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April 02, 2019
Customized audit program offered to new O&G owners

The EPA has launched its voluntary Oil and Natural Gas Exploration and Production New Owner Audit Program (O&G Audit Program), a descendent of the Agency’s various self-audit policies designed specifically for the upstream O&G sector.

The new program offers incentives to new owners of O&G facilities, who discover, disclose, and correct noncompliance with federal Clean Air Act regulations. The program builds upon the EPA’s 10-year-old Interim Approach to Applying the Audit Policy to New Owners (August 1, 2008, Federal Register (FR)), which was derived from previous self-audit programs (e.g., revised Incentives for Self-Policing: Discovery, Disclosure, Correction, and Prevention of Violations, April 11, 2000, FR).

All the self-audit programs are based on the thinking that the EPA is not able to police the vast regulated universe, and therefore, facilities should be encouraged to essentially do the work of Agency inspectors. The primary incentive offered by the programs is a period of time in which violations may be corrected without incurring a full civil penalty. Under the O&G Audit Program, the EPA states that no civil penalties will be imposed on facilities that meet the conditions of the program.

“New Owners have a unique opportunity to focus on and invest in making a clean start at newly-acquired facilities by addressing Clean Air Act compliance issues,” the EPA states.

Furthermore, the EPA believes that new owners are particularly well-situated and motivated to make use of self-audits because discovered violations typically began before acquisition.

Excess vapor emissions

According to the Agency, the O&G Audit Program was largely developed because the EPA and the states have seen significant excess emissions from tanks and vapor control systems related to operation, maintenance, and/or design issues at newly acquired O&G gas exploration and production facilities.

“Despite new owners’ best efforts to reduce public health and environmental risks through pre-closing due diligence or post-closing assessments, some causes of excess emissions and Clean Air Act noncompliance that the EPA and states have observed at vapor control systems at upstream oil and natural gas facilities may not always be identified during these assessment processes when there are transactional time constraints and a significant number of newly-acquired assets,” states the Agency.

Required analysis

Among its features, the O&G Audit Program provides a template final agreement designed to reduce transaction costs and improve efficiencies for the EPA and new owners.  The agreement requires that participating facilities complete Appendix B, an engineering, emissions, and operational analysis. The analysis is intended to ensure that new owners have appropriately characterized their emissions and designed their vapor control systems to mitigate those emissions. New owners would have up to 180 days to correct a violation discovered through the Appendix B analysis. An extension may be requested. Also, the agreement provides 60 days to correct violations discovered outside of the Appendix B analysis; again, an extension may be requested.

Furthermore, the EPA is providing additional flexibility by giving a new owner up to 1 year following the effective date of the agreement to propose equivalent engineering, design, and/or operational measures in lieu of those specified in Appendix B. The proposed measures must demonstrate that vapor control system pressures will not exceed the applicable leak points during normal operations, that the stated control efficiencies will be achieved during normal operations, and that compromised equipment is detected and repaired or replaced.

The EPA’s announcement in May 2018 to initiate the O&G Audit Program prompted comments from stakeholders. The Agency says it refined the program based on those comments, which are summarized here, where a Q&A on the program and the template final agreement are also provided.

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