Good morning Mister Chairman, members of the committee, my name is Brent Cummings. We have a family crude oil and natural gas exploration and production (E&P) company, Cummings Oil Company located in Oklahoma City. We operate and have ownership in numerous wells in Oklahoma, and have ownership in wells located in Oklahoma, Kansas and New Mexico that are operated by other companies. I appreciate the opportunity to appear before this committee today. I offer my remarks from the perspective of a small independent oil and natural gas exploration and production operator and on behalf of the Oklahoma Independent Petroleum Association (OIPA) which is an association of more than 1,600 independent oil and natural gas producers.
Our company has 8 full time employees and a number of contract associates. I have a degree in Petroleum Engineering and I am responsible for all aspects of our field operations including drilling, completion and production operations. A significant and continuously increasing part of this responsibility includes making sure our company is compliant with numerous federal environmental requirements under the Clean Water Act, the Safe Drinking Water Act, the Clean Air Act, SARA Title III, Federal Emergency Management Agency, U.S. Fish and Wildlife Service, Historic Preservation, Bureau of Land Management, and a variety of state requirements.
Prior to addressing our concerns with the Spill Prevention Control and Countermeasure (SPCC) rule, I would like to describe the crude oil and natural gas exploration and production in Oklahoma and the nature of OIPA’s membership. Oklahoma is a mature energy producing state. A significant aspect of that production – particularly in the context of the effects of regulations – involves the critical role of “marginal” wells. The Interstate Oil and Gas Compact Commission, defines a marginal oil well as producing 10 barrels or less per day of crude oil and 60 million cubic feet (mcf) or less of gas per day. Oklahoma ranks 2nd in the production of crude oil and natural gas from marginal wells. Over half of Oklahoma’s oil production comes from marginal wells which accounts for approximately 41.4 million barrels of crude oil per year from approximately 48,000 marginal wells.
Although our membership includes some publicly traded companies, the majority of our members are small, family owned businesses similar to small family farms. Our members explore for and produce crude oil and natural gas. In contrast to the large integrated companies, our members do not refine crude oil and we do not market gasoline or heating fuels.
Now to address the SPCC rule, the Environmental Protection Agency (EPA) proposed revisions to the SPCC rule in 1991, 1993, and 1997. A new SPCC rule was finalized and became effective August 16, 2002. Prior to and since 2002, OIPA has raised significant concerns regarding the adverse impacts of these regulations on oil and natural gas production in Oklahoma. On December 2, 2005, EPA proposed another rule to clarify some issues raised with the 2002 rule as well as a guidance document for its inspectors. Unfortunately, none of our issues are addressed in the proposed rule and the guidance document leaves too much to regional inspectors to interpret.
The intent of the SPCC regulation is to prevent the release of oil into the waters of the U.S. The EPA’s broad interpretation of the definition of “waters of the U.S.” that include things such as dry arroyos, drainage ditches, road bar ditches is unreasonable. Smaller independent operators often do not have the time or the resources to prove they are not subject to the SPCC rules. This ambiguity has lead operators to develop costly plans and procedures when they may not be necessary. The various court decisions have complicated this issue as well. The guidance document does not provide any clarity on what is “waters of the U.S.”
The SPCC’s current “one size fits all” requirements do not take into consideration the risk of marginal crude oil and natural gas wells as compared to larger bulk storage facilities and refineries that have high throughput and large single tank storage volumes.
As previously stated, the intent of the SPCC rule is to prevent and control oil discharges, not produced water discharges. The EPA has not presented data demonstrating there is a significant history of documented spills of oil into “waters of the U.S.” from produced water storage tanks. Oil and gas exploration and production equipment used to treat produced water should be subject to the wastewater exemption to the same extent as similar facilities in other industrial sectors.
At non-exploration and production sites, process equipment is excluded from the definition of bulk storage containers, whereas at E&P facilities, this type of equipment is considered bulk storage containers and subject to secondary containment requirements. The EPA has singled out E&P oil and gas water separation facilities for an increased level of regulation while facilities in other industry sectors using similar or nearly identical technologies and treatment goals are allowed to be exempted from these rules.
The requirements for containment around flow lines and gathering lines are unrealistic and impractical. Installing secondary containment or retrofitting all existing flow lines and gathering lines (such as double-walled piping) is cost prohibitive. A more reasonable approach would be to allow operators to implement flexible and responsible, risk-based flow line inspection and maintenance programs, not prescriptive corrosion, integrity or pressure testing which can be extremely costly for small operators.
Design, construction and maintenance of secondary containment around oil tanks are the most beneficial ways to prevent spills. Even though EPA has recently proposed to streamline the process for smaller facilities in its recent proposal, the proposed threshold does not address marginal crude oil wells.
The 2002 SPCC rule includes numerous administrative changes that, taken as a whole, greatly expands and increases the impact of the rules on the regulated community. These changes include a new definition for a facility, requiring a plan prior to beginning any operations at an E&P site and changing the terminology from “shoulds and shalls” to “musts or implied musts”. All these changes take away the flexibility that a Professional Engineer and/or an operator should have to address the various site specific conditions. We are disappointed to see that our issues with the 2002 regulation were not directly addressed in the recently announced proposed rule.
We have never seen a cost and energy impact analysis of the 2002 regulations or data that supports the needs for changes provided in the 2002 SPCC rule affecting the E&P sector. We are aware that the Department of Energy has recently initiated a cost impact study and believe that the results will be very beneficial. At a time when domestic oil and natural gas production is being challenged to meet critical domestic demand, understanding these consequences will be essential to rulemaking decisions.
Finally, the EPA should clarify how it plans to address the API litigation settlement agreement issues as it relates to the 2002 SPCC rule. EPA should follow through and make rule changes to clarify these issues. And while the API settlement agreement appears to address containment at crude oil loading areas, recent site inspection violations in Oklahoma show EPA inspectors taking a different approach. On Dec. 2, 2005, EPA Administrator Stephen L. Johnson signed a proposed amendment to extend the SPCC compliance deadline for all facilities. OIPA supports the EPA’s proposed extension as we believe it will give us time to work with EPA to resolve our ongoing issues. We believe it is logical and appropriate to extend the compliance deadline to account for future rulemakings that could result in changes that would make expenditures under the 2002 regulations costly and unnecessary.
We urge the EPA to develop a regulatory approach that is appropriate for our industry. This approach would include a clear, concise and reasonable definition of “waters of the U.S.” for the E&P industry and focus on those facilities that reasonably can be expected to impact those waters, include a benefit/cost analysis of the requirements being considered and implemented, address the “real” environmental risks of domestic exploration and production of oil and natural gas sites and focus on those areas where past experience has demonstrated a true need for regulation, and provide a practical and economic regulatory scheme that small operators can understand. Such an approach would encourage marginal well crude oil and natural gas operators to comply, assure that industry’s funds are spent where it can provide the most benefit, and maintain viability domestic production supplies. I appreciate the opportunity to submit this testimony on OIPA’s and our behalf.