CHAPTER 13 SPECIAL ENVIRONMENTAL CONSIDERATIONS IN MINING AND OIL AND GAS TRANSACTIONS
| Jurisdiction | United States |
(Nov 1988)
SPECIAL ENVIRONMENTAL CONSIDERATIONS IN MINING AND OIL AND GAS TRANSACTIONS
Parsons, Behle & Latimer
Salt Lake City, Utah
INTRODUCTION
Three historical and legal factors present unique problems in documenting environmental aspects of mining1 and oil and gas transactions as compared to other corporate and real property transactions. These special considerations warrant particular attention in conducting due diligence and allocating risks in mineral transactions.
First, existing state and federal environmental regulation of mining and oil and gas operations historically has been and continues to be more comprehensive than state or federal environmental regulation of other industries. Reclamation and environmental requirements in many mining states regulate more broadly and affect more operations than EPA air, water, and solid and hazardous waste regulations generally. The more sweeping nature of state and federal reclamation requirements arises from the fact that they impose "cradle to grave" control not only over mine wastes, but over production facilities as well. For example, reclamation requirements under the Utah Mined Land Reclamation Act require, among other activities, removal of all surface structures upon mine closure, recontouring the land, restoration of disturbed acreage and removal or containment of solid and hazardous wastes.2 These reclamation and restoration requirements are thus broader than under the Resource Conservation and Recovery Act ("RCRA"), whose closure and corrective action requirements apply only to waste management units.3
In addition to reclamation requirements, state environmental statutes and regulations often apply more broadly than federal regulations. The water pollution control statutes of many mining states expressly apply to ground water as well as
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surface water.4 Consequently, state environmental permits are typically required for construction of tailing ponds, for example, which are not subject to NPDES permit requirements if they do not discharge into waters of the United States. Moreover, although wastes from mining and oil and gas operations are generally exempt from federal hazardous waste requirements, they are typically not exempt from state reclamation and environmental requirements.5
Taken together, federal and state reclamation and environmental laws and regulations "occupy the field" more comprehensively respecting mining and oil and gas activities than EPA regulations do respecting nonmineral industries. For the attorney documenting environmental aspects of a mineral transaction, this broader regulation implies a broader scope of due diligence. Due diligence must cover production processes as well as waste management practices.
A second unique environmental feature of mining and oil and gas transactions arises from the fact that a large number of mineral development projects occurs on public lands. Federal and state land ownership subjects the mineral operator to conflicting federal and state policies promoting mineral development and public stewardship. For example, the Mining Law of 1872,6 through the mineral location system, continues to reflect a public policy favoring privately initiated mineral development on public lands. The Federal Land Planning and Management Act7 ("FLPMA") subjects mineral development to a federal land planning framework, but does not reverse the prodevelopment policy underlying the general mining laws. The same is generally true
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respecting development of oil and gas and other leasable minerals under the Mineral Leasing Act.8
Federal environmental statutes create a tension with these mining and mineral leasing statutes by imposing trust responsibilities on the very agencies charged to develop the nation's mineral resources. The National Environmental Policy Act9 ("NEPA") requires federal agencies to evaluate and mitigate adverse environmental effects of mineral development and other activities. More significantly, the Comprehensive Environmental Response Compensation and Liability Act10 ("CERCLA") imposes trustee responsibilities on state and federal land managers with respect to damage to natural resources.
The dual responsibility of state and federal land managers to oversee or even promote mineral development while mitigating impacts and avoiding natural resource damage can create a difficult situation. For example, locatable minerals are often found in mountainous areas which also serve as ground water recharge zones for public water supplies.11 Mining operations may degrade the recharge zone.12 The land manager has a difficult responsibility in this situation. His approval of a plan of mining operations may result in damages for which he has responsibility as a trustee or liability as an owner.
For the lawyer documenting environmental aspects of a mineral transaction, the problem created by this conflict of agency responsibilities is that Bureau of Land Management ("BLM"), Forest Service or state approval of a plan of operations provides no assurance that compliance will shield the operator from environmental cleanup or natural resource damage liability
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under CERCLA.13 Although defenses based on certain state and federal approvals exist,14 a miner's ability to assert them successfully depends in part on how carefully the agency performs its regulatory responsibilities. For example, sloppy NEPA performance by the land management agency in approving a plan of operations could subject the operator to natural resource damage liability for the very operations approved by the agency. For the mineral or environmental lawyer, this means that compliance with mining plans, mineral leases, and other approvals may not shield the operator from environmental liability.
The third unique environmental factor affecting mineral transactions is the rapidly changing nature of certain statutory and regulatory exemptions for mining and oil and gas wastes under environmental laws. For mining wastes, regulation and litigation concerning the Bevill Amendment15 to the Resource Conservation and Recovery Act16 are dramatically changing state and EPA regulation of mine wastes under environmental laws. For oil and gas wastes, the Bevill exclusion remains intact, as does an express exclusion for oil and natural gas under CERCLA. The oil and gas exclusion does not embrace all oil and gas production wastes, however.
The implication of these recent developments for mineral and environmental lawyers is to impose a duty to remain current respecting rapid changes in federal and state regulations concerning these wastes. While remaining current as to changes in the law is the duty of every lawyer, changes in environmental law are sometimes not found in statutes, regulations or published opinions. "Due diligence" may require ferreting out obscure EPA reports, guidance documents and regulatory proposals.17
STATE AND FEDERAL REGULATION OF HARDROCK MINING AND OIL AND GAS ACTIVITIES
State and federal regulation of mining and oil and gas activities is historically and currently more comprehensive than environmental regulation of nonmineral industries. This implies
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a broader scope of due diligence than for nonmineral transactions.
Reclamation
State and federal reclamation requirements typically apply to all operations covered by a mining and reclamation plan, i.e., all operations on "affected lands."18 "Affected lands" typically means the surface and subsurface area where mining operations will be conducted, including transportation rights of ways, excavations, exploration sites, drill sites and workings, spoil piles, evaporation and settling ponds or dumps, tailings ponds or dumps, working, parking, storage and waste disposal areas, and areas in which structures, facilities, equipment, machines, tools, or other materials or property are used in mining operations.19 Thus, reclamation requirements extend far beyond waste management areas, and include virtually all aspects of exploration and production.
State mine permitting processes are similar to nonmining environmental permitting processes by requiring preconstruction approval. Typically, the operator must file a Notice of Intent to Commence Mining Operations.20 Because the scope of reclamation requirements includes infrastructure (such as roads and utilities) and production areas as well as waste management units, application requirements are more extensive than under air, water, or waste management permits. The application typically must describe how all activities may alter or disturb "affected lands," including proposed operations and reclamation activities upon closure.
Substantively, reclamation requirements impose a performance standard that the affected lands, when abandoned, be capable of supporting postmining uses compatible with probable land uses and in a condition that minimizes hazards to the public safety and welfare following mining.21 During closure, mine operators must ensure that waste piles, spoil piles, and fills
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are regraded and sloped to minimize safety hazards and erosion; that highwalls are reclaimed by backfilling against them or by cutting them back; that all toxic or potentially toxic materials are safely removed or isolated such that solid, liquid, or gaseous toxic emissions to the environment are reasonably eliminated or controlled, consistent with environmental regulations; that roads and pads are reclaimed or stabilized; that natural drainages are restored; that all structures and equipment are removed unless approved for continued use; that shafts and portals are covered or closed; that sediment is controlled during reclamation activities; that revegetation is established where possible; that dams and other major impoundments are non-impounding, self...
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