CHAPTER 6 REGULATORY AND PERMIT REQUIREMENTS FOR GATHERING SYSTEMS, CENTRAL FACILITIES AND PROCESSING PLANTS

• Jurisdiction: United States

Oil and Gas Agreements: Midstream and Marketing
(Feb 2011)
CHAPTER 6
REGULATORY AND PERMIT REQUIREMENTS FOR GATHERING SYSTEMS, CENTRAL FACILITIES AND PROCESSING PLANTS
Jamie J. Jost
Gina L. Matero ¹
Beatty & Wozniak, P.C.
Denver, Colorado

JAMIE L. JOST is a shareholder at Beatty & Wozniak, P.C. Jamie's practice focuses primarily on oil and gas issues in the Rocky Mountain region and specifically on issues relating to exploration, production, and development of oil and gas as well as local, state, and federal permitting and regulatory issues. Jamie represents clients in federal and state courts on various energy issues, including oil and gas royalty litigation, subsurface trespass matters, and surface use issues, as well as the Colorado Oil & Gas Conservation Commission, the Wyoming Oil & Gas Conservation Commission, the New Mexico Oil Conservation Division and the Interior Board of Land Appeals. Prior to joining Beatty & Wozniak, Jamie worked for Suncor Energy (U.S.A.) Inc. where she served as Corporate Legal Counsel and was primarily responsible for legal issues for Suncor's pipeline affiliate's land, title, litigation and permitting matters. Specifically, Jamie worked closely with the business team on the expansion of its existing pipeline system and managed the easement acquisition, permitting, and eminent domain proceedings for the expansion project. She also advised Suncor's Terminal and Distribution Group, Retail Group, and Human Resources Group on various matters. Jamie serves as a trustee for the Rocky Mountain Mineral Law Foundation and has co-authored several oil and gas related articles for the RMMLF. She is a member of the Wyoming Bar Association, Colorado Bar Association, New Mexico Bar Association, and the American Bar Association. She is licensed to practice law in New Mexico, Colorado and Wyoming as well as the Tenth Circuit Court of Appeals. Jamie received her J.D. from the University of Wyoming in 2002 and her undergraduate degree in Environmental Science from Indiana State University in 1998.

Oil and gas operators have long been required to obtain authorizations before commencing construction of oil and gas pipelines, including gathering lines, central processing facilities, and processing plants. A "gathering system" or "gathering facility" includes pipelines and other facilities used to collect gas from various wells and bring it by separate and individual lines to a separate point where it is delivered into a single line.² Gathering lines are pipes used to transport oil or gas from the lease to the main pipeline in the area.³ This paper provides an overview of the regulatory and permitting requirements applicable to gathering systems, central facilities and processing plants, as well as an operator's eminent domain authority and other considerations an operator should take into account as part of its initial planning for the development of a gathering system and associated facilities.

I. REGULATORY AUTHORITY

A. Federal Regulation of Natural Gas Gathering and Processing Facilities

The Natural Gas Act⁴ (the "NGA"), the primary statutory authority for federal regulation of the natural gas industry, specifically excludes production and gathering of natural gas from its regulation.⁵ The Department of Transportation ("DOT"), however, pursuant to the Natural Gas Pipeline Safety Act⁶ has regulatory control over pipeline safety standards. The Pipeline and Hazardous Material Safety Administration ("PHMSA") of the U.S. Department of Transportation ("DOT"), acting through the Office of Pipeline Safety ("OPS"), administers the federal regulatory pipeline safety program for ensuring pipelines are safe, reliable and environmentally sound. PHMSA oversees the development and implementation of regulations concerning pipeline construction, maintenance and operation, and shares these responsibilities with various State regulatory partners.⁷ The minimum pipeline safety standards⁸ established by the federal government are set forth in the Code of Federal Regulations, Title 49, Parts 190-199 (the "Federal Pipeline Safety Regulations"). These regulations are applicable to offshore

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gathering lines and onshore gathering lines located in populated areas.⁹ In addition to being subject to minimum safety standards, operators of DOT regulated gathering lines must comply with annual reporting, incident reporting and safety-related condition reporting requirements set forth in 49 C.F.R. Part 192. In sum, gathering facilities are generally excepted from federal regulation unless determined to be "regulated" gathering lines pursuant to DOT regulations.¹⁰

Whether a gathering line or segment of a gathering line is DOT regulated is generally determined according to the pressure of the line and area/population density where such line or segment is located as well as the function of the gathering line. Incorporated by reference into 49 C.F.R. Part 192 is the American Petroleum Institute ("API") Recommended Practice 80, "Guidelines for the Definition of Onshore Gathering Lines" (1st edition, 2000) (the "API RP 80").¹¹ An operator must consult the API RP 80 to determine if an onshore pipeline is an onshore gathering line.¹² After making this determination, the operator must next determine if the onshore gathering line is a regulated onshore gathering line.¹³ Both the API RP 80 and the DOT regulations provide very detailed criteria as to what constitutes an onshore gathering line and a regulated onshore gathering line, respectively.¹⁴ In general, onshore gathering lines are regulated if they fall within an incorporated or unincorporated city, town or village or any designated residential or commercial area, such as a subdivision, business or shopping center or community development.¹⁵ The definition of onshore gathering line does not include a natural gas processing plant.¹⁶ Before beginning a pipeline construction project, an operator must thoroughly familiarize itself with the applicable federal regulations and guidelines.

B. State Regulation of Natural Gas Gathering and Processing Facilities

As a result of the production and gathering exemption of the NGA, regulation of natural gas gathering pipelines and facilities is mostly conducted by the individual states. Until relatively recently, however, there was very little state regulation of gathering pipelines and facilities. All of the states surveyed for this paper now have promulgated rules and regulations applicable to gathering systems in varying degrees.

1. Colorado. Colorado defines "public utility" as including any pipeline corporation or person "operating for the purpose of supplying the public" or otherwise declared by law to be affected with a public interest."¹⁷ The Colorado Public Utility Commission ("CPUC"), through

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certification by OPS, is responsible for conducting and carrying out the inspection and monitoring activities of intrastate pipelines (including regulated gathering lines) located in Colorado. In addition, the CPUC, has recently made the determination that the CPUC's Rule 4900 series (the "4900 Rules"), Gas Pipeline Safety, applies to all pipeline operators, including intrastate gathering pipelines not subject to federal regulation. The 4900 Rules are broader than the Federal Pipeline Safety Regulations so operators of gathering pipelines in Colorado should familiarize themselves with Colorado's rules. Additionally, the CPUC has adopted by reference several of the federal safety standards found in 49 C.F.R. Part 192 as well as the OPS drug and alcohol policies set forth in 49 C.F.R. Parts 40 and 199. The 4900 Rules applicable to unregulated gathering lines are limited reporting requirements, mandated Tier 1 membership in Utility Notification Center of Colorado based upon the location of the non-regulated gathering line and marker requirements.¹⁸

Certain of the Colorado Oil and Gas Conservation Commission ("COGCC") regulations apply to gathering lines and processing and compression facilities. These regulations are in addition to the regulations of the CPUC. Under the COGCC regulations, prior to commencing operations, an operator will be required to obtain an operator number (Form 1, Registration for Oil and Gas Operations), post a blanket performance bond (Form 3, Performance Bond); register the Gathering System and Plant (Form 12, Gas Facility Registration/Change of Operator) and provide monthly reporting of gas plant volumes (Form 11, Monthly Report of Gasoline or Other Extraction Plants).

The rules are not clear whether a midstream operator of a processing plant must notify the COGCC of the location of a processing plant by filing a Form 2A. The COGCC deferred this issue during the rule making process that occurred in 2009 and will soon be addressing the regulations of midstream operations. Gathering lines and other oil, gas and water pipelines are specifically exempted from Form 2A filing requirements.

COGCC 1100 Series rules and regulations apply to all pipelines in Colorado. These rules set forth requirements for materials, design, cover, excavation, backfill and reclamation, pressure testing, operations, maintenance and repair and abandonment. Markers with specific legend¹⁹ requirements are required in designated high density areas and where the pipeline crosses public rights of way or utility easements.²⁰ Gathering pipeline operators are required to become a member of the Utility Notification Center of Colorado and participate in Colorado's One-Call notification system. Operators of federally regulated gathering lines must prepare and submit an emergency response plan to the COGCC, the sheriff of the county in which the gathering line is located and each local government traversed by such pipeline segment.

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Under Rule 711, operators of natural gas gathering and natural gas processing facilities are required to provide statewide blanket financial assurance to ensure...