CHAPTER 14 ENVIRONMENTAL PROVISIONS - LIABILITY AND OWNERSHIP ISSUES

• Jurisdiction: United States

Oil and Gas Agreements: Midstream and Marketing
(Feb 2011)
CHAPTER 14
ENVIRONMENTAL PROVISIONS - LIABILITY AND OWNERSHIP ISSUES
L. Poe Leggette
Fulbright & Jaworksi L.L.P.
Denver, Colorado

L. POE LEGGETTE is a partner at Fulbright and Jaworski and divides his time between the firm's Washington and Denver offices. He is co-chair of the firm's Energy Practice Group and heads the firm's Western Lands and Energy Practice. His practice focuses on judicial and administrative litigation concerning natural resources development on federal and Indian lands. He regularly counsels oil and gas and wind energy companies on obtaining and operating leases on federal and Indian lands, and he also defends oil and gas companies accused of violating the False Claims Act. Prior to his private practice, Poe served as Assistant Solicitor for the U.S. Department of the Interior, advising the Bureau of Land Management and the Minerals Management Service on their onshore and offshore energy programs, and MMS's Royalty Management Program on questions of royalty valuation. While with the Department, he authored or co-authored virtually all briefs filed in the federal courts on outer continental shelf issues, obtaining, among other things, two Supreme Court reversals of unfavorable Ninth Circuit decisions. During and after his government service, Poe has been involved in many significant cases at the trial, appellate and Supreme Court levels regarding ownership of mineral rights, royalty disputes and compliance with environmental statutes such as the National Environmental Policy Act, the Endangered Species Act, the Coastal Zone Management Act, the National Historic Preservation Act, the Marine Mammal Protection Act, the Federal Land Policy and Management Act, the Mineral Leasing Act, the various Indian mineral development statutes, the Outer Continental Shelf Lands Act and the National Forest Management Act. These include recent decisions in In re Natural Gas Royalties Qui Tam Litigation, ___ F.3d ___ (10th Cir. 2009); Kerr-McGee Oil & Gas Corp. v. Dep't of the Interior, 554 F.3d 1082 (5th Cir. 2009); and Wilderness Workshop v. Bureau of Land Management, 531 F.3d 1220 (10th Cir. 2008).

2001 Gas Processing Contract

♦ 1 year term

♦ Gave processor exclusive right to "Process" all of producer's committed "Gas"

♦ "Process" defined to mean removal of liquid hydrocarbons; the term "treat" doesn't appeal

♦ "Gas" defined to mean "natural gas...including all of the constituents thereof"

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♦ "Products" defined to mean liquid hydrocarbons

♦ Nothing in contract specifically conveys title to or custody over inert gas, contaminants, etc.

♦ Tax provision makes it producer's burden to pay all taxes imposed with respect to producer's gas

♦ Force majeure provision suspends the contract obligations of the party claiming force majeure, including the need to comply with any court order or order of a governmental authority

♦ No control, no partnership provisions do the usual to avoid producer-processor joint and several liability

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♦ Limit on Liability provision: through release and indemnity, each absolves the other for the other's gross (and lesser) negligence as to claims against each other.

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Common Law Base for Environmental Liability

CERCLA Liability

"[R]elease or substantial threat of release into the environment of any hazardous substance, pollutant, or contaminant which may present an imminent and substantial damage to the public health or welfare."

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Liability attached to past and present owners, operators, and other potentially responsible parties, including (42 U.S.C. sec. 9607(a)(1)-(4)):

(1) the current owner or operator of a vessel or a facility;

(2) the owner or operator of a vessel or facility at the time of disposal of any hazardous substance;

(3) the generators of any hazardous substances located on the site; and

(4) any person who accepts or accepted any hazardous substances for transport to disposal or treatment facilities

RCRA

♦ In the RCRA, Congress conditionally exempted oil and gas exploration and production (E&P) wastes

♦ EPA confirmed exemption in 40 C.F.R. 261.4(b)(5)

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RCRA Obligations

♦ Imposes obligations on anyone or any facility that generates, transports, treats, stores, or disposes of hazardous waste, and any entity that produces, burns, distributes, or markets any waste-derived fuels

Table 6. Estimated Operating Emissions from the Willow Creek CTF (tons/year)
Source Name	NOx	CO	SO2	PM10	VOC
Thermal Oxidizer	34.4	15.5	0.2	1.3	3.9
Process Flare1	14.4	28.9	0.2	2.6	3.1
Condensate Flare2	3.1	7.7	0.0	0.6	18.3
3 Solar Titan Compressors3	131.4	142.8	5.7	29.7	11.4
Electrical Generator	25.4	25.8	1.4	7.2	3.0
Pipeline Fugitives	0.0	0.0	0.0	0.0	16.7
Evaporation Pond	0.0	0.0	0.0	0.0	3.5
Total4	208.7	220.7	7.5	41.4	59.9

Table 7. Estimated Hazardous Air Pollutants (HAPs) from the Willow Creek CTF (tons/year)
Benzene	Toluene	Ethyl benzene	Xylene	Acetaldehyde	Propylene Oxide	Formaldehyde	Hesane	TOTAL
Thermal Oxidizer	0.119	0.074	0.000	0.000	0.000	0.000	0.027	0.742	0.962
Process Flare1	0.064	0.073	0.000	0.000	0.000	0.000	0.026	0.704	0.867
Condensate Flare2	0.066	0.190	0.000	0.004	0.000	0.000	0.002	0.860	1.122
3 Sular Titan Compressor3	0.021	0.726	0.054	0.108	0.066	0.048	2.349	0.510	3.812
Electrical Generator	0.005	0.056	0.014	0.028	0.017	0.013	0.605	0.000	0.728
Pipeline Fugitives	0.193	0.982	0.104	0.715	0.000	0.000	0.000	1.067	3.061
Evaporative Pond	0.626	1.087	0.021	0.487	0.000	0.000	0.

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