mexico region. At the same time, his growing interest in environmental law led him to an internship with EPA's Office of Criminal Enforcement, Forensics and Training in Washington, D.C. After graduating in 2007 he joined Butler Snow, where he provided environmental and transactional representation for both private and governmental clients. But transitioning to an in-house role with Continental Resources nearly four years ago afforded him an opportunity to play an active role in the American energy renaissance and placed him at the crossroads of the national debate on energy and environment issues. Jim is married to Alyssa, a fellow graduate of both the U.S. Naval Academy and University of Mississippi School of Law, and most of the couple's spare time these days is spent trying to keep up with their four young children. They are members of Christ the King Catholic Church in Oklahoma City.

Table of Contents

I. Introduction

II. Statutory and Regulatory Drivers for Species Conservation and Mitigation Relating to Oil and Gas Exploration and Development

A. The ESA's Legal and Regulatory Requirements

1. Section 9 "Take" Prohibition

2. Section 7 Consultation

3. Section 10 Incidental Take Permit

B. Pre-Listing Strategies for Oil and Gas Producers

III. Planning for Conservation and Mitigation: Oil and Gas Development in an Evolving ESA Landscape

A. Keeping Pace with New ESA Listing Decisions and Shifting Shale Plays

B. Lease Expiration as a Conservation Planning Driver

C. Addressing Split Estate Challenges in the ESA Context

1. Split Estates and the Accommodation Doctrine

2. Conservation Planning in a Fee/Fee/Federal Scenario

D. Opportunities for Conservation Through Technological Advances

E. Recent Oil and Gas Conservation Planning Efforts: A Lesser Prairie-Chicken Case Study

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IV. Funding Conservation: ESA-Related Liability and Accounting Issues for Joint Operating Agreements and Forced Pooled Units

A. The Role of Joint Operating Agreements and COPAS Accounting Procedures in ESA Compliance and Liability

1. Considerations Applicable to an Operator's Decision to Bill Non-operators for Costs of Voluntary Conservation and ESA Compliance

2. ESA-related Liability of the Parties to a Joint Operating Agreement

B. The Effect of Forced Pooling on ESA-related Liability and Well Cost Disputes

1. ESA-Related Liability of Operators and Non-operators of Forced Pooled Units

2. ESA-Related Well Cost Disputes in Forced Pooled Units

V. Conclusion

I. Introduction

The dynamic nature of the oil and gas industry creates unique issues related to planning for and funding Endangered Species Act ("ESA")⁴ conservation and compliance. Among other things, oil and gas producers must constantly forecast commodity prices and assess their impact on development objectives, incur risks to discover new reserves, evaluate the relative uncertainties of recovering both proven and unproven reserves, adapt their practices to account for an increasingly complex backdrop of environmental and regulatory considerations, manage their relations with surface owners who, in many cases, do not own the underlying minerals, and cope with the omnipresent threat of lease expiration. But oil and gas producers also have opportunities that other industries do not. Rapidly advancing technologies and practices have enabled domestic producers to reduce both the time necessary to drill, complete, and produce a well and the environmental footprint of their operations. In addition, the financial burden of conservation planning can often be shared among the operator and non-operators. For these reasons, oil and gas producers often find themselves in uncharted waters when navigating the complexities of ESA conservation and compliance.

This article explores some of the challenges and opportunities oil and gas producers are likely to encounter when it comes to planning for and funding ESA conservation and compliance. Part II sets out the ESA statutory and regulatory requirements applicable to oil and gas producers--requirements that demand the industry's proactive development of conservation and compliance strategies for listed, proposed, and candidate species. Part III discusses specific challenges and opportunities facing producers, including keeping pace with new ESA listing decisions, planning around lease expirations, managing split estate issues, and implementing new technologies and practices to minimize impacts. This part closes with a brief conversation of these issues in the context of the lesser prairie-chicken listing decision. Finally, Part IV considers ESA-related liability and cost-sharing issues relevant to oil and gas development, particularly in the context of joint operating agreements and forced pooling scenarios.

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II. Statutory and Regulatory Drivers for Species Conservation and Mitigation Relating to Oil and Gas Exploration and Development

A. The ESA's Legal and Regulatory Requirements

The ESA was enacted "to provide a means whereby the ecosystems upon which endangered species and threatened species depend may be conserved, [and] to provide a program for the conservation of such endangered species and threatened species[.]"⁵ Species become eligible for protection under the ESA once they have been listed by the U.S. Fish and Wildlife Service ("FWS" or "Service")⁶ as threatened or endangered.⁷ An "endangered" species is one that is in danger of extinction throughout all or a significant portion of its range.⁸ A "threatened" species is one that is likely to become endangered within the foreseeable future.⁹

1. Section 9 "Take" Prohibition

Section 9 of the ESA makes it unlawful to "take" an endangered species of fish or wildlife.¹⁰ The ESA defines "take" as "to harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect, or to attempt to engage in any such conduct."¹¹ The FWS has defined "harm" to include "significant habitat modification or degradation where it actually kills or injures wildlife by impairing essential behavioral patterns, including breeding, feeding, or sheltering."¹² The ESA authorizes both the federal government and private citizens to bring enforcement actions against someone who has caused an illegal "take."¹³ The fact that the taking was unintentional is irrelevant.¹⁴ A person who knowingly violates Section 9 is potentially subject to civil penalties of up to $25,000 per violation, criminal penalties of up to $50,000, imprisonment of up to one year, or both.¹⁵

2. Section 7 Consultation

Under ESA Section 7, federal agencies contemplating an action (e.g., issuance of an oil and gas lease, approval of an application for permit to drill ("APD"), or approval of water

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crossings subject to federal jurisdiction) that "may affect" a threatened or endangered species must consult with the FWS to ensure that such action "is not likely to jeopardize the continued existence of the species or result in the destruction or adverse modification of its designated critical habitat."¹⁶ In general, Section 7 consultation may be formal or informal.¹⁷ Informal consultation consists of any discussions or correspondence between the federal action agency and the FWS that are designed to assist in determining whether formal consultation is required.¹⁸ Projects which are likely to adversely affect a listed species must undergo formal consultation...