Changes in Environmental Law of General Applicability and Affecting Oil and Gas Industry

CERCLA Issues

   Rights of Potentially Responsible Parties to Recover Costs

Cooper Industries, Inc. v. Aviall Services Inc., decided December 13, 2004. Sections 107(d) and 113(f) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") allow private parties to recover expenses associated with cleaning up contaminated sites.  Facts: Aviall Services sued Cooper to force it to pay some of the cleanup costs under Section 113(f)(1) of CERCLA which provides that any person may seek contribution  from any other person liable under CERCLA Section 107(a) "during or following any civil action" under CERCLA section 106. Holding: The Supreme Court held that a private party who has not been sued under CERCLA section 106 or 107(a) may NOT obtain contribution under Section 113(f)(1) from other liable parties. Result: If your are a Potentially Responsible Party ("PRP" who has been sued under Section 106, you can use Section 113(f)(1) to seek contribution to your cleanup costs from other PRPs. Otherwise, see U.S. v. Atlantic Research Corp. case. Note there is a three year statute of limitations under section 113 and six year statute of limitations under section 107, which may be relevant if there has been a delay in seeking relief.

United States v. Atlantic Research Corp., decided June 11, 2007. Facts: After Atlantic Research cleaned up a Government site it leased and contaminated while doing government work, it sued the Government to recover some of its costs under CERCLA section 107(a). Holding: The Supreme Court held that section 107(a) permits cost recover (as distinct from contribution) by a private party that has itself incurred cleanup costs.  There will still be equitable distribution of reimbursement costs since there is joint and several liability under section 107 through the filing of a counterclaim by a PRP sued by another PRP.  Results: If a PRP has not been sued for contribution, that PRP may seek cost recovery under section 107(a).

     All Appropriate Inquiry

Hazardous Substances - Prospective persons may become liable under section 107 of CERCLA for hazardous substances (not petroleum) on the land purchased unless they make "all appropriate inquiry" ("AAI") into previous ownership and use of the property so as to qualify for one of the three defenses to CERCLA liability. The purchasers must also not be affiliated with the liable party, must comply with land use restrictions, take reasonable steps to stop continuing releases, etc.  Final Rule published November 1, 2005, effective November 1, 2006 at 70 Federal Register 66070.  Note that environmental site assessments under the AAI does not address some potential environmental issues that could be considered in appropriate, such as asbestos, mold, lead, radon, air quality (indoors), wetlands and endangered species.

Petroleum - The Coast Guard published a proposed rule on All Appropriate Inquiry for establishing a defense to liability of an owner or operator of a facility that is the source of a discharge of oil into navigable waters. To be
entitled to the defense, those persons must show, among other things, that before acquiring the real property on which the facility is located, they had made all appropriate inquiries into its previous ownership and uses to determine the presence or likely presence of oil. This proposed rule is
consistent with a final rule on this subject published by the Environmental Protection Agency. 72 Federal Register 32232-46, June 12, 2007.

Clean Water Act Issues

   Federal Jurisdiction based on Navigable Waters Reduced by Supreme Court

Rapanos v. United States, June 19, 2006

The federal Clean Water Act (CWA) regulates discharges of pollutant to surface waters of the United States (excluding ground water). Discharge permits are needed, either individual permits or general permits for discharges to navigable waters (section 401(a)).  Hence, the meaning of navigable waters is critical to US EPA jurisdiction under the CWA.  Rapanos deals with the definition of navigable waters in the context of the the requirement to get permits from the U.S. Corp. of Engineers for the discharge of dredged or fill material into wetlands under Section 404 of the Act. The Corps regulations provide for jurisdiction over wetlands that could affect interstate or foreign commerce. In Rapanos, the site was not directly adjacent to a navigable body of water but the adjacent waterbody traveled through several manmade drains and streams before it reached a navigable waterbody. In a related case, Carabell, the wetlands were separated from a non-navigable tributary by a man-made berm.  The Supreme Court issued in effect two decisions, resulting in a Justice Scalia test for navigable waters and a Justice Kennedy test for navigable waters. The Scalia test is a narrow scope of jurisdiction and rejected the Corps jurisdiction over ephemeral and intermittent streams, and requires the Corp (and by implication EPA) to prove that (a) tributaries to navigable waters contain at "relatively permanent" presence of water and (b) the wetland must have a continuous surface connection with the abutting waterway. The broader Kennedy test merely requires that there be a "significant nexus" between the wetlands and a traditional navigable waterway.  Result: a discharger to intermittent streams may be able to argue that it does not need a federal NPDES permit, and this may be important in case of spills to argue that the discharge did not violate the CWA. Lower court decisions after Rapanos have not been consistent on which test to use.  US EPA issued Guidance on implementing this decision in June 2007.

     SPCC Rules - Deadline Extended

The Environmental Protection Agency on May 16, 2007 extended the
dates by which facilities must prepare or amend Spill Prevention, Control, and Countermeasure (SPCC) Plans, and implement those Plans. As a result of the revisions in Sec.  112.3(a)(1), an owner or operator of a facility (other than a farm) that was in operation on or before August 16, 2002 must make any necessary amendments to his SPCC Plan, and implement that Plan, on or before July 1, 2009. Federal Register, May 16, 2007, 72 F.R. 27443.

     Asbestos in Soil in Colorado

The Colorado Department of Public Health and Environment's Hazardous Materials and Waste Management Division established specific management requirements for asbestos-contaminated soil under Section 5.5 of the Regulations Pertaining to Solid Waste Disposal Sites and Facilities (6 CCR 1007-2), effective April 30, 2006.

Changes in Environmental Law Affecting Oil and Gas Industry

Governor Appoints New Members to CO Oil & Gas Conservation Commission July 12, 2007

Governor Ritter named five new members to the COGCC July 12, subject to Senate confirmation in 2008.

Republican lawmaker, Greg Brophy, of Wray, called the appointments "a seismic shift in the makeup of the commission." "It looks to me like we're going away from folks who have an inherent knowledge of the industry and moving toward people who have overt political agendas," The appointment of Garfield County Commissioner Tresi Houpt rattled industry more than any other. Houpt, a Democrat, has often criticized the oil and gas industry's development in Garfield County. Brophy called her an "ultra-liberal" who was "likely coming into this with a big ax to grind." From Rocky Mountain News, July 13, 2007.
 

The appointees are:

Joshua B. Epel of Greenwood Village, assistant general counsel for DCP Midstream. He helped author the Colorado Voluntary Cleanup Act and the Colorado Air Pollution Prevention and Control Act. He has served on the Regional Air Quality Council and the Steering Committee for the Grand Canyon Visibility Transport Commission.

Tresi B. Houpt of Glenwood Springs, Garfield County commissioner. She was elected to the Board of Commissioners in 2002 and re-elected in 2006. She chairs Colorado Counties Inc.’s Land Use and Natural Resources Committee and is a member of the National Association of Counties Environment, Energy and Land Use Committee. In Garfield County, Houpt believes a few of the important issues that need to be looked at are well density, proximity to homes and other structures, and the impacts on neighbors and those who have the resources beneath their property.

Michael P. Dowling of Denver, founder and principal of Western Ranchland Investors, and founder and president of the Dowling Foundation. Prior to that, he held in-house and management consulting positions with General Atlantic Resources Inc. of Denver and McKinsey & Co. of New York. He is a founding member and current chairman of the Colorado Conservation Trust.

Richard D. Alward of Grand Junction, an ecologist and owner of Aridlands Natural Resources Consulting. As an independent environmental consultant, he provides information to federal land agencies so they can assess the potential impacts of gas, coal, and uranium development on western Colorado ecosystems.

He is an adjunct instructor of environmental science at Mesa State College and previously has worked as an ecologist with the U.S. Geological Survey.

Thomas L. Compton of Hesperus, owner and manager of the Compton Cattle Co. commercial beef cattle enterprise. He is vice president of the Colorado Rural Electric Association board of directors and served on the Governor’s Task Force on Colorado Roadless Areas.

Their terms are for four years and their nominations require Senate confirmation.

Additional members of the Commission include current Commissioner Kimberlee Gerhardt of Durango, Colorado Department of Natural Resources Executive Director Harris Sherman and Department of Public Health and Environment Executive Director Jim Martin. HB 1341 adds the DNR and CDPHE executive directors to the Commission.

Colorado Legislation in 2007

Colorado Governor Ritter announced May 29, 2007 that he had signed the following bills affecting the environment and the oil and gas industry:

1. HB 1298, Best Management, Wildlife. This is a companion measure to HB 1341, which reconstitutes the membership of the Colorado Oil and Gas Conservation Commission and expands its policy focus to consider public health, environment and wildlife impacts. HB 1298 requires the Commission to use best management practices to minimize harm from oil-and-gas development.

2. HB 1252, Surface Rights. Requires oil-and-gas drillers to minimize surface intrusion and damage by using the latest drilling technologies.

3. HB 1180, Reporting at Wellhead. Requires the Colorado Oil and Gas Conservation Commission to establish new rules by Jan. 1 to ensure the accuracy of oil and gas measurements at wellheads.

4. HB 1341, Oil and Gas Commission Reorganization. This bill expands the number of Colorado Oil and Gas Conservation Commission members from seven to nine; brings a better balance of interests to the membership; and adds public health, environment and wildlife impacts to the commission’s mission.

Colorado VOC Rules

On December 17, 2006, the Colorado Air Quality Control Commission ("AQCC") adopted changes to oil and gas industry regulations to reduce emissions of volatile organic compounds (VOCs) from condensate tanks. VOCs are a precursor to ozone formation. New control requirements were established for condensate tanks in both the Front Range Early Action Compact Area and statewide. New reporting and recordkeeping requirements were also established. See Link.

County Regulation of Oil and Gas Development

The Colorado Supreme Court declined to hear an appeal in the case of Colorado Oil and Gas Conservation Commission and Gunnison Energy Corporation v. Board of County Commissioners of Gunnison County, Colorado on June 11, 2007, which left standing the Court of Appeals decision of December 14, 2006 which also included BDS International, LLC.  The County sought to enjoin BDS from maintaining or drilling wells on federal property within Gunnison County and seeking an order requiring BDS to comply with the County's Temporary Regulations for Oil and Gas Operations (County Regulations). The Appellate Court held that certain County Regulations, on their face, conflict with state law. However, it also conclude that a majority of the County Regulations may possibly be harmonized with the state regulatory scheme and, therefore, an evidentiary hearing is necessary to determine the extent of any operational conflicts in this case. The Appellate Court conclude that neither the federal statutory scheme nor the case law relied upon by GEC supports the conclusion that Congress intended to preempt all local regulation in the area of oil and gas operations. It held County Regulations concerning fines, financial guarantees, and access to records invalid because they operationally conflict with state statutes or regulations. The case was remanded to the trial court as to the remaining County Regulations to determine whether those County Regulations that do not, on their face, operationally conflict with state law nonetheless are in operational conflict with state law in the circumstances presented in the case.